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Limited company structure becoming standard for all BTL

Purchasing a buy-to-let property through a limited company is now the preferred route for all landlords regardless of portfolio size or type of property, research has shown.

The data, published by Foundation Home Loans yesterday (November 6), showed 62 per cent of landlords with one to 10 properties would purchase via a limited company, almost equal to the 65 per cent of those with 11 or more properties who said the same thing.

Previously landlords with larger portfolios were more likely to purchase properties through a limited company while those with smaller properties typically took out a buy-to-let mortgage in their individual name.

I think it will be the standard way the majority of landlords buy a property in the near future as the knowledge that limited companies are the most tax efficient way is filtering down and will soon become common knowledge

Nick Morrey

Overall almost two thirds (64 per cent) of the 888 landlords polled in September planned to make their next purchase within a limited company vehicle — up from 55 per cent of those asked in June.

The buy-to-let market grew rapidly after the financial crisis but has since taken a beating as a number of tax and regulatory changes have hit landlords’ pockets.

How the rules changed:
An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.

Landlords then took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.

The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 landlords will be unable to deduct any of their mortgage expenses from taxable rental income.

Instead, they will receive a tax-credit based on 20 per cent (the current basic tax rate) of their mortgage interest payments.

Following the changes, landlords who were higher or additional-rate taxpayers would now only get refunds at the 20 per cent rate, rather than top rate of paid tax.

On top of this, landlords could also be forced into a higher tax bracket because they would need to declare the income that was used to pay the mortgage on their tax return.

Based on a property yielding £950 in rent and a £600 mortgage per month, the landlord’s income could drop by 57 per cent after the rule changes, from £2,520 to £1,080, as shown in the table:

Tax yearProportion of rental income falling under previous systemProportion of rental income falling under new systemTax billPost-tax and mortgage rental income
Prior to April 2017100%0%£1,680£2,520
2017-1875%25%£2,040£2,160
2018-1950%50%£2,400£1,800
2019-2025%75%£2,760£1,440
From April 20200%100%£3,120£1,080

Due to the tax shake up, limited company status is more attractive to landlords as changes would not affect them and they can offset mortgage interest against profits which are subject to corporation tax instead of income tax rates, which is cheaper.

Interest coverage ratios on limited company applications are also lower than for most individual landlord applications.

Nick Morrey, product technical manager at John Charcol, said the research was “very much” in line with what he saw in the mortgage market at the moment.

He put the latest surge in limited company popularity down to the fact more buyers and advisers were aware of the benefits and that from April this year only 25 per cent of interest qualified for tax credit.

He added: “I think it will be the standard way the majority of landlords buy a property in the near future. The knowledge that limited companies are the most tax efficient way is filtering down and will soon become common knowledge.”

By April 2020, no mortgage interest will qualify for tax credits on the old system.

Jeff Knight, director of marketing at Foundation Home Loans, said: “The rise in limited company usage by landlords shows no sign of tailing off, particularly as we have a more professional landlord community who recognise the benefits of using such a vehicle.

“It’s therefore perhaps no surprise to see a growing number of landlords signalling their intention to make their next purchase through a limited company.”

With a general election set for December 12, the housing market and buy-to-let in particular is likely to be a topic during the campaign.

Last month advisers urged the potential future government to tackle the fact successive pieces of regulation had made it harder for landlords to operate economically.

By Imogen Tew

Source: FT Adviser

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Buy-to-let purchases through limited companies on the rise

Almost two-thirds of landlords plan to make their next purchase within a limited company vehicle, Foundation Home Loans has found.

This is up from 55% of those surveyed in the second quarter of 2019.

Jeff Knight (pictured), director of marketing at Foundation Home Loans, said: “The rise in limited company usage by landlords shows no sign of tailing off, particularly as we have a more professional landlord community who recognise the benefits of using such a vehicle.

“It’s therefore perhaps no surprise to see a growing number of landlords signaling their intention to make their next purchase through a limited company, and as a lender it’s incredibly important that our product range reflects this, and we can offer advisers and their portfolio landlord clients access to quality products, an excellent underwriting process and a high level of overall service that taps into the needs of limited company borrowers.

