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Residential buy-to-Let

Continued low north-eastern house prices could make Newcastle an investment hotspot

Author: Staff

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One of the main attractions of the regions for investors in recent years has been the fact that people buying to let in areas away from London could make better margins than seen in the capital. Relatively low property prices, coupled with the fact that rents were rising all the time, have meant that investors were seeing strong returns in places like Liverpool and Manchester in the north, and Luton in the commuter belt.

However, while rents have continued to rise across most of the UK, so have property prices, and in some areas, and property buyers now have to be on the lookout for those places where they can still find low prices to couple with climbs in rental income.

What this search does, however, is highlight new potential property hotspots for investors to focus on for maximum returns. One such place is the north-east, and at its heart, Newcastle, where relatively low investment prices will still allow investors to dip a toe in the private rented sector for lower than they would elsewhere, and with the chance to make strong returns.

House prices below 2007 peak

The north-east is one of only a few regions nationwide where property prices are still sitting at below the 2007 peaks. When the financial crisis struck in early 2008, house prices across the majority of the UK fell considerably. And although the majority of regions have since seen prices return to pre-recession levels, or above, in places like Newcastle, this is not the case.

Although prices have been climbing in these regions, it’s not happened at the same rate as elsewhere in the UK, and as a result, they remain below the previous peaks. The BBC said that the average across such places is to sit at around ten per cent below what was recorded in 2007.

However, in some parts of Newcastle, even in the city centre, popular with young professionals and students, the majority of whom choose to rent, house prices are even lower compared to 2007 than this. For example, in Ouseburn in the centre of the city, the average house price of £138,000, is a full 34 per cent lower than was recorded in 2007.

It’s a similar story in other parts of the city centre as well. Westgate currently has an average property price of £143,000, which is 29 per cent lower than in 2007, and in Wingrove, the average price of £159,000 is 16 per cent below what was seen ten years ago.

The slower return towards 2007 peaks in the north-east is in stark contrast to London and the south of England as a whole, where those values seen ten years ago have long since been surpassed.

Room for the market to mature

While this may be initially seen as a negative for the north-east, it’s actually indicative of a region where there is real investment potential. Particularly in a city like Newcastle, where rental prices are growing far faster than the rate of house prices. In Newcastle, the average rental price currently stands at £886 per calendar month, according to Home.co.uk. This is a rate that continues to rise year on year, including a record 2015, when tenants saw their monthly payments in the city increase by a staggering 16 per cent compared to the year before.

When looking for places to invest, it’s important that buyers take the chance to dig deep into the data, and while house price growth in Newcastle may not be as impressive as seen elsewhere over the last decade, the rising rent price is. When we couple the relatively low market entry price with strong income potential, it paints Newcastle as perhaps the next potential UK investment hotspot.

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