Housing hotspots in 2022 – where should you invest?
For property investors, it can be difficult to know where and when is best to invest within the UK. That’s because there are so many factors you have to take into consideration, including your own investment goals.
What this means is that the same location might be great for one investor, but just ‘okay’ for another – it really depends on your personal financial objectives and circumstances.
To help identify the best place to invest in property for you, there are three critical things to think about and research:
1. Which is more important: income or capital growth?
Investing in property delivers returns in two ways:
- Rental profit, which can give you a monthly income
- Equity from capital growth if the property increases in value over time
Although every investor would love to get both, an area is typically likely to deliver one or the other.
Securing a good monthly profit and a high level of capital growth isn’t easy, unless you buy a property at a discount or add value to it – such as through renovation or extending the accommodation.
If securing monthly income is your priority, look for property in an area where rental income can deliver a yield of seven per cent or more – and you might consider investing in a House in Multiple Occupation (HMO), which tends to deliver much higher yields.
If you prefer to focus on capital growth, you need to bear in mind that inflation averages around three per cent a year.
So make sure you choose an area where annual price growth is usually several percentage points more than that each year – this is especially important if you’re investing with all cash.
2. Supply and demand – now and in the future
Property investment delivers the best returns where demand is always higher than supply. For good capital growth, demand from buyers needs to exceed the number of homes for sale, and for good rental profits, tenant demand must be higher than the number of properties available to rent.
So, picking the right road in an area and knowing whether two bedroom flats or four bedroom detached homes are most in demand – both now and in the future – is critical.
You might think it’s impossible to know what an area will be like in the future, but there are plenty of sources you can tap into:
- Established local estate and letting agents and qualified surveyors will have a huge amount of knowledge about current trends, and should also be aware of what developments are planned for the local area over the next few years
- The local council will have a ‘Local Plan’ for the area. This is a document that’s produced by local authorities, in consultation with the community, to enable them to make decisions on planning applications, including new homes
This plan should highlight expected population growth and detail what type of housing will be built in which locations to meet anticipated demand – which helps you understand future supply.
There should also be information about what local investment is expected that might make new areas more popular. That includes things like improved transport and communications and new business parks – essentially, changes that could help boost a specific area’s property prices and rents into the future.
There are also lots of reports produced by various companies each year on what’s happening to towns and cities across the UK from an economic perspective, looking at investment in infrastructure, regeneration projects and how popular certain areas are to live in.
3. Invest in an area you know
Many people will recommend that you invest in an area you’re already familiar with, and if you’re going to be a self-managing landlord looking after tenants yourself, it’s wise to buy within 30 minutes to an hour of where you live. This means if you’re called out late at night to an emergency or need to check tenants in or out, you don’t have far to travel.
Also, living in the area where you’re investing means you’re on hand to build relationships with local agents, surveyors and other landlords, all of which should help you be as successful as possible.
And it’s worth knowing that if you live in a city or large town, it’s likely that you’ll be able to find some areas to invest in that will deliver strong capital growth, as well as others that deliver good income – you just need to research exactly where will give you the best return for your budget.
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Top housing hotspots to watch in 2022
Every year, there are a number of reports on which are the best places in the UK for property investment. These are certainly worth reading, but do be aware that some of them are written by companies that are looking to sell their own developments.
So make sure the ones that you focus on are independent, and always talk to local agents and secure a good local surveyor to give their view on the property and area you’re thinking of investing in.
But always remember that, first and foremost, your investment needs to be driven by your own investment objectives and budget – and potentially where you live.
One company that has done a comprehensive analysis on the best areas to invest in is Colliers, who provide expert advice to the property industry and investors. They’ve produced an in-depth report on the possible hotspots for 2022 and reviewed 20 cities based on a wide range of factors, grouped into four ‘pillars’: economic performance, liveability, R&D and property.
Taking all these factors into account, Edinburgh hits the top spot for residential investment, followed by Cambridge, London, Oxford and Belfast. However, apart from Belfast, the fact that these areas are so successful on so many levels is likely to be why they’re also quite expensive cities to invest in.
“Scotland’s vibrant capital benefits from thriving digital, science and tech industries thanks to its highly skilled workforce, with many businesses expanding or setting up a new presence in the city.
Students are attracted to the city by an excellent lifestyle, the internationally renowned university, the World Heritage Sites of the old and new towns and a lively arts and entertainment culture. After graduation, favourable employment and earning prospects help maintain strong student retention rates.
Edinburgh’s demographic and economic advantage over other cities, house price growth and rental yields make the city innately attractive to residential investors.”
– Douglas McPhail, Head of Scotland, Colliers
If we look at Colliers’ 20 chosen cities based purely on property factors, they highlight an alternative ‘top five’ cities that perform well in terms of property investment, mostly due to their affordability and high share of renters:
Top five housing hotspots to watch
- Belfast – a high proportion of tenants and good affordability
- Glasgow – scores well on affordability, rental yield and house price growth
- Liverpool – top for income-to-rent ratio, affordability and house price growth
- Sheffield – this is the most affordable city in Collier’s analysis and has the second best income-to-rent ratio
- Leeds – does well in the analysis for income-to-rent ratio, affordability and house price growth
Property performance these days is rarely replicated across a whole city or region, so wherever and whatever you decide to invest in, always make sure you understand local demand and supply – both now and in the future – by talking to local experts such as agents, surveyors and other investors.
The most successful investors are able to find good investments, no matter which part of the UK they live in. Through solid local research, they will find the particular property on a specific street that will deliver the investment returns they’re looking for over the long term and enable them to ride out any market downturns.
In short, the hotspot you’re looking for this year could be right on your doorstep!
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