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Why invest in Liverpool property?
When it comes to investing in the UK property market, one of the key decisions buyers need to make is where to make their purchase.
There are many attractive locations to choose from. London is traditionally seen as the engine that drives growth in the nationwide housing market, but that doesn't necessarily mean it is the best option for investors focusing on factors such as entry prices and rental yield.
Savvy buyers who do their research will find there is a lot of potential to make strong investment returns in other regions and cities around the UK, where barriers to entry are much lower than in London.
One of the prime examples of this is Liverpool, a city with a thriving cultural scene, a strong student population and good prospects for growth in the local economy and housing market.
Here, we take a look at some of the key factors that make Liverpool a viable alternative to London for buy-to-let property investors.
Prices and yields
London is often characterised as its very own property market, distinct from the UK as a whole. One of the key reasons for this is the capital's high house prices, which are far in excess of the typical amounts paid to purchase homes in other regions.
According to the latest data from the Office for National Statistics (ONS), average house prices in London were £478,853 in May 2018, more than triple the £157,531 figure recorded for north-west England.
Recent research by comparison site Compare the Market offered an even more inflated average price for London property – £639,629, compared to Liverpool's £223,910.
These lower entry prices will instantly make Liverpool a more attractive option than London for many investors. Moreover, property values are a key part of the equation to calculate rental yields, with lower buying costs contributing to higher average yields.
Recent reports have provided an insight into the sort of rental yields investors can expect to gain in Liverpool. A study by Go Compare ranking the best UK cities to be a landlord put Liverpool ahead of London for metrics including average yields and rental price growth.
Similarly, a report by Totally Money listed three Liverpool postcodes among the top ten areas for UK buy-to-let investment, based on the rental yields available.
London was revealed as one of the worst areas for rental returns, with yields as low as 1.5 percent – leading to five postcodes in the north of the city featuring in the bottom ten overall.
One of the key conclusions in the report was that locations with strong student populations offer good potential for investment returns.
Joe Gardiner, Totally Money's head of brand and content, said:
Demand for housing
A strong student population is one of the key characteristics of Liverpool that supports demand for rental property in the city.
This cultural hotspot in the north-west of England is also home to a growing business district, and therefore more workers looking for living space, as well as highly desirable areas such as the Baltic Triangle, which the Times last year singled out as the coolest place to live in Britain.
Liverpool's strong appeal to renters means high occupancy levels and a low risk of void periods for buy-to-let property owners.
A February 2018 report from real estate consultancy JLL provided some numbers to highlight the desirability of Liverpool as a living destination. In 2001, the city's population bottomed out at approximately 442,000, but steady growth since then has seen the population return to around the 500,000 mark.
JLL pointed out that institutional investors have recognised this trend, leading to particularly strong investment in the growing build-to-rent sector, which delivers property specifically for the private rental market. The firm also forecast that house prices in Liverpool will grow by four per cent in 2018 and by at least three per cent over the subsequent four years.
In contrast to Liverpool, London has recently experienced something of an exodus. The Resolution Foundation think tank published a report showing that more people – particularly from younger generations – are leaving the capital than arriving from the rest of the UK. Read report…
Knight Frank came to a similar conclusion after analysing ONS data, which indicated that high housing costs have contributed to record numbers of people leaving London to seek more affordable living elsewhere.
The figures showed that, during the year to June 2017, 336,000 people left the capital for other UK towns and cities, marking a 15 per cent annual increase. The city's net outward migration figure increased by 55 per cent compared to 2012.
For investors seeking a combination of affordable entry prices and strong demand from tenants, it seems there is a lot to gain from looking beyond London.
Business and economic prospects
Local business and economic trends are another important consideration for buy-to-let property investors, partly because they provide an insight into the reliability of demand from tenants and prospects for rental growth.
As far as Liverpool is concerned, there is clear cause for optimism on this front. Data from the Centre for Cities shows that, between 1998 and 2016, economic growth was faster in Liverpool than in many other major UK cities, including Manchester, Bristol, Leeds, Glasgow and Birmingham.
CityMetric highlighted a number of possible drivers of this trend, including Liverpool's recent investment in cultural infrastructure, the opening of the Liverpool ONE shopping centre and the rapidly expanding student population.
As far as business growth is concerned, there have been positive developments including the December 2015 opening of the Enterprise Hub, a regional start-up support programme.
In July 2018, the Treasury announced a new funding agreement for the Liverpool city region that is expected to benefit local businesses, residents and the economy.
Robert Jenrick, exchequer secretary to the Treasury, said: "Since 2010 we've seen nearly 50,000 new jobs created in the Liverpool city region alone, and inward investment increased by six per cent in the north-west as a whole in the last year.
"Today's announcement will build on this progress and provide greater flexibility for leaders to deliver the jobs, infrastructure and growth in productivity that will help secure the region's place in the new economy."
Is Liverpool a good place to invest in property?
For property investors, these are positive signs. Combined with relatively low entry prices, good prospects for capital growth and steady demand from tenants, they paint a compelling picture of Liverpool as one of the UK's most attractive and potentially lucrative buy-to-let investment destinations.
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