There is no doubt that the London property market has dominated the UK for some time as well as the south-west of the country. These are areas of the UK which have attracted significant employment opportunities while the likes of the Midlands and the North of England struggle. The gap between property prices in the South of England and the North of the country continue to grow although some investors are now seriously contemplating a switch to more “value” markets.
If you look at the figures in the cold light of day, without taking into account the fashionable element of markets such as London, then surely there should be an argument for moving investments into historically underperforming areas?
Supply and demand
One of the main benefits of investing in the London market, and other hotspots of the UK, is the fact they are vital to the local employment market and demand always seems to outstrip supply. Therefore if an investor needs to liquidate assets relatively quickly there is probably more chance, in theory, if there assets are in the fashionable area such as the capital. However, a recent survey suggested that property prices in areas such as Carlisle are attracting significant attention with fewer viewings required on average before a property is snapped up.
It may well be that the long held impression that London and the South West of the UK will always be the main property hotspots could be about to change?
Rental income
If you dig a little deeper in relation to so-called “out-of-favour” value property markets across the UK you will find that rental incomes are often significantly higher than in those more sought-after areas. While the majority of property investors seem to concentrate upon long-term capital gains perhaps some would benefit from looking at potential yields as you would with stocks and shares?
There are some areas of the UK where rental yields are approaching double digits compared to the likes of the London luxury market where they have dipped as low as 3% in recent times. It will obviously depend upon the investment criteria of the investor but there is certainly an argument for looking at balancing attractive rental yields against potentially reduced capital gains going forward.
Will there always be a North/South divide?
The so-called “North/South divide” has been an issue for decades and is predominantly built upon employment hotspots around the country. London as the capital of the UK attracts enormous attention and offers something of a status symbol for many employers. The likes of the south-west of the UK have also attracted more than their fair share of employment opportunities which in itself creates significant demand for local property.
Looking at the flip side of the coin many economies in the Midlands and the North of England have been based upon mining and other labour-intensive employment markets. New technology has decimated many labour-intensive markets and indeed the UK has become a predominantly service led economy. This change, which has been ongoing for decades, has impacted employment markets in the Midlands and North of England to a greater extent than anywhere else in the country.
So, until we see a major shift in employment markets , led by the government or private sector, the North-South divide will always be an issue for the property market.