The next 12 months look like being something of a mixed bag for property investors.
On the plus side, the country is still completely failing to build enough homes to meet the demands of first-time buyers, meaning that there remain millions of would-be buyers who have little choice but to continue to rent.
That means there will continue to be plenty of tenants to attract.
These numbers have been further supported by the turmoil in the mortgage market since the disaster of the mini Budget.
With interest rates rising quickly on mortgages, even those who looked set to be about to make the move have had to put those purchases on hold and remain renting.
This slowdown in purchase activity has meant that house prices look set to drop next year, though the scale of the falls varies sharply depending on which forecaster you believe.
However, the consensus is that prices will fall, which may present some opportunities for investors to snap up excellent properties at competitive prices.
It’s not all good news though.
Buy-to-let mortgages have also been impacted by the increase in mortgage rates, and given the way that affordability is calculated on these deals it means landlords can face issues in getting the sums to add up when refinancing their existing portfolio, unless they are willing to ratchet up rents for their tenants.
So if landlords are considering adding to their portfolios, where should they be looking?
The buy-to-let hotspots
Buy-to-let investment site Property Forecaster has revealed the top 10 locations for investors this year, using its AI-powered technology to pinpoint the towns with the greatest number of ‘diamond’ ranked properties.
Those are properties that the firm believes are most likely to appreciate in value, therefore delivering a return to investors over the long term.
Here are how the top 10 shape up:
Percentage of ‘diamond’ properties
Why it pays to look north
As you can see, the table features a host of locations in the north, and more specifically the North East.
According to Property Forecaster, a big factor here is the Government’s levelling up strategy, which has put a greater focus on driving economic development in the region.
It pointed out that properties purchased in 2018 in the North East have risen in value by as much as 200%, particularly at the bottom end of the market.
That said, in cash terms, it might not represent the biggest gains. It noted that an investment property in the region in 2018, for an entry-level investor, may have only been £20,000.
And while it is currently valued at £60,000, that £40,000 increase is small in monetary terms from smaller percentage gains seen elsewhere when the property cost more in the first place.
Looking beyond the big cities
Another point highlighted by Property Forecaster is that the best locations are rarely the big cities themselves, but rather the satellite towns around them which appeal to commuters.
The firm said that these have consistently represented the best options for investors ‒ Bootle rather than Liverpool, and Washington rather than Sunderland, for example.
Demand for these properties has only grown over the last couple of years as greater numbers of people are able to work from home for at least part of the week, rather than spending all of their working hours in a central office.
And while many businesses have moved back to requiring employees to be in the office for at least a couple of days, there remain plenty of workers able to enjoy the full benefits of remote working and so are drawn to the bigger properties and greater work/life balance possible from living in a satellite town.
Of course, the selling point of these satellite towns is their proximity to that main city ‒ the location they ‘satelliting’ around, in effect.
As a result, it’s important to keep a close eye on those cities which are receiving investment and appear to be on the up. As the city improves, and more people want to work there, interest in those satellite towns will rise too.
Think about the right price point
A big consideration for all investors this year, no matter where they choose to invest, will be the price of the new property.
The reality is that house prices look almost certain to drop to some degree this year, but the level of house price falls will vary depending on the region.
For example, in the most recent house price index from Halifax, Wales and the South West were pinpointed as two areas that had seen the sharpest slowing in annual house price growth, while the north east was the only region to see annual house price growth continue to increase.
Property Forecaster suggests that it is properties under the £350,000 price point that represent the best opportunities for investors, arguing that it sees “underlying strength in this price bracket” and downplaying the chances of a “massive price crash”.
Are you a landlord? Do you think 2023 will be better or worse than 2022? Share your thoughts in the comments section below.
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