“There has also been a notable uptick in limited company remortgaging at Foundation, and whether these are larger portfolio landlords or not, it’s quite apparent where the market has moved to and the growing need for limited company expertise.”

Previously, landlords with larger portfolios of 11 plus properties were more likely to say they would purchase in a limited company, but now landlords with smaller portfolios are equally likely to use the strategy.

Some 62% of those with one to 10 properties said they would purchase via a limited company next, while 65% of those with 11 plus properties would do the same.

Of those landlords who said they would purchase via other methods, 26% said they would purchase as an individual, up from 24%.

Some 8% said it would depend on the circumstances at the time, down from 13% while 6% said they would purchase in the name of a partner or spouse, a drop from 10%.

The rest said they would either purchase via another means or they didn’t know.

The research also revealed a potential step-change in the type of properties landlords were adding to portfolios and where they were likely to concentrate in the future.

HMOs continue to generate the highest rental yield for landlords at 6.5%, with 20% of landlords now having an HMO property within their portfolio.

HMOs are particularly popular in Wales where 31% of landlords have at least one. This was followed by the East Midlands at 26%.

By Michael Lloyd

Source: Mortgage Introducer

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More business opportunities to be had in BTL

Whilst mortgage advisers deal with the bulk of buy-to-let business there is still a considerable amount of lending being placed directly with lenders, recent research by Foundation Home Loans has revealed.

The latest landlord research for Q3 showed that 73% of landlords carried out their most recent mortgage via an adviser and 19% went direct to a lender.

Jeff Knight (pictured) director of marketing at Foundation Home Loans, said: “In the increasingly complex and competitive world of buy-to-let mortgage lending, it seems somewhat surprising to hear that nearly 20% of landlords went direct to a lender for their latest mortgage, and 23% plan to go direct when they next remortgage.

“However comfortable you are with the market – and there are many portfolio landlords who might feel able to sort their own finances out – there is still the potential to miss out on a quality deal with benefits that only a mortgage adviser would be able to access, but as a landlord going direct you would not.

“That should surely be the message that advisers – and the wider industry – need to take to landlord borrowers because things do change very quickly, rates and criteria are shifting on a daily basis, and a landlord that thinks they’ve got the right mortgage for them, might actually be very far way from that outcome by not using an adviser.

“Once again, we collectively need to extol the value of quality advice, not just in a one-off transaction but across a borrower’s whole portfolio, because there are clearly huge benefits for portfolio landlords to take advice and to secure a much better financial position because of this.”

Nearly a third (31%) of landlords said they plan to remortgage at least one of their properties over the next 12 months.

Some 65% of those said they would expect to use an adviser and 23% would go direct to a lender.

Most landlords (48%) had followed a recommendation when choosing their adviser whilst 11% chose an adviser through an internet search and 9% chose through their membership of a landlord body.

HMOs continue to generate the highest rental yield for landlords at 6.5%, with 20% of landlords now having an HMO property within their portfolio.

Knight added: “It’s perhaps less surprising to see more landlords opting to put HMOs and multi-unit blocks within their portfolio, especially as the necessity of securing strong rental yield from properties has never been greater.

“As a lender active in the HMO space, we know how different they can be to other types of properties, and with last year’s licensing rules now in full effect it’s important that advisers are able to impart these types of details so the landlord knows their full responsibilities.

“We often have a situation where the criteria, income and mortgage requirements are different for HMO lending, and therefore advisers who want to be at the top of their game in this space should work with like-minded lenders, and ensure they are able to get the best deals for their HMO landlord clients.”

By Michael Lloyd

Source: Mortgage Introducer

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Revealed! The best buy-to-let locations for 2020

Thinking of buy-to-let investing but unsure where to look? Handily, SevenCapital has revealed what it says are the 10 most attractive places for investors in 2020. It comes as no surprise that the North of England dominates the list.

