The UK’s post-Brexit buy-to-let property market is approaching some uncertain crossroads. Will London’s plummeting property prices ripple across the rest of the country this year? Is 2017 a time to invest, or a time to tighten the belt buckles? Will the government pursue a course of legislative action to aid the country’s property supply/demand imbalance, or will the situation continue to be exacerbated?
As investors who pride ourselves in seeking out opportunities in any economic situation, at Progressive Property we know that it is essential to keep a clear head and take each new development as it comes. However, it’s just as important to weigh up the possible consequences of the present market conditions so that we are as prepared as we can be for the future.
Despite banks demanding tighter loan conditions, with many lenders requiring a rent of 145% of the mortgage payment, figures from the Intermediary Mortgage Lenders Association show that mortgage accessibility reached a 3-year high in early 2017. However, while 30% of the mortgage brokers who were questioned reported that they’d had few problems sourcing a mortgages in the past 6 months, other sources suggest that there is uncertainty in the buyer’s market, with many pointing to Brexit as the reason.
This slowing of the property market could spell potentially good news for buy-to-let investors, with demand for rental property likely to remain strong, if not seeing an uplift were uncertainty to continue. So, for investors looking to expand their portfolios in 2017, how and where should we be looking to source property in the UK?
Sourcing and developing buy-to-let property in 2017
There are numerous principles and strategies that buy-to-let investors will often abide by when sourcing properties: buying BMVs, finding areas of short supply and high demand, finding property from reliable developers, choosing properties close to amenities, and so on. However, while advice like this offers buy-to-let investors a basic guide, the situation changes from year to year depending on the economy and current legislation. It is therefore important to acknowledge the current state of the market, so what factors specific to 2017 will likely affect sourcing property from buy-to-let investors?
While much if the elements of the Housing White Paper 2017 are still under consultation and have therefore not been concluded yet, it has the potential to shake up the way that UK investors source, develop and rent out property. Some of the factors affecting investors’ decisions this year are likely to arise from the finalised details of the paper.
One area of potential investment this year that could result from the Housing White Paper concerns brownfield sites, and the fact that obtaining planning permission for them is likely to become easier. If the proposed changes follow a similar route to 2015’s permitted development rights for developing offices – meaning that if you convert one to a residential property there is no community infrastructure levy, no affordable homes contribution, and no minimum space standards – then small windfall sites could be an exciting area to investigate.
Another change that will arise this year is that property investors with strong track records of developing successfully are likely to be treated more favourably by councils when applying for planning permission. This is good news for experienced property entrepreneurs, but suggests that investors with smaller portfolios should ensure that their applications are as well-researched and carefully planned as possible.
Also of note, the “Accelerated Construction Programme” which is a mechanism to encourage developers to build on public sector land, and will see partnerships develop between small-medium-sized developers and public bodies to deliver new building schemes. This is likely to make developing on council-owned land easier for smaller developers, and at a potentially better price, too.
Putting the Housing White Paper aside, property investors will do well to investigate the possibility of incorporating serviced accommodation which works on with a nightly rental basis plus hotel-like amenities such as room service, fitness centre, etc - into their strategy. It is a growing industry that is disrupting hotel use and offering property owners the possibility of making over £100 per night from a property that could only have been making £500 per month, if rented out in the traditional way.
Where to source property in 2017 – Top 5
While we feel that property value in London will continue to fall, there are several cities that we predict are going to offer great locations to source property this year. The strengthening rental sector that we are expecting due to a hesitant post-Brexit buyer’s market, shortage of housing and overall house price growth is likely to offer buy-to-let property investors the chance to continue to thrive.
But where in the UK is likely to provide the ripest opportunities for sourcing property?
First off, Salford in Greater Manchester has undergone an astonishing urban regeneration scheme that has seen its media sector explode, making Manchester the UK’s biggest creative technology sector outside of London. This has seen an influx of young professionals taking advantage of Manchester’s cheaper accommodation, meaning that buy-to-let investors will do well to investigate.
Leeds is home to a postcode with one of the best rental yields in the UK, with an average house price coming in at just over £115,000, and the average rent being around £1,044, according to totallymoney.com. HS2, the high-speed railway line poised to make travelling to London much easier, will make Leeds better connected to the capital, and will also probably have a positive effect on property prices.
Next, we can’t resist including our home city of Peterborough, where house prices are healthy. London is accessible within 45 minutes, there is a higher percentage of young people under 29 than the national average (41% compared to 38%).
HS2 is also likely to benefit property prices in Derby, which is home to a group of railway companies that will soon home better nationwide rail contacts, indeed property prices here are expected to increase by 23.3% by 2019, according to BNP Paribas Real Estate.
Lastly, Liverpool is experiencing strong growth at its heart, despite house prices at the L1 postcode remaining at an average of around £120,000. Liverpool’s transport network is poised to receive major improvements, and the government’s “Northern Powerhouse” scheme is likely to create more business in the city, and more business means more professionals needing accommodation.
What property sourcing tips do you have for 2017?