Why Does the North Lead in Buy to Let Rental Yields?

It seems that barely a month goes by without another newspaper reporting that rental yields are strongest in the North of England.

Just recently, for example, peer-to-peer network LendInvest announced their annual Buy to Let Index. In it, their research suggests that areas with the highest rental yields include Sunderland, Oldham, Blackburn and Manchester.

Then there’s another competing report from Property Partner, which aimed to find the university towns with the best rental yields. In a study of 86 cities, Sunderland topped the chart, with Teeside, Birmingham, Salford and Manchester all following closely behind.

The uniformity of these reports is particularly notable; it seems that no matter how creative a property company gets with its research, the North still dominates both historic and predicted yield analyses.

The obvious question for curious landlords is therefore a simple “why?” – why is Northern England so often referred to as the top place to invest in property?

Dynamic Employment Opportunities

While there is still a very clear North/South divide in terms of earnings, it does seem that the gap may be narrowing. In recent years, several large companies have relocated from the over-heated Central London property market to the more reasonably-priced North.

One of the largest impacts has been Manchester’s MediaCityUK, a 200 acre site, developed specifically as a key business hub. Since then, both BBC Sport and CBBC, not to mention dozens of other household brands, have moved large portions of the workforce to the area. What’s more, recent reports suggest that the concept has been so successful that it has recently received the green light to double in size.

This growing population of upwardly-mobile professionals has seen rental prices increase, helping to boost the yields that landlords enjoy.

Large Student Populations

Another theme that recent research has highlighted is the link between Further Education student numbers, and rental incomes. The simple equation seems to be that more students, means more renters. This, in turn, translates into healthier yields.

A quick look through the top universities by student numbers reveals once again that Manchester, Sheffield and Leeds all sit comfortably towards the top of the charts. What’s more, many incoming students are staying in the area after university, thanks to the growing job market up North.

Lower Property Prices

Despite this rapidly-growing population, two factors are helping to keep a lid on property prices. The first of these is that unemployment in the North of England is considerably higher than areas in the South of England.

Additionally, while salaries seem to be improving in the North, they still lag some way behind London and its catchment area.

For property investors, especially those living in the South, and enjoying all the capital growth experienced there in recent years, the North of England still looks like surprisingly good value. What’s more, as employment grows, it’s likely that house prices will follow suit. So, while many landlords focus their attention on maximising yields, increased value of properties in Northern cities may lead to longer-term benefits too.

Financing Benefits

Lower property prices in the North make them comparably far more affordable than investments further south, especially for landlords living and working in the South East.

A recent press release suggests that 40% of the Northern investment properties bought by London-based landlords are actually purchased with cash.  When no bank finance is involved – and hence no mortgage/interest payments are due, so yields are naturally far more generous.

Even when residential landlords do utilize a mortgage, the lower ticket price of properties in Manchester, Leeds and the like still help to keep financing to more modest levels. This, combined with healthy average rents, in turn have a positive impact on the yields that landlords enjoy.

This article was contributed by RW Invest, a London property investment firm specialising in buy to let properties in Northern England.

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