When it comes to property investment, location is everything – or so the saying goes. But in the UK’s buy-to-let (BTL) market, clinging to misguided perceptions about certain regions can mean missing out on some of the most lucrative opportunities.
As mortgage rates have increased, investors have had to look at higher yielding markets that they perhaps wouldn’t have considered before. This is compounded by lower prospects for house price growth, so investors have become more income focused.
For savvy investors, data shows that looking beyond the traditional hotspots in favour of places often overlooked due to historical misconceptions, may deliver surprising returns.
Challenging the narrative
Many BTL investors still gravitate towards London and the South East where, historically, these areas have provided the best long-term value. While these regions do provide capital growth potential, their high entry costs and relatively low rental yields can limit cash flow.
Meanwhile, areas in the North and Midlands – often dismissed due to outdated reputations – are quietly outperforming in terms of rental yield and tenant demand.
Looking at two-bedroom homes, data from Savills Research shows that the highest regional averages for gross yields are in the North East (7.8%), Scotland (7.2%), Yorkshire and the Humber (7.1%) and West Midlands (6.9%). Compared to the traditional BTL markets of London (5.1%) and the South East (5.8%), the potential returns for investors casting their net further afield are evident.
When you delve further into this analysis, places such as Paisley (8.8%), Middlesbrough (8.4%), Burnley (8.3%) and Doncaster (7.8%) offer the highest gross yields for two-bed homes in major urban areas.
Generally speaking, these locations share several key traits. Lower property prices provide better yield potential and misconceptions about the area can keep competition low and opportunities high. Furthermore, and taking Burnley as an example, regeneration projects and a growing commuter population can help boost rental demand.
Keeping an open mind
The UK’s property market is evolving, and so should investor mindsets. By challenging biases and exploring beyond the usual suspects, the focus should be on the ingredients of a location and not the name. Factors such as employment rates, regeneration, local demand, large employers and connectivity are almost as important as the anticipated yield, especially when it comes to forecasting potential growth.
In a challenging market, the smart money when it comes to BTL investment could be in the overlooked, underestimated and the up-and-coming.
A working example – Derby
One example of a market that challenges investor assumptions is Derby. Frequently overlooked in favour of larger, better-known cities, Derby’s fundamentals paint a fairly compelling picture for potential BTL success.
Home to major employers such as Rolls-Royce, Toyota and Bombardier, its long-term employment opportunities and skilled workforces underpin a strong economic performance with Derby frequently ranking as one of the country’s top locations of earning per capita – boosting local spending power and rental affordability as a result.
Average property prices in Derby also remain well below the national average, allowing investors to enter the market at a lower cost while still benefiting from healthy rental yields; and with excellent rail links to London, Birmingham, Sheffield, and Nottingham, as well as proximity to the M1 and East Midlands Airport, Derby appeals to a mix of local and commuter tenants.
Inward investment into the city and its surrounds through the delivery of thousands of new homes, commercial space and a 3,500-capacity performance venue via the £200m Becketwell regeneration scheme, South Derby Growth Zone and Infinity Garden Village initiatives complement improvements to the existing Derby Railway Station Gateway.
For investors willing to look past preconceptions, Derby offers the kind of balance between yield potential, economic stability, and growth prospects that is often hard to find in traditional hotspots.
