Why Investing In The North Is Better

Historically, the South of England has been more popular than the North. The South is home of the capital city of London, where all the magic happens and living close to the city, let’s say within 1 to 2 hours commute to it is a good idea if you want to land a great high paying job. Arguably the weather is better than in the North (definitely there’s a clear difference between Scotland and London I can tell you), and there’s not that much reason to make big moves if you assume that it’s affordable to buy a house near London or buy a second home on the countryside to either rent out or to retire in. Besides that, world famous universities á la Oxford and Cambridge further bring the attention to the South, as well as being London an international brand that continuously advertises itself to the world and thus strengthening demand for living there.

The North on the other hand has been very industrial for a very long time, with a rich history in weaving, ship-building, steel-making and mining, which are mainly providing for the working class people living there. 

As a result, over time, the desirable South became the place to be with the North being rather neglected, which can be seen nowadays with parts of Liverpool and Manchester being significantly rundown although having played a very important role in building the British Empire back in the days. 

So, why is there a change coming and why do I think investing in the North is now better than in the South?

London = unaffordable for first time buyers

London has seen tremendous growth over the past decade or so. It has experienced so much growth that in fact, it is not uncommon to see new-builds being advertised for sale with a 25% ownership of the property. In other words, you would only purchase 1/4 of the property and you would take out a bank loan on buying that 25%, whereas the remaining 75% still needs to be paid to the developer in rent. Why are properties not being sold with 100% ownership? Because a first time buyer does not qualify for a £750k - £1m mortgage to buy the place. As banks restrict buyers to get a mortgage to around 4 times their salary and an average salary being £50k p.a., this would give them a maximum mortgage of £200k as a single person or £400k if you were a couple. How on earth should someone be able to afford those ridiculous prices for a 2 bed flat in central London? It’s simply impossible. 

The Northern Powerhouse and other investments in the North

The Northern Powerhouse is a massive undertaking, which brings huge investments to the North, specifically regions around Manchester, Liverpool, Sheffield and everything in between. Britain should be firing from all cylinders, meaning there should be more economic weight being put to other cities besides London. This can be seen as major developments have been successfully completed, such as Salford Quays over 10 years ago with the BBC having made its headquarters there, or Liverpool Waters which completely redeveloped the city’s waterfront into a vibrant spot for locals and tourists alike. And that’s not the end of it. Plenty of projects are either planned, in construction or are delivered in collaboration with councils and private developers. One of those developers is the Peel Group, which is seemingly building half of Manchester by the looks of it, skyscrapers are shooting out of Manchester City centre and their next 30 year project, the Wirral Waters just outside of Liverpool is well underway. And should the HS2 ever been built in its entirety, there would be another compelling argument that the North is just another suburb of London and distance to the capital doesn’t matter anyways.

More jobs = More demand

As companies are making their way up North (such as the BBC) and build regional headquarters in the North (such as Barclays way up north in Glasgow), it inevitably leads to people moving with it. Redeveloped areas and their associated shopping malls in the big cities attract the people for the recreational aspects of life and upgrades in infrastructure make it a breeze to get to and from work. A breeze that people in London can only dream of when they compare it to being stuffed in the London tube for hours. Furthermore, should a Londoner make their move from the South to the North and they sell their little shoebox sized flat for a decent price, they now can afford a 4 bedroomed house with garden in a nice area of a city and still have spare cash in their pockets. That is a compelling argument for plenty of people in London, particularly when thinking about raising kids and wanting that outside space for their kids. A wish that has become almost unaffordable in many areas of the South. This is also reflected in statistics about people moving out of the city, where the percentage of people moving North continuously increases. And even we have experienced this first hand as we were staying in AirBnBs, as we met lovely people renting out their spare rooms and after some discussions with them, we found out that they are originally Londoners, who have done exactly what I just described above. 

High yields = Cashflow

For now, yield in the North are simply higher than in the South. Purely, as demand for buying houses either to live in for themselves or as an investment to rent out hasn’t been that great historically, as people were focussing their investments on the desirable South, the North has somewhat unusually high yields, even in areas that are close to town and city centres. This means that currently, if you buy a house and you rent it out, each and every month you can expect a positive cashflow from the rental of the property, while the property appreciates in price. Cashflow is the building block of every business, which makes it a feasible to operate as a property business in the North, focussing on rental properties, without having to rely on capital appreciation in order to cash out profits over time. However, these properties would still appreciate in price, arguably maybe currently still less than in the South, however, when more and more people want to live in the same place, but the amount of houses stays the same, prices will inevitably have to go up. Now, you are faced with a situation where there are low risk investments in the shape of cash flowing houses, but with a view of capital appreciation as demand starts to increase due to above reasons. From an investment perspective an ideal situation. 

These are my top reasons why we invest heavily in the North as the future prospects of the area are undeniably pointing towards growth and prosperity, which in turn de-risks our whole business model. As the saying goes, the best time to invest was 20 years ago, the second best is today, we continue to put our eggs into this basket. 

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