Top 10 Best Buy-To-Let Locations (alphabetical order)

TownAverage Property PricePrice Growth Since 2014Average Rental Yield
Birmingham£190,09119.40%4.92%
Cardiff£193,30014%4.89%
Leeds£169,24717.04%5.07%
Leicester£166,08323.92%5.16%
Liverpool£134,96312.45%5.82%
London£717,73113.61%4.85%
Manchester£229,12922.09%4.77%
Nottingham£160,52219%5.44%
Oxford£348,34511%4.25%
Sheffield£142,21019.50%5.87%

The property investment firm says “if you’re looking to achieve high rental yields in the UK, typically the further north you go, the higher the yield,” led by Liverpool and Sheffield, where average yields sit above 5.8%. SevenCapital even notes that yields in some parts of these cities can rise to between 7% and 8%.

Slick cities
So what makes them brilliant investment destinations? According to SevenCapital…

  • Regeneration is the story for Liverpool, with £14bn worth of projects in progress, or in the pipeline, creating a place packed with “exciting developments, exceptional career opportunities and rising tenant demand.”
  • Nottingham’s central location in the UK, terrific infrastructure and good social and shopping scene makes it a hit with professionals and students.
  • Cardiff is expected to be the fastest-growing British city over the next 20 years, helped by massive regeneration that has brought industries, such as the financial, creative, life science and manufacturing sectors, to life.
  • Brexit might be hampering the London market right now, but it’s expected to expand again once a deal is reached. Apparently “as one of the major financial destinations in the world, it’s nigh-on impossible for London to experience prolonged declines.”
  • Oxford is one of the strongest economies in the country, underpinned by its “exceptional employment opportunities and a world-famous education sector.”
  • One of the fastest-growing population in the UK — expanding at seven times the pace of London — makes Leeds an attractive place for buy-to-let investment.
  • Property prices in Sheffield are among the lowest in major British cities, allowing investors to ‘lock in’ stronger yields should forecasted growth transpire.
  • “Chronic supply and demand issues” makes Leicester a top place for buy-to-let investors with plenty of regeneration projects coming to life.
  • Manchester is “one of the most exciting places to live and work in the UK” and is experiencing the same ripple effect as London has over the past decade, with growth spreading out from the city centre to areas such as Salford, Stockport and Bolton.
  • An exploding population means Birmingham should need 100,000+ homes over the next 10 years, and for 2020, rampant development ahead of the 2022 Commonwealth Games is expected.

Careful now

There’s plenty for both prospective and existing landlords to chew over for the year ahead then. But before taking the plunge, investors need to remember that a combination of soaring costs and rising tax liabilities have smashed returns for buy-to-let participants in recent years.

I still believe that those wanting to grab a slice of the property sector would be much better served, therefore, by buying stock in one of the country’s listed housebuilders. Why? A combination of booming dividend yields and some ultra-low earnings multiples at current share prices. It’s why I own shares in Taylor Wimpey and Barratt Developments.

There’s an abundance of other ways to play bricks-and-mortar investment, however. Owners of big logistics centres like Clipper Logistics and Warehouse REIT, firms that are great plays on e-commerce. Alternatively, firms like Empiric Student Property are great ways to play the booming student accommodation market. What’s great about these stocks is that they also offer up dividend yields north of 5%.

By Royston Wild

Source: Yahoo Finance UK

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BTL mortgage cost decline slows

The fall in the cost of buy-to-let mortgages has slowed, online mortgage broker Property Master has found.

Property Master’s Mortgage Tracker for October showed costs dropped in four out of the six categories tracked but interest rates stayed the same for the remaining two categories.

Angus Stewart, chief executive at Property Master, said: “The previous quarter saw our report record two across the board falls in the cost of all the fixed rate buy-to-let mortgage categories we track.

“But as we go into the last quarter of this year, we have seen this decline stall – at least in the cost of 2-year fixed rates.

“The further reduction in some 5-year fixed rates provides some landlords with an incentive to fix their commitments at what may be the lowest rate we will see for some time.

“Lenders have been awash with funds recently which has been driving competition and lower mortgage costs.

“As ever the biggest influencer on interest rates going forward will be predicting the future strength of the UK economy which whilst Brexit remains unresolved is obviously very difficult indeed.

“It is unclear whether there will need to be a further fall in interests rates to stimulate the economy and this will be driven by whether or not we leave the EU at the end of this month and if we do whether or not it is with a deal.

