The North West: A Record of Growth
In recent months, and for much of the last two years, the North West has featured prominently in the national league tables for capital growth, rental growth and gross yields.
According to the most recent (February) house price index from Zoopla, the North West saw average values rise by +0.7% year-on-year in the North West. That compares against a fall of -0.5% across the wider UK.
Other sources report even larger regional imbalances. Rightmove reports annual capital growth of +2.9% in the North West, as against a UK mean of +0.1%. Halifax reports growth of +4.4% in the North West versus +1.7% for the country at large.
Measuring annual rental changes, Zoopla reports that the North West saw growth of +10.2% over the course of 2023, which compares against a national average of +8.3%.
In its Rental Trends Tracker for Q4 2023, Rightmove notes that the North West produced average yields of 7.2%, as against 6.4% for the UK as a whole.
These are not always the top-scoring results for each category; regional results vary from month to month and according to the source. However, the salient point here is that on all the measures that matter to investors, the North West has tended to outperform national norms – and it has done so fairly consistently for a number of years.
House Price Affordability
The region’s strong performance has coincided with the cost-of-living crisis, and perhaps there’s some logic to that. After all, buyers and tenants tend to become most price-conscious when household budgets are severely strained. People inevitably seek to make their money stretch as far as possible and, when it comes to homes, that’s often most easily achieved by looking for properties in comparatively affordable areas.
The North West is certainly home to some of the country’s more competitively priced homes. In February 2024, for example, Zoopla reported that the price of a typical UK property was £263,600. By comparison, the averages in even the most popular North West cities were considerably lower: £156,700 in Liverpool, £194,661 in Preston, £206,147 in Salford, and £223,000 in Manchester.
The Home Asking Price Index for February reports an even wider gulf: an average price of £349,965 across England and Wales, as opposed to just £264,723 in the North West.
Higher interest rates will undoubtedly have amplified those regional differences in terms of affordability. Wherever homes cost more to buy, people will typically need larger mortgages and, when interest rates are higher, their repayment costs will rise more sharply than they would for buyers in more affordable regions. Ultimately, this means that the scope for price growth tends to be much more limited than in regions such as the North West, where asking prices have stayed lower.
Rental Affordability
The same principles apply to the rental market. In its February index, Homelet reports that in the North West, tenants spend an average of 30.1% of their incomes on rent. That isn’t the lowest percentage – regions including Scotland, the North East and Yorkshire & Humber see averages of around 26% to 28% – but it’s still meaningfully below the UK average of 33.3%.
Again, the practical consequence of this is that tenants’ budgets aren’t quite so strained in the North West as they are in some other regions. Demand for property still massively outweighs supply across most parts of Britain, but in the North West and other relatively affordable regions, renters are in a better position to use any spare financial capacity to compete for the homes they want to secure. In short, greater affordability often translates into more scope for growth in market values and, in this case, that means the potential for rents to grow faster than in most other UK regions.
Affordability and Yields
Simple mathematics dictate that lower property prices will tend to enable better gross yields. Yields are an expression of annual rental returns as a percentage of the initial price paid (i.e. the cost of investment) so the lower the price, the easier it should be to achieve a good yield.
However, rental values are the other side of that equation, so a good yield also depends on being able to command a good monthly rental income. Generally, that requires that there be strong demand for rental property and that prospective tenants are financially secure enough to be able to pay asking rents. In most parts of the North West, those criteria are generally being met.
Other Considerations
If low asking prices and low rental costs were the only factors to determine good returns, property investment would be an easy and predictable business. In reality, of course, many other factors are at play. By examining some of these, we can perhaps help to explain why the North West has been producing better results than other relatively inexpensive markets such as the North East or Wales.
Talking Wales as an example, average rents are considerably lower than those in the North West. Homelet calculates the regional means at £848 and £1008 respectively. However, average earnings are also lower in Wales and, consequently, Welsh tenants typically pay a higher proportion of their incomes on rent: 35% as against 30.1%.
Employment levels have a direct influence on average earnings, which clearly have a bearing on local and regional property markets. Consequently, prospects for economic growth are an important consideration for investors.
Large-scale inward investment, major regeneration projects and changes in public policy can all help to transform regional property markets by boosting earnings and creating more jobs. Higher earnings give people the financial wherewithal to buy or rent better homes, while rising employment tends to draw more people in from outside the region, and that raises overall demand for property. Both help to boost market demand and to put upward pressure on average values.
The North West Economy
Economic growth is one important reason why the North West is faring relatively well in terms of returns for investors. Cities such as Manchester, Salford, Liverpool, Preston, Warrington and Chester have been growing steadily in recent years, in terms of both their productivity and populations. (Note that we cover some of these markets individually in our Location Guides section.)
Manchester is one of the UK’s most celebrated property investment markets, and with good reason. Its economy has been thriving, rising to a current GDP total of £86 billion and generating growth in both employment and earnings. Manchester City Council reports that “between 2011 and 2021, GDP per capita … increased by 44%, from £35,739 to £51,330 – the largest increase of any of the UK's major cities.”
In parallel with that, resident numbers have been soaring; Greater Manchester Business Board writes that “Manchester’s population has risen from 503,000 in the 2011 Census to 607,000 … a 20% increase in twelve years.” Manchester City Council adds that its resident population is expected to increase to 630,000 in the next six years, and that city centre employment is forecast to rise by 65,000 to a total of 315,000 by 2040.
