The UK property market is constantly evolving, with the demand for property shifting between different postal codes. The long-term profitability of a property investment will be heavily impacted by the location of the property. With this in mind, it is important to consider the location of your investment prior to making any investment decisions. Historically, the UK has been a safe-haven for long-term property investors, with stable long-term returns.
When considering the best location for your property investment it is important to analyse historical returns. While the UK has generally yielded attractive returns on property, certain areas have performed better than others. London has always been an attractive area for property investors as a result of its status as the economic hub of the UK. As a result of this, London has generated significant returns for property investors, averaging around 18% house price growth over the last 10 years. While the capital appreciation in London makes it an attractive investment, rental yields are generally lower, between 2% and 5%. While London may appear an attractive option for property investors, it generally requires a higher initial capital outlay as a result of the higher property prices. In addition to this, the East of England is also an attractive region for property investors, boasting a similar house price growth and a slightly higher rental yield. On the other hand, regions such as Wales, Yorkshire and the West Midlands generally have much lower house price growth paired with a stronger rental yield. The North East and Scotland have seen slower house price appreciation and lower rental yields, resulting in more modest returns for property investors. While it is important to consider the region of your property investment, there are specific cities and towns which have outperformed their regions. Cities like Manchester, Bristol and Cambridge have seen higher house price appreciation than other cities within their regions. While there are a number of reasons for this, there are generally a few widely accepted determinants of house price appreciation:
Economic Activity: Economic activity is an important determinant of house price growth. Areas with a higher degree of economic activity are likely to draw a larger number of residents as a result of job opportunities and earning potential. People are likely to be attracted to cities and economic hubs in search of jobs and career progression. In addition to this, people are likely to have higher salaries which enable them to purchase properties, driving up the demand for property in these areas.
Demographics: Demographics such as population growth and density will have an important impact on the house price growth of a specific area. Areas that are more densely populated are likely to see a larger increase in house price growth as a result of the higher demand for space. On the other hand, less populated areas will likely see a lower house price growth, although this is not always the case. Another key demographic trend impacting house price growth is average disposable income. A greater average disposable income is likely to lead to an increased demand for property, which, in turn, will have a positive effect on house price growth.
Transport: Transport and connectivity is another important determinant of house price growth. Areas that are well connected to economic hubs and transport routes are likely to see an increase in demand for property. Areas that are less well-connected and further away from major transport routes are likely to see a lower demand for property as a result of them being difficult to reach.
Amenities: Property investors are likely to analyse the level of amenities in a specific area as this is an important factor to consider in respect of house price growth. Areas with more amenities and entertainment are likely to draw in new property investors, boosting demand for property in the area.
Crime and Congestion: Negative factors such as crime and congestion can deter potential investors from purchasing property in a specific area, leading to a decrease in overall house price growth.
As you can see there are a number of different factors to consider when locating a property to purchase. Each factor should be considered in order to ensure that the property is a safe investment. While historical results may be a good indication of future returns, they are not always an adequate measure. Forecasts on economic activity and crime can be a useful tool for property investors when determining the future return of their investments.
In conclusion, it is important to consult with various industry professionals prior to embarking on your property investment journey. Professionals such as mortgage brokers or lenders may have access to information on house price growth which will enable their clients to make the best investment decisions, leading them to long term capital appreciation.