UK Buy-to-Let Overview
The UK property market is booming at the moment. According to HM Land Registry’s December 2022 House Price Index and ONS’ Index of Private Housing Rental Prices, house prices in the UK increased by an impressive 9.8% in the 12 months to December 2022, whilst rents rose by 4.2% in the same period – the largest annual percentage change on record.
Even after the last few years of impressive growth, house prices look set to continue to increase for the foreseeable future – albeit at a slightly slower rate than in recent times, something that industry experts are referring to as a market correction as opposed to a crash. In the 2023-2027 period, house prices in the UK are forecast to increase by 8.9%, with the largest growth in Northern cities like Manchester and Edinburgh. (JLL, 2022).
Whilst house price growth may be slowing down, rental values are showing no signs of following suit. in the 2023-27 period, JLL forecasts that rental values across the UK will increase by an impressive 15.9%, with Northern areas once again performing extremely well.
With house prices and rents expected to increase over the course of the next five years and beyond, 2023 is the perfect year to expand your property portfolio. With this in mind, we’ve taken a look at the best buy-to-let areas in the UK.
House prices in the UK increased by 9.8% in the 12 months to December 2022 (HM Land Registry, 2023)
Rental values in the UK increased by 4.2% in the 12 months to December 2022 (Office for National Statistics, 2023)
House prices in the UK are forecast to increase by 8.9% in the 2023-27 period (JLL, 2022)
Rents in the UK are forecast to increase by 15.9% in the 2023-27 period (JLL, 2022)
Good Areas to Buy-to-Let in the UK
Manchester is one of the most renowned cities, not just in the UK, but in the entire world. Home to Manchester United, The Smiths and Coronation Street to name a few famous names, Manchester is one of the UK’s leading cities when it comes to its economy and in turn, the property market in the region.
The future is bright for the unofficial capital of the North, with JLL forecasting impressive growth in terms of both house prices and rental values over the next five years. In their aforementioned UK Residential Forecasts Q4 2022, JLL forecast that house prices are set to increase over the next 5 years by an impressive 19.3%. Rental values are also set to grow in the same time period, with a 6% increase in 2023 followed by a 21.6% cumulative growth over the stated time period, making it one of the best areas for buy-to-let in the UK.
Located on the River Mersey in the North West of England, Liverpool is famous around the world as a shipping port and former Capital of Culture. The city benefits from a young and extremely exciting population that is consistently growing thanks to the wealth of opportunities that the waterside city has to offer.
The market looks set to continue its upward trajectory over the next few years as Liverpool solidifies its status as one of the best areas for buy to let in the UK. In their Residential Forecast report, JLL forecast that in the 2023-27 period, house prices in the city are set to increase by 11.9%, spurred on by the ever-present investment and regeneration throughout. Rental values are also set to increase in the same period, starting with a 3.5% increase throughout 2023 which will pave the way for a cumulative increase of 15.9%.
Located in the heart of South Yorkshire, Sheffield is one of the most up-and-coming regions in the UK thanks to the extremely desirable lifestyle in the city. Residents can enjoy an enviable mix of stunning natural landscapes and outdoor activities, paired with a compact city centre featuring amenities like shopping malls, markets, bars, restaurants and more.
According to HM Land Registry, house prices in Sheffield increased by an impressive 15.9% in the 12 months leading to December 2022, bettering the likes of Birmingham, Bristol and London to name a few. The rental market in Sheffield is equally as buoyant, no doubt spurred on by the high number of students who decide to remain in the city following the completion of their studies. The University of Sheffield had a 40% student retention rate in 2021 as countless students indicated that they plan to remain in the city post-graduation, putting further pressure on the already in-demand rental market, and increasing rental returns in the process.
One of the key driving forces in Staffordshire’s booming economy is the buy-to-let hotspot of Stoke-on-Trent. Before the pandemic, the city was among the fastest local economies to bounce back from the last recession, outperforming large parts of the UK in terms of economic growth, job creation and innovation.
Whilst the pandemic may have slowed things down in recent years, Stoke-on-Trent looks set for an extremely prosperous period in the coming few years. The Powering Up Stoke-on-Trent Prospectus looks to regain momentum from pre-Covid times through targeted investment in improved infrastructure to connect to and build on the existing strengths in the city.
Much of the prospectus is already underway, the result of which is evident in a report from Irwin Mitchell which found that the city is set to have the third-highest job growth throughout 2023. As Stoke-on-Trent continues its impressive growth, the region will only become more attractive to investors.
Which Area in the UK has the Best Rental Yield?
According to Zoopla, some of the buy-to-let hotspots with the highest rental yields can predominantly be found up North. Locations like Hartlepool, Middlesbrough and Sunderland help to boost yields in the North East thanks to their lower property prices, whilst regions throughout Greater Manchester and Liverpool benefit from higher rents, boosting the average yield in the region. Whilst London has the highest rents in the UK – rising by an astronomical 18% in the last year – the extortionate house prices in the region hamper the yields on offer.
Rental yields can be broken down into two separate types – gross and net. In simple terms, gross yield is the value of your returns before you deduct all associated costs and a NET yield is the value when all the associated costs have been deducted. Working out gross and NET yields are very straightforward. To work out gross yields, you simply have to divide the gross annual rent by the value of the property and times it by a hundred. To work out the NET yield, you have to do the same but also consider any deductions from the annual rent (i.e. ground rent, service charge etc).
The Top Buy-to-Let Hotspots for UK House Price Growth in the Next 5 Years:
House prices are set to increase in almost all areas across the UK in the coming years. According to Savills, these are the top buy-to-let hotspots for UK house price growth in the next 5 years.
- North West: 11.7%
- Yorkshire and The Humber: 11.7%
- North East: 11.7%
- Wales: 11.1%
- Scotland: 9.5%
- East Midlands: 8.9%
- West Midlands: 8.9%
- South West: 6.2%
- South East: 3.0%
- East of England: 3.0%
- London : -1.7%
Is buy-to-let a good idea in 2023?
Buy-to-let is indeed still a good idea in 2023. After two years of exponential house price growth throughout the UK, things are undoubtedly slowing down but this slowdown is being viewed as more of a correction than a crash by numerous property experts. Whilst house price growth may be slowing down, rents show no sign of following suit, consistently reaching new heights as we enter 2023.
Where is the highest rental demand in the UK?
Rental demand across the UK has soared in the last few years as unprecedented house price growth has made it increasingly difficult for tenants to get onto the property market. Prominent buy-to-let hotspots such as London, Manchester and Birmingham are seeing tenant demand continue to soar at record rates, whilst places like Liverpool and Sheffield are close behind.
What is the best yield for buy-to-let?
The best yield for a buy-to-let property is very dependent on numerous factors, including location, property type and more. Whilst the average rental yield in the UK stands at 3.74%, you can find much higher returns in residential markets like Manchester (5.35%) and Liverpool (4.77%). Student properties also tend to benefit from much higher rental returns than residential properties, with research from Simple Landlord Insurance finding that yields on student properties outstrip non-student properties in the same area by 33%.