Location is one of the most important factors to decide when buying a UK investment property with a UK expat or foreign national mortgage. It will be a deciding factor in many important aspects of your investment, including your rental income, the affordability of the property, the capital growth rate and the tenant demand. Of course, maximising the quality of your investment on all of these fronts will ensure a high-quality venture. But where should UK expats and foreign nationals buying with a UK expat or foreign national mortgage look to buy to do this?
Capital Growth Rates.
Capital growth rates are an important factor when deciding on an investment property. It is this rate that indicates how much the investment property will appreciate over time. It is particularly important for UK expat and foreign national investors who are investing to save for their retirement. With this in mind, the five highest capital growth rates by 2025 in the UK are predicted as follows:
- North West – 28.8%
- Yorkshire & The Humber – 28.2%
- East Midlands, West Midlands – both 24%
- Wales, Scotland – both 22.8%
- North East – 20.5%
‘Clearly, the best option for an investment with strong capital growth is the North West’ says Stuart Marshall. ‘But Yorkshire and The Humber isn’t too far behind. The national average capital growth rate by 2025 is currently 22.1% so all of these areas with the exception of the North East present incredibly strong investment opportunities when it comes to capital growth.’ Homing in further, there are certain areas within these regions which are performing more strongly than others. ‘The one that shines through most,’ says Stuart Marshall ‘is Manchester, which has consistently outperformed every city over a five, ten, and twenty-year period. When it comes to the last year, capital growth in Liverpool performed highest, achieving 17.59% growth between 2020 and 2021. This indicates the exciting investment prospects that Liverpool is presenting for UK expats and foreign nationals. Other cities that have performed well are Birmingham, Leeds, Newcastle and Sheffield. Talking to an expert broker will help to discern which of these choices will best serve the needs of the investor.’
On the other hand, London has the lowest capital growth projection by 2025 – only 12.6%. The next lowest region is the South East which is tied with the East of England at 17%. Not only has London got a low prediction for its capital growth, it has actually exhibited negative capital growth in the last five years, including a drop of 15.54% in 2020-21. These are all important figures to take into account when considering where to invest using a UK expat or foreign national mortgage.
Another factor UK expats and foreign nationals are likely to consider when looking for a UK investment property is affordability. ‘A location which offers affordable properties with strong capital growth rates is, of course, highly desirable for UK expat and foreign national investors’ says Stuart Marshall. ‘Affordability obviously varies massively depending on the type of property and this is something that UK expat and foreign national investors need to consult with an expert broker on, depending on their investment goals and capabilities.’
When it comes to the most affordable locations in the UK speaking more generally, the lowest priced location is Liverpool, where the average property price is just £152,974. The most expensive is, unsurprisingly, London where the average property price is £925,733. As we mentioned above, these prices are highly variable depending on the type of property. But these general prices are indicative of an overall trend. And, of course, the affordability of the property needs to be weighed against the other factors we mention here. After all, there’s no point buying a highly affordable property if the capital growth and rental yield is poor.
‘One last thing to mention’ adds Stuart ‘is that whilst affordability will be an important factor in deciding where to buy an investment property, the mortgage options for UK expats and foreign nationals are constantly growing and this range of choice means that affordability isn’t as much of a constraint as it once was for UK expat and foreign national investors.’
Rental prices are another important factor to consider when weighing where to buy an investment property using a UK expat or foreign national mortgage. Looking at the average rent in the area will provide a guide for how much the property can be rented at. Of course, the rental prices in the area must be weighed against the average cost of property there too. And, it goes without saying, that the situation will change depending on the number of properties the investor is looking to purchase. For example, while one property in the capital might produce higher annual rents than a property in another city, multiple properties in this city will likely cost far less than a property in the capital and produce comparable or greater rental earnings. Rental growth must also be considered as part of this equation.
For a general picture, the Homelet Rental Index has the UK’s rental growth at 2.9% from last year. It also shows that the regional picture varies greatly from the national picture. For example, the North West and Yorkshire and The Humber again come out on top with rental growth of 6.3% and 7.1% respectively. On the other hand, London’s comparative rental growth was negative, at -5.3%.
While all of this data is valuable, the most important figure associated with rental prices is the rental yield. ‘The rental yield is the annual rental income expressed as a percentage of the total cost of the property. With the average rental yield standing at 4.77%, most investors will take around 21 years to recoup the full price of their property. When looking at the projected rental yield, anything above 5% is considered a strong yield. At current, the top five rental yields in the UK are as follows:
- Newcastle – 6.92%
- Manchester – 6.66%
- Liverpool – 6.51%
- Sheffield – 5.63%
- Birmingham – 5.6%
Rental demand is the factor which will go some way to determining all of the above. Areas with high rental demand, for example, are likely to be less affordable (because they are more competitive), offer high rental prices, and have strong capital growth prospects (since high rental demand indicates a desire for people to live there). Rental demand is difficult to measure but the speed at which properties sell, population growth and historic housing and rental prices are all strong indicators. The more demand in the area, the higher these figures are likely to be.
‘One area that repeatedly comes up when discussing rental demand with UK expat and foreign national investors’ says Stuart Marshall ‘is Manchester. A 2020 report conducted by Zoopla showed that for every one property for sale in Manchester, there are five buyers interested. This indicates that rental prices will be high since competition will drive prices up; capital growth will remain high as demand places upwards pressure on property prices; void periods are likely to be short since many people are interested in properties in this area; and population growth is likely to remain high since many people are exhibiting interest in living there. This is, of course, just one example, but there is a wealth of data available for UK expat and foreign national investors and it should all be considered when deciding on where to use a UK expat or foreign national mortgage.
It goes without saying that while all of these factors will help UK expat and foreign national investors to decide where they want to purchase a property using a UK expat or foreign national mortgage, many things will change depending on the specifics of the investment. However, as a general guide, considering the capital growth, affordability, rental prices and rental demand will give a good idea of the best location for investment. As always, it’s worth speaking to an expert broker, like Liquid Expat Mortgages, who can help UK expat and foreign national investors to understand all of these decisive factors, offer tailored advice, and help to secure the best mortgage deal for the individual.
Liquid Expat Mortgages
Unit F2, Waterfold Business Park,
Bury BL9 7BR
Phone: +44 (0) 161 871 1216
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