The UK has long had a substantial rental market, hence the interest in buy-to-let investment. As is generally the case with any branch of the UK property market, however, in reality the national rental market is effectively a patchwork of local markets, which just happen to be in the same country. The differing fortunes of the rental markets in London and the north of England highlight this fact very effectively.
The London rental market
There are plenty of statistics which point to a slowdown in the London property market, both in sales and rentals. This may seem a contradiction, since people need somewhere to live, which means that they need to buy or rent, but there are three, key factors, which help to explain it.
One is that the London plan has emphasized the need to build new homes in the Greater London area and this is now beginning to have an effect in that new homes are becoming available in the London market. In perfect accord with the laws of supply and demand, the increased supply of homes for sale reduces sales prices and hence enables people to transition from renting to buying, thus reducing the supply of renters.
The second is, of course, Brexit. There are many reasons why London has long had a high proportion of residents who were born outside the UK, of which many come from the EU. While there is highly unlikely to be a mass exodus from London, it is entirely feasible that Brexit may cause some people to leave the UK.
Finally, there is the Northern Powerhouse initiative, which has caught the attention of southerners and has begun to tempt people away from the Thames Valley area with the lure of lower house prices (compared to the M25 corridor) and good employment opportunities. The combination of these three factors is helping to put a brake on London rental yields as landlords there have to adapt to this new reality.
The north of England rental market
It would be a bit inaccurate to say that London’s loss is the south’s gain, since competition from the north of England is only one of the factors impacting the London property market. It would, however, be fair to say that the strength of the northern property market highlights its difference from London.
First of all, it has to be said that for all the growth in house prices and rental yields over recent years, the north of England is still coming off a very low base (as compared to London) and hence still has the attraction of affordability. Affordable house prices make it possible for landlords to charge low rents and still make a decent yield, which means that the rental market in the north of England is noticeably more affordable to tenants than its Thames Valley counterpart.
Put this together with the aforementioned Northern Powerhouse initiative (meaning good employment prospects) plus some of the UK’s leading educational institutions and the attraction to young adults are obvious. While it is unlikely that the north of England can entirely avoid “Brexit nerves”, particularly since the financial-services sector does have a presence there, it is fair to say that it is far less heavily reliant on financial services than London and hence the impact is likely to be lower.