Best UK Cities for Property Investors
For those looking to invest their money in property, we take a look at some of the best UK cities for property investors in 2023.
It’s no secret that house prices have been on the rise all over the UK. Nevertheless, 2022 was a bumpy year not just in the property market but in all other aspects as well. 2023 is poised for a significant shift, marked by the adjustment of both purchasers and vendors to a new phase of escalating interest rates, following an extended period of historically low lending expenses. While there’s a general rise in house prices, regional variations in property price growth mean that some cities offer buy-to-let investors more lucrative opportunities than others.
Should I invest in Buy-to-Let in 2023?
Is Now a Good Time to Buy a House?
Buying a house in the UK can be a risky investment, but when considering the long term, buy-to-let property is often viewed as a stable and profitable option. While rental income is crucial to cover the costs associated with owning a property, such as mortgage payments and repairs, capital growth is the factor that can make it a lucrative investment.
Despite the potential risks, many investors are attracted to the UK property market because of its resilience and ability to provide steady returns. While some are choosing to wait and see if property prices will slow down in the second half of 2023, others are taking advantage of the current market conditions, including rising prices and interest rates.
Overall, the UK property market is underpinned by a limited supply of housing and strong demand, which has resulted in sustained price growth over time. Investors who are willing to take a long-term view and make informed decisions about where and what to invest in can potentially see significant returns on their investment in the future.
What Tax do you Pay as a Landlord?
If you have made the decision to invest in a buy-to-let property in 2023, it is essential to be aware of the taxes that landlords must pay. Compared to previous years, the purchase of buy-to-let properties is now subject to more taxes. Specifically, anyone who purchases a second property is subject to an additional 3% stamp duty tax. This additional tax can add significant costs to the initial purchase price of a property.
In addition to stamp duty tax, landlords are also required to pay tax on their net rental income. This is the income generated from rent after allowable expenses have been deducted, such as mortgage interest, repairs, and maintenance costs. Landlords must pay income tax on this net rental income, which is added to any other income earned during the year and taxed accordingly.
Where is the Best Place to be a Landlord?
When it comes to investing in buy-to-let properties in the UK, it is essential to choose locations that offer high yields and strong capital growth projections. One such location is Manchester, which has emerged as a popular destination for landlords in recent years.
Manchester has an average rental yield of 6%, which is well above the national average. This means that landlords can generate a healthy income from their rental properties. Additionally, the city has strong capital growth projections, with property values rising by 4% per year on average. This has led to lucrative returns for landlords who have invested in the city’s property market.
Another factor that makes Manchester an attractive location for landlords is the high demand for rental properties. Currently, 27% of the city’s population are renters, and this number is expected to grow further in the coming years. It is estimated that another 100,000 people will move into the city centre by 2025, creating a significant demand for rental properties.
Overall, property investment in Manchester is thriving and is expected to continue to do so for some time. The city’s strong rental yields, capital growth projections, and high demand for rental properties make it an excellent choice for landlords looking to invest in the UK property market.
Where is the Highest Rental Demand in the UK?
In addition to the increase in property prices, rents across Britain have also been on the rise, with an almost 8% growth in rent prices. This increase has been most notable outside of London, where rental prices have been rising steadily.
One of the cities with the highest rental yields is Nottingham, where yields have reached 11% in some areas. This makes Nottingham an attractive location for landlords looking for high returns on their investment. Additionally, student cities like Manchester and Leeds continue to have consistently high rental demand. This demand is largely driven by students and young professionals who are attracted to the cities due to their strong job opportunities and lower cost of living compared to London.
What is Considered a Good Return on Investment in Real Estate?
Determining what constitutes a good return on investment in property can vary depending on a number of factors, such as the mortgage rate and the type of investment. Ultimately, the most important factor is that the property is generating a profit.
In the UK market, a property with a capital growth rate of around 4% is considered a good investment. This means that the value of the property is likely to increase over time, providing a return on investment when it is sold. However, it is worth noting that capital growth rates can vary depending on location and other market factors.