“The Monetary Policy Committee meeting on 7 November will be a critical review point.”

The biggest fall in monthly cost was for 5-year fixed rate buy-to-let mortgage offers for 50% of the value of a property.

The monthly cost of this type of mortgage saw a monthly decline of £25.

By Michael Lloyd

Source: Mortgage Introducer

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Buy To Let Property Renting Is A Business

Many landlords are employed in business or professions; private renting is an additional income, perhaps to provide an income in older age, so I am fully aware that many have successful additional careers.

But if the main income source was from a business they were running themselves, would they survive if they used the same criteria in that business as they do in their private renting?

Let’s consider an example. Though the comparisons I make could be equally applied to any business, let’s look at a business that would have as a very large investment, as the properties that a landlord owns will also require a large investment. So, let’s look at the Jeweller, who owns properties to fund his old age.

A customer comes in, attracted by the very nice window display. You don’t know him but he has a reference from someone (again, unknown to you). He smiles nicely, is polite and asks can he borrow the Rolex watch you have in the window display. You advise that the watch will cost £7,000. He explains that he has no money but would be really grateful if you would lend it to him for a few months.

Would it be unreasonable of you to refuse to trust your valuable item into his eager, but cash-less, hands? Of course not; you need to protect your property; it was bought to realise a profit. Yet how many landlords will accept as a tenant someone without checkable references, where any deposit paid would be minimal, compared to the investment made by the landlord?

Let’s be a different landlord, but in the same business. He has a beautiful diamond bracelet in his window. Someone comes in to look at it. He has the cash to buy it and seems an excellent prospect for a purchase. The bracelet comes out of the window – and the prospective buyer says ‘there’s a diamond missing there; the catch is broken. Why should I buy?’ The Jeweller explains that yes, he can see the problems, but he spent £500 in replacing a diamond in a pendant, so he cannot afford to replace the diamond and repair this bracelet.

Landlords will show properties in need of substantial repairs and make the excuse all their resources have gone elsewhere, that they cannot afford repairs or replacement of a new boiler. Properties should be sound, clean and with all facilities working and no landlord should be in the business if a contingency fund does not allow for necessary repairs.

I like jewellery shops, so we’ll continue with the comparison. The jeweller engages a new assistant for his jewellery business. He takes no references as the new assistant seems quite charming. All goes well for a period of training and the owner feels confident he has made the right choice and can leave his assistant in charge when he is elsewhere.

On return from a short break away, he finds that there are a string of complaints waiting for him; the assistant has been rude to more than one customer; he has had several friends in the shop, being rowdy and intimidating customers; sales have decreased and the window is untidy and no longer appealing to the passer-by. Does the shop-keeper give his assistant another chance to do more damage? No. He has found his trust misplaced and there is only one option – he fires him, with as little notice as possible.

Why then do landlords accept the anti-social behaviour of their tenants, hesitating to take action, allowing their reputation to be damaged and finding that when the tenant is gone, there is work to do in the tenancy, probably substantially more than our Jeweller has to do to put his window back into order.

Private renting is a business. Some will believe that it is a unique business, that the rules that apply to another business are not relevant to the private rental sector. Perhaps not always but doing an exercise in compare and contrast will show whether the landlord is acting reasonably, or whether he is being taken advantage of and should take action – perhaps quicker than they usually do.

Source: Residential Landlord

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Brexit Deal Positive For UK Buy To Let Property Sector

The news yesterday from Boris Johnson that a new Brexit deal has been agreed should be a positive step for the UK buy to let property sector, taking away much of the uncertainty from the property market.

Leading figures from the property sector reacted positively to the Brexit deal news from the government.

Co-founder of ideal flatmate, Tom Gatzen, commented: ‘The news of a Brexit deal will bring relief to the many European renters currently residing across the UK. For many, the political purgatory caused by a protracted Brexit process has thrown doubt over their status to live and work in the UK and this has had a direct impact on their ability to rent, how long they can rent for and their commitment to enter into a lengthy tenancy agreement.

‘Although the devil will very much be in the detail of today’s deal, a light at the end of a very long, dark tunnel should go some way in stabilising this segment of the UK rental sector and we can now get back to living in happy, harmonious households.’

