Identifying the best places to invest in UK
The latest house price index – this one from Hometrack – confirms what readers of the Gladfish blog and newsletter have known for some time: London and the South have been usurped by northern cities for house price growth. In this article, we’ll look at how property prices are faring in the UK’s key cities, and shed light on why we believe the Midlands and the North of England could outperform the rest of the UK in the months and years to come.
Northern cities lead the way for house price growth
House prices in the 20 key cities in the Hometrack index are growing faster now than they were at the same time last year. However, the pace of pick-up is not equal. In three cities – Bristol, Southampton, and London – the market is witnessing a slowdown in the rate at which house prices are rising. In 10 of the cities, house prices are rising faster now than they were a year ago.
Overall, house prices in the 20 key cities have increased by an average of 5.2% over the last year, compared to 4% growth at the same time in 2017. This rate of growth is almost twice the rate of inflation, but the real star performers are in the north.
In Edinburgh, the average house price is 8% higher than it was a year ago. House price growth is not far behind in Liverpool (7.8%), Leicester (7.7%), Birmingham (7.7%), Manchester (7.1%), and Leeds (6.9%). Compare this to London, where average house prices are growing by just 1% (down from 4.3% a year earlier).
London prices could slow further
The report says that house price growth in London could slow further, and perhaps even turn negative by the middle of this year. However, talk of a crash in London prices is probably wide of the mark. Russell Quirk, CEO of eMoov, agrees that London is likely to be one of the weakest UK property markets over the next two to three years, but says:
“As we’ve seen over the years, the popularity of the London market is cyclical and while it may have fallen out of favour, for the time being, this cool in price growth is unlikely to prevail as the year plays out and it is highly unlikely we will see a market crash of any shape or form.”
Why is price performance in the Midlands and North so strong?
We’ve been highlighting the potential of the Midlands and North as property investment destinations for more than two years. There are several factors that we’ve picked up on. These include:
- Property values in the cities highlighted by the Hometrack index have lagged the rises in London and the South. Their relative affordability is very attractive. Properties in Birmingham and Manchester, for example, are less than half the price when compared to similar properties in London.
- Rental yields are better in the northern cities, too, where it is possible to buy an income yield of 8% or 9%.
- Add the rental yield and price growth together, and annual returns are far higher in the cities of the Midlands and the North than they are in London and the South.
But of course, as we always say, rental yield and promised price growth should never be the sole factors in deciding whether (and where) to invest. The potential has to be sustainable, and that depends on the presence of solid property fundamentals. Right now, the Midlands and the North are packed to the rafters with strong fundamentals. Not least of these is the massive regeneration and infrastructure spending taking place there.
High-Speed rail network is transforming the northern cities
The High-Speed rail project is set to deliver tremendous potential to the North. Travel times to London will be slashed. Travel times between northern cities will fall dramatically. The Midlands and the North will be connected to the South as never before.
In the capital, property prices near stations on the Crossrail route have powered ahead. The effect of High-Speed rail on property prices could be even more dramatic. Cities like Birmingham could become commuter towns, feeding London’s businesses with highly educated employees.
It will take less than 50 minutes to travel by train from Birmingham to London. That’s faster than the commute into the city from many of today’s traditional commuter towns. It will be possible to earn London wages while living in Birmingham (which in itself is a great lifestyle city), at a snip of the cost of London rents and house prices.
Meanwhile, businesses will be attracted to Manchester and Birmingham for similar reasons. Indeed, some firms have already begun the relocation process.
High-Speed rail has also acted as a catalyst for high-speed regeneration. You only have to see the massive investment taking place in all the key cities in the Midlands and the North to understand the huge effect it is having.
Add to the mix fantastic retail offerings, superb schools and universities, incredible nightlife, sports, and recreational facilities, and you start to see the whole picture. The Midlands and the North are primed with property investment potential.
Still, if you’ve been reading our blogs, research, and newsletters for the last few years, you already knew this.
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