LendInvest: What landlords can learn from Brexit vote

What landlords can learn from Brexit vote




The latest LendInvest Buy-to-Let Index looked specifically at how the rental yields and capital gains contrast between local authority districts that voted to remain in the EU referendum, and those that voted for Brexit.

Interestingly, the results throw up a clear divide. If a landlord is most concerned with rental yield, then Brexit districts offer by far the best returns. Just two of the top 20 districts for rental yield (Manchester and Liverpool) voted to stay in the EU. Looking at the top 50 rental yield districts, just six voted Remain in the referendum.

It’s areas such as Burnley (7.14%) and Blackpool (6.62%), Pendle (6.41%) and Blackburn (6.36%) that offer the most significant returns for landlords looking for yield; districts in the North that boast strong rental demand and more palatable house prices. You get a lot for your money in these areas. And these areas overwhelmingly voted in favour of leaving the EU.

However, for capital gains it’s a very different picture. Here, the top 20 list is dominated by districts that voted to remain in the EU, specifically locations in Greater London: places such as the City of London, Waltham Forest, Hackney and Lambeth.

Just two of the top 20 districts for capital gains voted in favour of Brexit – Barking & Dagenham and Spelthorne in Surrey. Looking at the top 50, just 18 of these districts voted for Brexit.

This is obviously not just a coincidence. The areas which have seen the greatest house price rises in recent years, and so offered the greatest capital gains, have seen the best of the boom times. The capital appreciation there has forced down rental yields as it has a far greater relative impact than rising rents. Is it too much of a leap to suggest that, as a result, residents there were sufficiently content with the status quo to vote Remain?

In contrast, the areas that now offer the most solid rental yields have seen far more modest house price rises in the recent past. These areas have not necessarily had the best time of it over the last decade, and so were perhaps more disposed to voting for the change that a Brexit offered. It is striking how much correlation there is between the index and the Brexit vote, but in hindsight this does not seem so surprising.

As with all investing, past performance is no guarantee of future returns, so we will have to see just what Brexit means for property in these areas, and across the UK generally.

Early indications are that we are likely to see house price growth cool in some areas, particularly those that have seen the biggest house price rises in recent years. This price correction will open up the housing market in those areas for first-time buyers who have been locked out up to now. It will also provide opportunities for some professional landlords, who can see more value in certain properties as a result of any house price softening.

But whether we are in the EU or not, the fundamentals of the UK housing market have not changed. People still need homes to live in, and the fact remains that as a nation we don’t have anywhere near enough of them. It’s heartening to hear the new prime minister talk about addressing that, but it will take a while. In the meantime, professional landlords will continue to enjoy great returns from well-selected property investments. 

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