When it comes to rental yields, a higher yield generally indicates a better return on investment. However, a good rental yield can be subjective and dependent on individual circumstances. In general, a rental yield between 5% – 8% is considered a good return on investment. This means that the rental income generated by the property should cover the costs of the mortgage and other expenses while still providing a profit.
It is important to remember that returns on investment in property can be impacted by a range of factors, including market conditions, location, and maintenance costs. It is essential to conduct thorough research before investing in a buy-to-let property to ensure that the investment is likely to generate a healthy return.
What are the Best UK Cities for Property Investors in 2023?
Which are the UK’s cities where an investor might look to spend their money in 2023? Here are five cities that continue to perform well for investors.
Bristol’s property market is officially soaring. Figures showed a 19% house price rise from the 2020 peak of £336,410, signalling strong demand. The main reason for Bristol’s hot property market is limited stock which is keeping prices high. This year’s boost is part of a longer-term trend which has seen prices for property in the area around Bristol achieve around 8% annual growth.
Today, first-time buyers are spending 11% more than they were a year ago. The average price of a property in Bristol is currently £400,520.
House prices in Leeds rapidly increased during the pandemic due to an undersupply of houses and desire for more space and rural living. Over the last year, the average price of a property in Leeds was £266,958 and properties sold for an extra 10% on the previous year.
Properties to buy in Temple Newsham saw prices increase at a faster rate than anywhere else in the Leeds area, with the average home selling for around £266,189 up 13% based on the previous year.
Leeds is one of the best UK cities for property investing in 2023 because it remains relatively affordable, properties in Leeds are still 27.67% cheaper than the UK average. At the same time, a growing population and increasing rental demand means that investors can get solid returns by investing in Leeds. If you’re thinking of buying an investment property, Leeds can be a great place to do so.
One of the fastest-growing cities in the UK, Birmingham has regularly been dubbed one of the best UK cities for property investors, a fact that remains in 2023. Rents across this year are expected to rise by over 12% and last year landlords in the BD1 area saw average rents increase by close to 7% due to a drop in supply.
The Commonwealth Games placed an international spotlight on Birmingham and further boosted the city’s appeal. Investment in the Games is putting many improvements in the city in motion, attracting a growing population and growing rental market – the Games brought £778m investment into the city and region.
Birmingham continues to be a key city for students, young professionals and families and thanks to a broad appeal the housing and rental market is expected to remain healthy. In the next four years rents are expected to rise by over 10%. The average rent is currently £1,638 and average yields of close to 7%. Birmingham’s average property price is £264,264, meaning there are plenty of opportunities to get your hands on a high yielding property.
Manchester offers a thriving rental market and affordable property market and soaring rental demand, making it one of the best UK cities for property investors. Properties in Manchester sold for an average price of £284,276 over the last year, which was an increase of 2% over the previous year.
With house prices shooting up all across the country, Manchester property prices saw an increase of 19% in some areas. Rents in the city centre have the highest demand with young professionals keen to find accommodation close to their work. The average rent in the city centre is close to £1,613 and average yields are around 7%.
Another city regularly hitting the best city in UK for property investors in 2023 lists is Liverpool. Average property prices in Liverpool are currently £219,235, an increase of 7% over the last 12 months.
Liverpool postcodes have some of the highest performing rental yields in the country. The L1 postcode is one of the most sought-after places to live and has delivered yields of 8.1% annually, while L7 tops the list with an average yield of around 10%. Property price growth through to 2025 is expected to be similar to Manchester, increasing around 28%. While capital growth prospects are behind those of Manchester and Birmingham, they are still expected to reach around 16% over the next 5 years, making Liverpool of the best cities for property investors.
House Price Growth – the Index
Source: Zoopla House Price Index, powered by Hometrack
When it comes to the best cities for property investors in 2023, a few key cities including Leeds, Manchester, Liverpool, Bristol, and Birmingham remain at the top of the list. While the property market in the UK is expected by many to cool in the coming year, strong demand in these cities and limited housing stock means that investing in these areas can deliver great yields and strong capital growth for investors.
To find out more about where to invest in property in 2023 or if you’re wondering how to invest in UK property, get in touch with our expert team.
We have a range of investment options available in Northern England.