For many years, the London property market was the place to be for investors from all over the world. Be they from North America, mainland Europe or Asia, buyers coming into the UK were always on the lookout for properties they could invest in for renting out in London.
It was hard to blame investors back then. After all, the 2007 property bubble allowed London to flex its muscles and show that it, better than any other area, had the ability to stand strong against adversity. And on top of that, the average rental prices well above £1,000 per calendar month meant London was seen as profitable for buyers, bringing in large amounts of money every month.
However, while London enjoyed being the lynchpin of the buy-to-let market in the early part of its boom years, in the last couple of years, things have started to change somewhat. According to Savills, the London property market has “matured”, with prices no longer rising in the way they used to. This year alone, prices are down 3.2 per cent in Prime London property, while they remain 15 per cent below peaks reached three years ago.
Lack of capital gains in London
But what is most likely to turn investors away from London is the predicted lack of capital gains in the city over the next few years. Savills has predicted that in the next five years, London property will rise in price by just 20 per cent, less than half of the 52 per cent long-term average experienced between 1979 and 2014.
This lack of capital gains potential, along with the value that can be found elsewhere, is one of the main reasons investors are now turning their back on London. Quite simply, London’s loss has been Liverpool’s gain, Manchester’s gain, and the regions’ gain in general. Investors have started to see the potential that these areas have, and they are turning their attention there rather than looking at traditional markets.
Strong regional growth
It’s a trend that has been growing since 2013, when the number of sales in regional cities started to climb markedly. Hometrack’s latest property index shows that since that year, there has been a rise of 40 per cent in the number of homes bought in the regional cities. This is largely down to the rise in sentiment towards these places from investors who would previously have spent in London.
Liverpool, across the last 12 months, has seen a rise of eight per cent in the number of properties sold, putting it ahead of all other areas nationwide, as the Merseyside city becomes the UK’s number one property hotspot, buoyed by increasing demand, stronger business start numbers and a higher influx of skilled workers.
And it’s not hard to see why this desire to invest in the north continues to rise. In Manchester, property prices have increased by 8.8 per cent in the last year alone, and Liverpool is not far behind. The two cities have been at the centre of the Northern Powerhouse project over the last few years, and the boost that this has given both has clearly not gone unnoticed by investors. When these price rises are coupled with stonger demand for rented homes, it’s not hard to see why investors now value Liverpool and Manchester highly.
In Liverpool alone, there was a rise of 22 per cent in the number of start-up business in the first quarter of this year, while Manchester has become one of the UK’s most prominent tech hubs in recent times. This rise in business numbers helps attract more young, skilled people to the cities, which also helps fuel the exodus that has been seen from London in the last few years.
What this does is move the demand away from the capital. With fewer skilled workers moving to London as a result of the business boom in the regions, investors are aware of a falling demand for rental property there. And as these people increasingly move to other cities, investors are acutely aware of where they need to put their money in order to make stronger returns.