Real estate, alternative real assets and other diversions

Why northern buy-to-lets are still a bargain

Investor's Notebook

Investment pouring in from the south hasn’t yet brought down northern England’s higher yields. 

It has been widely reported for several years now that rental yields are typically higher in the north of England than they are in the south. But why isn’t that changing? Surely, since property is a market like any other, the gap should have narrowed by now or at least be showing a converging trend? The answer is a multifaceted one. 

Having spent more than ten years working in wealth management in London, primarily advising high-net-worth clients on how to accumulate assets efficiently, as a result of FCA-regulated training I found I would instinctively steer clients towards ISAs, pensions, diversified fund portfolios and, since they were wealthy individuals, often more esoteric products such as VCTs and EISs. But, in the early years at least, I never recommended buy-to-let property. There were many reasons for this, but I found the primary limiting factor was access to a consistent property product from a well-funded, stable supplier. As a wealth management company, we were caught in somewhat of a void – in order to conduct an appropriate due diligence assessment, we required a more structured product and approach than the small, local developers could provide, but did not have the investor appetite to tap into the – often lower-quality – product offered by larger-scale national developers, which might tend to work alongside City funds. So where did I turn? You guessed it: the north!

The argument to at least consider investing in the north was compelling. The term ‘Northern Powerhouse’ was, even back then, widely mooted, promising to boost the north by record levels of investment in infrastructure, transport, business, skills and innovation, as well as devolving significant powers and budgets to directly elected mayors to ensure decisions in the north were made by the north. 

It was also evident that property prices were – as indeed they still are – substantially cheaper than in the south, so my clients could achieve the benefits of diversification, which was, of course, a prerequisite given the holistic advice being offered to them. By acquiring properties in the north investors could:

  • purchase several properties instead of just one, providing diversification of assets
  • achieve a substantially higher yield, often double or triple what the south could offer
  • acquire properties with cash, with no requirement to obtain finance, arguably reducing overall risk exposure 
  • have their entire property portfolio managed by just one agent, reducing administration.

So, with all of this investment from the south, why aren’t north-south yields converging? The simple answer is that there is still a long way to go. A recent article in the Independent reported: “Investment in these areas has been proven a success time and time again. In Doncaster, for instance, £60m of public and private sector investment funded the development of Great Yorkshire Way, a motorway link road between the M18 and Doncaster Sheffield Airport. As a result, Doncaster has unlocked an overall investment of £1.8bn in the economy, created 1,200 jobs, delivered airport growth and the development of iPort – one of the UK’s largest logistics developments.”






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