Manchester Property Guide The HSBC Effect

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The HSBC Effect

Thinking of buying a Buy to Let Property in Manchester?

The HSBC Effect - What Happened to Property Prices in Last Year's Top UK Buy to Let Hotspot...

Last year's winner of HSBC's Top Buy to Let Hotspot in the UK was Southampton with a stunning rental yield of 8.73%. That was in June, 2014...

"The town that offers the best buy-to-let returns is Southampton"
Daily Telegraph 29th May 2014

Top 10 buy-to-let hot spots by rental yields at June 2015

Location Rental Yields % Privately Rented
Manchester 7.98% 26.85%
Hull 7.81% 19.02%
Blackpool 7.35% 24.16%
Forest Heath 7.26% 21.80%
Coventry 7.20% 19.02%
Southampton 7.13% 23.42%
Nottingham 7.04% 21.64%
Liverpool 6.56% 21.75%
Cardiff 6.38% 20.32%
Portsmouth 6.36% 22.28%

Rental yields in Southampton have fallen from 8.73% to 7.13% in just 12 months according to the HSBC's latest analysis. That represents a fall of just under 19% in yields - which means that property prices in Southampton must have risen by roughly the same amount in percentage terms over that same 12 month period of measurement.... doesn't it?

The honest answer to that question is: Yes. And No. Breaking down the data on residential property prices in Southampton over the last 12 months to end March 2015 we can see that Detatched houses have actually fallen in price by 6% in that period.

This decline has been 'averaged out' by the 12% gains for Semi-Detatched houses and 6% gains for Terraced properties in Southampton over the same 12 month period.

Data source:

But the real star performers of the Southampton property market over the last year have been flats and apartments which have scored an impressive 23% gain (median prices, usually best for spotting trends) in capital values over the last year to date. This is because the majority of renters in Southampton prefer to rent new flats rather than any other type of property. And landlords from all over the world have descended on Southampton over the last year, buying up as many Buy to Let flats as became available - largely as a direct result of the world-wide publicity the city received on being declared the UK's No1 Hotspot for highest Buy to Let yields last year. Demand for flats in the city rapidly outstripped supply and the consequence was dramatically higher prices - for flats. But not so for detatched, where supply slightly out-paced demand, leading to lower prices in that asset category.

So the next question is, inevitably: Will there be a similar effect on property prices in Manchester over the next year as we have seen in Southampton last year?

Well, looking at the chart above we can see that the blue line representing Flats suddenly started to rise around the 14th June 2014, just two weeks AFTER Southampton gained world-wide investor-orientated publicity for being the UK's No1 Buy to Let 'Hotspot'. According to the data flat prices soared in median values by 20% in Southampton during June and July 2014 and then levelled off. Was that a coincidence?

Which Flat Type Should I Invest In? 1 Beds, 2 beds or 3 beds Flats?

Of all the different flat types and sizes of flat currently on sale in Manchester we have found - from our own experience - that 1 bedroom flats in Manchester offer higher gross rental returns of between 7% - 9% compared to 2 bedroom flats which will usually achieve slightly lower returns of between 6% and 8%. If you can afford to, we'd always recommend buying two 1 bedroom flats rather than one 2 bedroom flat - every single time - given the choice and extra budget.

Another reason why the city is likely to face a growing supply/demand squeeze on the availability of new flats and houses in Manchester in the not too distant future...

Although no one has a crystal ball, we expect all types of property in Manchester to appreciate in value over the coming 12 months, and that includes any of the few rare Help to Buy developments of houses that come on the market in Manchester and Salford over the coming year, with new one bedroomed Help to Buy Flats in both Manchester city centre and in Salford Quays being the outstanding investments of all property types, in our view.

If you'd like more details on the current state of the property market in Manchester and the reasons why it's become the UK's new top Buy to Let Hotspot please check out the reports below.

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