Founder and CEO of Springbok Properties, Shepherd Ncube, commented: ‘Hallelujah. Against the odds and in the face of doubters, a Brexit deal has now been done and the UK property market can emerge from its dormant state brought about by months of political uncertainty.

‘We don’t yet know the detail, of course, however regardless, the property sector will surely begin to breathe again on the basis of some level certainty being restored and this uplift in market activity should see the cogs of positive price growth and transactions start to climb once again.’

Director of London lettings and estate agent, Benham and Reeves, Marc von Grundherr, commented: ‘The political paralysis that the economy and in particular the housing market has endured these last few months has been torturous for would-be home sellers, buyers, estate agents, conveyancers and mortgage lenders alike.

‘London has certainly taken the brunt of this and while there are no doubt many details left to iron out, we can start to look forward and finally, beyond Brexit. This will bring about a notable change in the fortunes of weary London home sellers and the capital will now regain its title as the cornerstone of the UK property market.

‘Foreign investment has remained strong despite the current landscape, but this revival in domestic appetite will fill the tank and see the market shift through the gears, if not immediately, certainly as we see in a new year.’

Source: Residential Landlord

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UK Buy To Let Property Rents Continue To Grow

UK buy to let property rents are continuing to grow, according to the latest HomeLet Rental Index figures for September.

Average buy to let property rents in the UK hit £967 per calendar month in September, up by 2.5 per cent the same time last year.

When London is excluded from the figures, average UK property rents reached £797 per calendar month, a rise of 2.2 per cent from last year.

All twelve regions monitored by the HomeLet Rental Index showed an increase in property rents in September when compared to the same month in 2018.

The region with the largest year-on-year increase in property rents was the North West, showing a 4.4 per cent rise between September 2018 and September 2019.

In fact, five out of the twelve regions monitored saw a rise in property rents of over 3 per cent. The North West, the East Midlands, the South West, Greater London and the North East.

The West Midlands, Wales, Scotland, and Yorkshire and Humberside all saw property rents rise by 2 per cent or more on an annual basis in September.

The worst performing regions were Northern Ireland at 1.4 per cent, the East of England at 1.3 per cent, and the South East which saw rents rise by just 0.2 per cent since September 2018.

However, when it comes to property prices things do not look so rosy. Nationwide’s House Price Index reported that house prices rose by just 0.2 per cent in September, down from 0.6 per cent in August and marking the 10th month in a row that the annual house price growth was recorded as under 1 per cent.

The trends reported within the HomeLet Rental Index are brand new tenancies, which were arranged in the most recent period, providing an in-depth insight into the lettings market. HomeLet references over 500,000 tenants every year.

Source: Residential Landlord

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Buy To Let Property Investors Enjoying The Cambridge Effect

The residential property market in Cambridgeshire is performing well, impacted by the ‘global brand’ of Cambridge and the diversity of its market trends.

Research by property consultants Bidwells has found that Cambridge and the surrounding county has seen its residential property market rise three times quicker than the UK national average.

In the next 20 years, population growth in the Cambridge area is expected to be 24.5 per cent, placing pressures on demand on the city. Additional factors contributing to the success of the rental market are Brexit, high performing schools, improved transport links and the significant increase in housing throughout Cambridgeshire.

Rental costs have increased by approximately 3 per cent in the last 12 months with an average rent of just over £1250pcm in Cambridge. The strength of migration into Cambridge provides one of the key drivers of the residential lettings market.

One of the main reasons of this influx is due to the expansion of the Biomedical Campus where the total jobs on site at present are circa 12,300 with 7,500 to be created for the coming year, providing a total of 19,800 employees eventually on site.

It is not only the current influx of AstraZeneca employees that is significant but also other large companies and institutions such as Cambridge University, ARM and Addenbrookes Hospital, that have under-pinned the lettings market for many years now and will continue to do so in future. More recently companies such as Amazon, Microsoft Research and Apple to name a few, have joined the expanding technological highway of silicone fen.

Brexit, and the general uncertainty towards house values has meant that many people are opting to rent, boosting demand in the private rental sector.

