London investors move north

High prices and lower yields close to home are forcing London’s investors to look further afield.

Published under Buy-to-letMigration and Research — Nov 2023
 London investors move north

A record two thirds of London based buy-to-let investors who purchased a new property this year have done so in other parts of the country. This figure has nearly doubled over the last decade. Pre-2013 less than 30% of London investors bought outside the M25.


Historically, investors favoured buy-to-lets near where they live. However, tax changes and now higher mortgage rates have turned the tables and meant that the sums increasingly only stack up for the highest yielding homes, which tend to be more readily available in the North. So far this year 24% of London investors bought a buy-to-let in the North of England, up from just 4% in 2013.


Stress testing, particularly for higher-rate taxpayers, means that lenders are less likely to be able to offer mortgage finance on properties generating low yields. This has become increasingly problematic as interest rates have risen, limiting those who are looking to use a mortgage to boost their returns to higher yielding homes.

The Northern regions have consistently offered the highest yields in England & Wales. Across the three regions, the average gross yield (before tax and costs) rose to 8.2% this year, outpacing the London average of 5.6%. The North East is the highest yielding region, where gross yields averaged 9.1% this year. Lower house prices also make it easier to enter the market.

That said, strong rental growth has boosted yields across the whole country. The average gross yield in England & Wales has risen to 6.8% this year, up from 6.3% in 2022 and 6.0% in 2018. In London, stagnant house prices and record-breaking rental growth has boosted gross yields by 0.6% over the last year.


While investors have increasingly focussed on rental returns in latter years, historically capital growth has made up a large chunk of overall gains through the lifecycle of a buy-to-let. Given where we are in the house price cycle, over the last few years house prices in the North of England have risen faster than those in the South. This has further boosted returns for Northern investors. However, over the whole cycle which began in 2008, prices in London and the South have outperformed, making up for weaker rental returns. The average landlord in the market today has owned their buy-to-let for around 10 years so will have benefitted from this capital growth.

Looking ahead, we think that rents are likely to continue rising faster than house prices over the next few years. We expect to see stronger rental growth in the South of England, where landlords are most stretched, which should continue to close the gap between yields in the North and South. Furthermore, from 2024 we forecast that property prices in London will start outpacing the rest of the country, which may begin to tempt some London landlords back from their holidays up north.

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David Fell

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