The London Myth Broken

“Average gross yields of 8% in Manchester compare to 4.5% in London, while a typical two bed investment property costs in the region of £90,000 versus £300,000 in the capital.”

London has always been a hot topic in property investment. But is it really worth the hype?

London always had and most likely will always have demand when it comes to housing. Whether you are based in England or beyond, a quick look at England’s capital will show you that property prices are buoyant, disproportionately so to the rest of the UK. But that doesn’t automatically mean it is a great place to invest.

Of course this all depends on your personal strategy and why you are investing in property in the first place. Whether you are employed or a full time investor, one should recognise the importance of cash flow in property business. Without significant cash flow a portfolio can easily fall into financial difficulties and risk the whole business and portfolio.

When it comes to facts, the costs of buying property in London is much higher than in anywhere else in the UK. While house prices have risen, rents haven’t. At least not near enough to facilitate a good rental return. This leaves an investor with a rental yield far below that which is achievable from other UK cities. A higher purchase price and high mortgage means more pressure on you, as the landlord and investor, to squeeze profit out of the rental income.

Add to this a recent report published by the Office of National Statistics, 58,220 people aged from 30 to 39 left London between June 2012 and June 2013; a record number, and a 10% increase on 2010. Escaping the rat race for the fresh air of the countryside. A huge number are moving to smaller cities that have ten times the charm: Manchester, Birmingham, Leeds, Sheffield, Liverpool and Newcastle. They are no longer willing to be hoodwinked into believing that London is the only place in the country with museums and culture. People simply can’t afford to keep up with the prices and it seems they are no longer putting up with it. Forsaking a “higher” London salary for more spacious houses and a better quality of life in other cities.

For example, from an investment perspective, if you head further north to Manchester, Sheffield, or even Leeds, you can buy a property from £56,250. With rents at £550 – £800 pcm on a single let, that means your overall yield could be 7% and above. And if you find the right area and multi-let the property, or buy multiple units – just imagine what you could earn!

When you turn north, you tend to get 3 times the amount that some of the most known central areas in London currently generate. For example if you look at Totallymoney’s (The credit comparison company) recent ‘heatmap’ of the potential yield from rental properties across the UK you will notice that Mayfair only generates a 2.02% rental yield compared to a 9% rental yield in other northern cities. Even an area as popular as South Kensington, not far from Harrods, only produces a rental yield as low as 1.56%.

London will always be a sizzling focus in terms of property, but it’s seeing its light wane while other cities start to outshine it. So why not save money, get on the property ladder, secure a monthly income, and see a better return?

Quick Recap:

London Yields:

1. South Kensington at 1.56%
2. Mayfair 2.02%
3. Soho 2.02%
4. Chelsea 2.09%

Yields Achievable Outside London:

1. Sheffield 7% or over
2. Leeds 7% or over
3. Manchester 7% or over
4. Liverpool 7% or over

This Article was written by Harri Laitalainen, a property investment fanatic, marketing professional, and chocolate addict.

Note: The views expressed are the author’s own and do not reflect in any way, the views of Aspen Woolf. Readers are advised to carry out their own due diligence before taking any decision.