Secondly, the number of high performing schools and colleges with a world leading university continues to attract many people wishing to live and work in Cambridge. Vitally, 64 per cent of residents in the area said that living within walking distance to a school was very important to them.

The confirmation of a Cambridge South Train Station opening next year highlights that Cambridge is an ideal location for London commuters too.

Source: Residential Landlord

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Top spots for buy to let named

Scotland has been crowned the best place for landlords to invest as research has shown the average yield for Scottish buy-to-let properties scoops the rest of the UK.

The findings from lettings platform Howsy, published today (October 2), showed Glasgow City was the overall best place to invest in buy-to-let property with a current rental yield of 7.5 per cent.

Midlothian and East Ayrshire, both in Scotland, were close behind with rental yields of 6.8 per cent, while Scottish county West Dunbartonshire was fourth at 6.7 per cent.

“After years of being slammed by regulatory changes making it harder to turn a profit, choosing where to invest has never been more important for landlords.”
Chris Sykes, broker at Private Finance
The research showed Burnley and Belfast were offering yields of 6.5 per cent, while Inverclyde offered 6.4 per cent, followed by Falkirk (6.3 per cent), the Western Isles (6.2 per cent) and Clackmannanshire (6.1 per cent) to complete the top 10.

Wales fared worst among the home countries with an average yield of 3.7 per cent compared with Scotland’s 5.7 per cent.

Landlords in England and Northern Ireland receive average yields of 4.1 per cent and 5.4 per cent respectively.

Chris Sykes, broker at Private Finance, said: “After years of being slammed by regulatory changes making it harder to turn a profit, choosing where to invest has never been more important for landlords.

“Generally speaking, properties further north tend to require a smaller initial investment. Glasgow, which tops Howsy’s list, has an average house price of just £135,121.

“Being a major city and university town, the area also benefits from strong rental demand so this combination of low property prices and decent regular rental income is a winning formula for investors.”

The buy-to-let market grew rapidly after the financial crisis but has since taken a beating as a number of tax and regulatory changes have hit landlords’ pockets.

How the rules changed:
An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.

Landlords then took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.

The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 landlords will be unable to deduct any of their mortgage expenses from taxable rental income.

Instead, they will receive a tax-credit based on 20 per cent (the current basic tax rate) of their mortgage interest payments.

Following the changes, landlords who were higher or additional-rate taxpayers would now only get refunds at the 20 per cent rate, rather than top rate of paid tax.

On top of this, landlords could also be forced into a higher tax bracket because they would need to declare the income that was used to pay the mortgage on their tax return.

Mr Sykes said mortgage repayments often represented a large chunk of landlords’ costs, so getting as low a rate as possible was important to achieve a profitable rental yield.

He said lenders were currently offering very competitive buy-to-let product rates, both as a result of the wider low-rate environment and in a bid to attract more business given the slowdown the sector has experienced in recent years so now was the right time for landlords to remortgage onto a “rock-bottom rate” to maximise their overall profits.

Founder and chief executive of Howsy, Calum Brannan, said technology had helped landlords connect with their tenants more easily which meant they were no longer restricted to investing within the local vicinity to keep tabs on their property or forced to pay large fees for an agent to do so.

He said: “This leaves them free to buy in one section of the market and invest in another to maximise their financial gain across the board.

“More accessibility via digital rental platforms now provides landlords with greater empowerment when managing their property portfolio and they can do so anytime, day or night, with greater peace of mind.”

The research also showed which locations offered the highest annual house price growth for those looking to buy.

North Devon topped the list with expected growth of 15 per cent, while Welsh locations Merthyr Tydfil and Blaenau Gwent came in second and third place.

England had the lowest annual house price growth of the home countries at 0.3 per cent, while Wales stormed ahead with 4.2 per cent.

Location:Annual House Price Growth:
North Devon15%
Merthyr Tydfil13%
Blaenau Gwent13%
Caerphilly11%
Camden10%
West Devon9%
Forest Heath9%
Rochdale9%
Monmouthshire9%
Trafford8%
Home countries: 
England0.3%
Wales4.2%
Scotland1.4%
Northern Ireland1.6%
United Kingdom0.7%

By Imogen Tew

Source: FT Adviser