Neighbouring Salford can claim similar success. The 2021 census found that the city’s population had increased by more than 15%, growing from 233,900 in 2011 to 269,900 in 2021. And not only have more people been settling here; they have also been finding jobs and enjoying higher average earnings. Invest Salford writes that it is “on track” to exceed its ambition of delivering 40,000 new jobs by 2040, and, according to Salford City Council forecasts, local economic output is expected to double over the course of the next decade, reaching nearly £16 billion.
Many parts of Greater Manchester have produced excellent results for investors. A recent BBC report used data from Zoopla to identify the UK’s ten towns and cities with the fastest rates of rental growth. The top performer was Glasgow, which has reportedly produced rental gains of +38.9% over the last three years, but this was followed by Bolton (+38.7%) which saw rents grow by +15% in the last year alone – the fastest annual rate of any of the areas surveyed. Manchester itself also made the top 10 with three-year growth of +37.8%, as did Wigan with a cumulative gain of +35.5%.
One could present similar analyses for other important markets in the North West – not just towns and cities such as Warrington, Preston or Lancaster, but also popular regions such as the Fylde Coast, the Wirral peninsula and even some major enterprise zones – e.g. those in Lancashire focusing on BAE Systems and its aerospace-related supply chain. All these and other local markets have significant potential for landlords, albeit different locations will suit investors with different priorities.
Liverpool, however, is a market that is worth singling out. Properties here tend to be cheaper than in Manchester, Warrington or Cheshire, and yet the city is unquestionably undergoing an economic transformation. This, in turn, is driving growth in job numbers, the local population and average earnings. (Note that a more detailed report can be found in our Liverpool Investment Guide.)
In September 2023, The Data City reported that the economy of Liverpool had grown by 20%, making it the UK’s fastest-growing city. The rate was almost five times faster than London’s 4.1%, and well ahead of other major urban centres such as Birmingham, Leeds or Sheffield. In 2023, the Liverpool City Region also saw a record number of new business formations.
The city region’s success is the result of numerous factors. These include massive inward investment projects, such as Liverpool Waters (worth an estimated £5 billion) and, just across the river, the £4.5 billion Wirral Waters development. Both are led by Peel Holdings and will help to generate tens of thousands of new jobs over the coming decades.
In addition, however, the city is benefiting from a huge resurgence in its tourism and hospitality industries, together with rapid growth in high-value sectors such as digital industries, finance, business services, higher education and the biomedical sector.
The Mersey waterfront is also proving to be an important asset. It has been central to Liverpool’s new Freeport status, which is expected to generate £850 million of economic growth and to support the creation of 14,000 new jobs. It is also allowing the wider city region to play a key role in the burgeoning offshore wind sector, as well as in other future-focused industries including hydrogen-based energy and carbon capture.
Government policy changes have also worked in Liverpool’s favour in recent years. Liverpool City Region has been designated a Centre for Offshore Renewable Engineering (CORE) and, in 2023, Liverpool itself was named the UK’s second major Investment Zone. Like other parts of the North West, it is also likely to derive certain economic benefits from new measures announced in the 2024 Spring Budget.
The Spring Budget and the North West
On 6th March, the Chancellor announced that the UK Government would be investing a further £120 in the Green Industries Growth Accelerator, with the aim of boosting advanced manufacturing across “clean energy” supply chains. As one of the UK’s nominated Centres for Offshore Renewable Engineering, Merseyside will almost certainly see an important share of this extra funding, together with a positive impact on jobs, earnings and demand for property on the part of newly arriving workers.
The Budget also included a mention of AstraZeneca’s commitment to invest £450 million in a new vaccine manufacturing plant in Liverpool.
However, Merseyside is not the only part of the North West to benefit from recent changes to public sector policy. City Deals, Town Deals and Levelling Up funds are all helping to improve many of the region’s towns and communities, and so too is infrastructure spending. The scrapping of the northern leg of HS2, for example, has provided an opportunity for the £4.7 billion of funding to be reallocated to more localised transport projects.
The single largest beneficiary will be Lancashire County Council, which is slated to receive £494 million of funding, but many of the region’s other local authorities will receive a share. Examples include Blackburn with Darwen (£117m), Blackpool (£121m), Cheshire East (£181m), Cheshire West and Chester (£168m), Cumberland (£149m), Warrington (£121m), and Westmorland and Furness (£129m).
Summary
The North West is an attractive market for property investors. Homes tend to be more affordable than in many other regions and that has helped to provide more scope for growth in both capital and rental values. Lower asking prices have also helped to facilitate strong and reliable yields that have typically stayed well ahead of the rate of inflation.
In addition, although the North West is undoubtedly home to its fair share of deprived and disadvantaged communities, it has witnessed exceptionally healthy growth in many of its most popular towns, cities and sub-regions. Liverpool and Manchester are probably its best-known, but smaller centres such as Salford, Preston and Bolton have also produced excellent results.
Given the scale of inward investment that is now taking place here, parts of the North West should remain very appealing to investors. The region won’t always be the UK’s lead performer on all measures, but recent history suggests that it’s going to remain in the upper ranks.
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