22 Oct Why London Has Lost It’s Crown as the UK’s Investment Hot Spot.
Moving Away From Investing in London
In recent years, investors have made what can only be described as small fortunes by investing in London Real Estate. Some areas have seen colossal levels of growth, however there’s some trust in the phrase ‘what goes up, must come down’.
Before we go into why London might not be the best place for investment right now, let’s look at why London prices shot up so dramatically from 2012-2016.
The Olympics played a huge role in the level of inward investment into the UK’s capital. Infrastructure was improved throughout London, tens of thousands of new jobs were created as a result of this, and the city was flooded with positivity and trust from investors. This in turn caught the eye of a large number of foreign investors, wanting to be part of this ‘New London’ – attracting billions of pounds of investment into central London real estate, with multi-million pound properties selling just as quick as those priced at just a few hundred thousand.
The ripple effect began to set in. Many savvy investors and home owners sold up in Zone one at the top of the market, enabling them to buy in Zone 2 for inflated prices, Zone 2 owners bought in Zone 3…and the ripple continued.
However in 2016, a number of smart investors put the breaks on London investment due to changes in the market there.
Brexit was announced which rocked the confidence of a handful of multi-national companies based in Central London – forcing them to rethink their level of growth in the city, and look at opportunities to open offices elsewhere in the UK – many chose Manchester and Birmingham for their new offices.
In addition to this, the Chancellor at the time, George Osborne decided to slap an additional 3% stamp duty surcharge on any ‘second homes’, meaning investors purchasing for rental purposes were going to have to pay an additional 3% on top of the current stamp duty. For a £1m property, this meant an additional £30,000 in stamp duty. Ironically this generated £370m less for the treasury than before the change.
This, along with yields plummeting due to the rental prices not increasing at the same rate as the property prices, meant that investing in London was no longer seen as the most exciting place to invest.
Over the next two years, with prices remaining high due to many owners refusing to reduce in order to sell, meant that many first time buyers were now also being priced out of the market, and beginning to choose to relocate to other areas of the UK where they could spend half the amount that they would on a London property and get a property twice the size.
What’s Happening Now?
With the addition of the stamp duty surcharge, changes in interest relief for private landlords, the economic uncertainty in central London, rock bottom yields, and many first time buyers moving out of the capital London property prices have flat lined for the first time in recent years. Not only have they flat lined, they are in fact dropping in some areas.
Savills have warned investors not to expect the London market to bounce back any time soon, predicting low/no growth for the next 3 years, and will pick up again in 2022 once the economy has stabilised in London, and the General Election has taken place, allowing a period of clarity for the UK economy and political situation.
Since returns in the capital have been falling, investors have been quick to identify other regions in the UK that can offer higher, more stable, returns, coupled with a more attractive level of growth. Recent reports by The Times newspaper has suggested the north of England has been the most sought after location, with areas like Manchester and Liverpool leading the charge, closely followed by the likes of Birmingham and Leicester in the Midlands.
Not only are investors in real estate attracted to these areas, but so are many international companies – Manchester is home to over 80 of the FTSE 100 companies now, Birmingham has attracted the likes of HSBC, Deutsche Bank, and PWC, with both cities receiving billions of pounds of inward investment.
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