Recent tax clampdowns on property purchases and rental incomes, combined with Brexit uncertainty, had a chilling effect on UK house prices and foreign investment in the residential market during 2016. Yet Britain’s house prices and rental yields have continued to rise through 2018, defying the expectations of many observers.

 

In light of these market changes, experts now frequently advise against relying on capital returns at the point of resale, instead focusing on achieving steady rental incomes through buy-to-let.

While property investment is doubtlessly harder than it was, savvy investors remain keen to identify reliable buy-to-let opportunities as demand for accommodation remains strong across the country.

This article by property development firm Pall Mall Estates is aimed at those considering a new buy-to-let venture, providing pointers which can be used to improve return-on-investment. Continue reading for a range of example indications that an area is ripe for residential property investment, delivered through a case study of Stoke-on-Trent.

 

Why Stoke-on-Trent?

 

As a bastion of Britain’s historic industrial economy, Stoke-on-Trent has undergone (and is undergoing) significant change, partly driven by its position as a neighbour to the thriving, up-and-coming cities of Manchester and Birmingham.

With data from 2017 showing the North of England’s rents reaching almost double the expected rental returns in the South, the region is increasingly flooded with investors and developers seeking to carve out a slice of these major cities. Would-be property investors should, therefore, consider nearby opportunities which may have been overlooked.

In order to fully capitalise on property market opportunities such as these, investors must:

  • Establish a comprehensive understanding of local market performance
  • Consider signs of economic growth and continued desirability in their region
  • Appreciate and recognise the things that rental tenants are looking for

Using the city of Stoke-on-Trent as a guide, this article will cover examples of the above in detail.

 

Rental yields

 

Perhaps the first indicator that any buy-to-let investor should consider is: what are rental yields like for the region?

You must ensure that your rental yield (annual rent received as a percentage of the original property purchase price) will be high enough to cover your full range of responsibilities: from mortgage payments and ongoing maintenance to letting agent fees and other running costs. It’s also wise to consider planning for what will happen if your rents don’t meet predicted levels after setting up your buy-to-let property.

Stoke-on-Trent delivered annual rental yields of 5.67% according to 2017 data, demonstrating its strength as an attractive location for tenants, on par with northern strongholds in Newcastle (5.59%), Gateshead (5.78%) and Liverpool (5.96%).

 

House prices

 

While capital gains at resale can no longer be expected by default (according to most financial gurus), rising house prices can still be a good indicator of a region’s economic potential. Where prices are ever-rising, and houses are being built – despite potentially gloomy economic forecasts – you can assume there is good underlying health in the market.

Although Stoke-on-Trent showed the smallest average house price increase in the Midlands between 2012-17 (rising 23% compared to Manchester’s 47% and Nottingham’s 39%, for instance), this can be a positive sign for would-be investors. The affordability of Stoke’s residential property is likely to be a big attractant for would-be tenants, especially younger professionals seeking to benefit from the cheaper cost of living and smaller initial investment sum.

 

Employment, skills and wages

 

Property investors should also look carefully at local economic performance to determine where demand for housing can be relied upon. Data provided by the Office for National Statistics (ONS) is invaluable in this regard, providing useful information across a range of dimensions including sector growth.

Where industries and sectors are growing, new employment opportunities arise. Where unemployment is falling, and wages are rising, you can usually find a skilled workforce packed with potential tenants.

With its strategic Midlands location, boasting a strong reputation as a city which is affordable and supportive for new businesses, Stoke delivered average earnings increases of 8% between 2012-17. With Stoke-On-Trent Council seeking to redress a significant skills gap – introducing initiatives to attract and “upskill” thousands of workers every year – it is clear that Stoke has more growth in its future. An increasingly thriving nightlife industry around Hanley (seeing growing numbers of nightclubs, theatres, bars and restaurants) is another good indicator of Stoke’s changing profile.

 

Connections

 

Investors should also remember to consider the availability and usefulness of local transport connections. You don’t need a property within the boundaries of a major city centre in order to attract steady tenants and generate reliable rental incomes. Think about whether local bus and train stops provide easy links to neighbouring towns, cities and other noteworthy institutions.

Stoke-on-Trent is practically unparalleled in this regard, home to a very significant commuting workforce which is essential to economies across the Midlands. Stoke ensures this constant supply of commuters – each one a potential tenant – through road, rail and airport connections putting a range of major cities less than an hour away. A healthy demand for student accommodation is also guaranteed though the city’s proximity to 30 universities, all within an hour’s drive. By some estimates, approximately 90% of the UK population is within a four-hour journey from Stoke-on-Trent.

 

Deprivation

 

Published regularly by the Ministry of Housing, Communities & Local Government, the Index of Multiple Deprivation offers substantial insights into regional health across the UK by recording and comparing relative levels of deprivation. Areas investigated include:

  • Income
  • Employment
  • Education, skills and training
  • Health deprivation and disability
  • Crime
  • Barriers to housing and services
  • Living environment

In these areas, Stoke-on-Trent is a consistent top performer among neighbours in the Midlands index, recording comparatively low levels of deprivation for living environment (5th of 7), housing (6th), employment (6th), and education, skills & training (7th). Each is a critical measurement providing a practical, ground-level indication of an area’s potential attractiveness.

 

Investment

 

Other key areas to investigate include local infrastructure development and inward investment plans, with local authorities constantly posting public strategies detailing how they will attract residents and businesses to their towns and cities. Linked intricately to projected population and economic growth, there are few better indicators of a region’s future potential.

A quick look at Council plans in Stoke reveals ongoing investment of £2bn into local amenities and infrastructure, with over 31,000 jobs promised as a result of targeted commercial investment into retail, office and industrial schemes. Stoke-on-Trent’s skyline, dominated by new structures and ongoing developments, is further evidence of the area’s potentially bright future.

 

Summary

 

Ultimately, property investment offers substantial rewards to those who understand their market. While property prices and rental incomes will naturally be a guiding factor in the decision-making process, the most promising property to buy and let is one where people want to live. Half of the battle for a buy-to-let investor should be establishing real confidence that their property, or properties, will remain attractive well into the future.

Across every metric covered here – from shifting business demographics, to transport connections and inward investment plans – Stoke-on-Trent makes itself known as a probable hotspot for future rental opportunities. With the same care and attention paid to desirable amenities and services, as well as commuting links to nearby employment and education, any area of the UK can be analysed to identify similar buy-to-let potential.

This report was created as part of a market conditions analysis by property developers Pall Mall Estates, providers of residential and commercial property across in Stoke-on-Trent, Sycamore Gardens





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