Welcome to the UK’s buy-to-let capital

The North East is bucking the trend as rest of Britain goes into reverse, writes Ruby Hinchliffe

Paul Baldry is the son of a coal miner but now owns more than 100 properties in and around Ashington, a former pit town 15 miles north of Newcastle and famous as the home of the England footballers Jack and Bobby Charlton.

“It seemed very grey here as a kid,” he says. “Now the call centres have taken over. They’re like the pits of the modern age – people love the Geordie accent.”

Baldry, 44, is one of thousands of landlords investing in north-east England, which is bucking the trend as the rest of Britain’s property market goes into reverse after years of booming house price growth. When Baldry turned his hand to buy-to-let investing, he was working full time in a hospital doing maintenance shift work.

He bought four properties in his first week as a landlord. “I didn’t get much sleep after that.”

By 28, Baldry was able to retire, having become something of a success story in his town.

But early retirement didn’t last long. After buying a convertible Porsche with his new- found rental returns, boredom quickly set in.

After just six weeks off Baldry launched an estate agency and opened franchise offices in Norwich, Leicester and west London. Nearly 20 years on, Baldry owns a third of the houses in the street he lives on. He says he has achieved rental yields of between 12 to 14pc on average throughout his career, and demand for housing in his area just keeps on rising.

“We had 96 people apply to rent a property in Ashington before the tenant was even out of it,” he says.

A new railway station is being built in Ashington, 60 years after the original station was a victim of the Beeching cuts, and will bring yet more people to the town.

Despite the tougher market facing buy- to-let investors, Baldry said he hasn’t sold a property since the 2007 financial crash. “The market will always bounce back,” he says. “You have to be patient. I’ve got another four crashes in me before I’m buried.”

Buy-to-let landlords in the South of England have been ringing the death knell for years now. But investors in the North East aren’t so pessimistic.

Net-zero eco upgrades, interest rate rises, tax relief cuts and, most recently, rental reforms tightening rules on evictions have slowly reduced the number of landlords.

Rising interest rates have also been eating into homeowners’ incomes and stalled new house sales as buyers realise they can no longer afford the same properties – prompting fears of a house price crash.

But like her husband, Natalie Baldry, 40, is reassured by the local housing market. She doesn’t think prices outside of London move as dramatically and is comforted by the cushion of buying at far lower prices. “If you’re buying a house for £ 60,000, you won’t lose much,” she says. Michael Mortimer, 33, is another landlord from the North East. He owns a small handful of properties in Newcastle, and also operates an estate agency.

He said: “Every housing crash is different. Messaging on a potential crash is often London- centric whereas elsewhere in the UK it’s a very steady, normal market. A lot of property investors take the London narrative as gospel, and it’s really frustrating.”

He also said there is a new generation of landlords entering the market. One which is ready to brace for higher interest rates, and happy to put up more capital to avoid the fate of an older generation of over-leveraged landlords forced out of the market.

In pockets of the North East, pouring more money into properties and taking out smaller loans is entirely possible with flats selling as cheaply as £50,000.

In the first three months of 2023, sales agreed across the North East were up 7pc compared with the start of 2019, making the region the UK’s strongest performing property market, according to data company TwentyCi.

A big part of this is down to consistently higher rental yields, which are 7.2pc on average, according to the data firm Outra, compared with 4.4pc in London and 4.8pc in the South East.

More than half of houses in the North East are worth less than £ 100,000, making these higher yields possible because of smaller mortgage outgoings.

Giles Mackay, the founder of Outra, said affordability in the North East means the region will be “the quickest to recover” amid a downturn in mortgage borrowing and lower sales.

He said: “It’s all about your ability to get a mortgage. The price-to-income ratio is lowest in the North East.”

Phoebe Lenderyou, a business development manager for Coventry Building Society, said investors there are not selling up yet and tenant demand has gone up in areas such as Ashington.

Rising interest rates are, however, making it harder for some landlords to borrow in more expensive areas.

Lenderyou says a high- end flat at £160,000 in Newcastle and producing £ 700 a month rental income would require a typical investor to borrow £ 125,000. Now, landlords are struggling to even borrow £100,000.

Investors who buy properties in their own name do have options to offset mortgage costs against profits. More are converting to limited companies to become more tax efficient, but this can be costly and lengthy. Smaller lenders, such as Foundation Home Loans, offer specialist products which aim to maximise how much landlords can borrow.

As rents continue to creep up, charities such as Shelter have sounded the alarm over fears that rental arrears – and by extension homelessness – will rise nationally.

Karbon Homes, a housing association in Newcastle, said while it has not noticed a major rise in arrears yet, it has noticed a different demographic of tenants falling into arrears – those who do not have access to cost of living support because they earn too much.

Ms Baldry cited an example of a property where the landlord had not put the rent up in nearly 30 years. It was recently sold to another landlord with the tenants’ rent more than doubling from £200 to £700 a month.

Since 2016, the Government has unleashed a barrage of damaging tax and regulation changes for landlords.

More recently, net zero targets have placed an onus on landlords to spend thousands of pounds on energy improvements.

Meanwhile, buy- to-let mortgage rates have risen to eye- watering heights. The average two-year fixed rate for landlords on offer as of Tuesday was 5.98pc, says Moneyfacts.

It is common for southern property investors to buy properties in the North at auction. But because they have often never stepped foot in the properties, or know anything about the areas in which they are, this has led to some dud investments and the calibre of tenants is variable.

Mr Baldry says: “People in London see the North East as ‘ that place up there where everything you touch turns to gold’.”

Mortimer adds: “There is this misconception held by southern investors about rental yields in the North East. The region is not all one place. There are towns you should avoid because the risk tenants might default is high.”

Mortimer says with the new Renters Reform Bill set to be enshrined in law, some landlord clients of his would rather keep their homes empty than letting to a disruptive tenant they cannot evict.

Mortimer fears that in the North East this will create an even bigger supply gap making it harder than it already is for tenants.

He said: “My clients are leaving properties empty and putting their rents up very high. It doesn’t matter if they aren’t filled, they don’t want a tenant they can’t get out.”

However, younger investors are bringing an air of optimism.

Mortimer says: “They haven’t overleveraged themselves, they don’t mind having some capital in property or paying to improve it and they’re more selective about where they buy.”

Meanwhile, Emma Walker, managing director of EW Estates, says the older generation “wants out” and are coming to the end of their landlord careers.

With Labour about 15 points ahead in the polls, landlords fear what the future could bring.

Baldry says: “It’s a slow market to get into and out of. Even one term of a Labour government might prevent investors putting money into it. The UK market, once seen as a safe investment, may well not be in the future.”

One reason landlords are leaving the buy- to-let market is because of incoming energy performance rating targets.

However, Walker, a landlord herself, says: “Everybody is panicking prematurely. It isn’t law yet.

“Some houses in this area definitely need to be brought up to date. But the cost of rectifying solid brick properties isn’t as big as you might think.

“Take a 1900, three-bed terrace in Ashington. It won’t cost you £10,000 [the Government’s proposed cap on upgrades].

“It needs minimal changes like roof insulation, which is a couple of hundred pounds.”

‘A lot of property investors take London’s narrative as gospel and it’s really frustrating’ ‘Everybody is panicking prematurely. A three-bed terrace needs minimal changes’ Emma Walker Managing director of EW Estates in Ashington and a landlord herself