Buy-to-let is booming, with growing numbers of professional and amateur investors seeking to pour yet more cash into a market worth £1 trillion.
New research by HSBC, which conducts an annual review of rental yields around Britain, shows that Manchester, Kingston upon Hull and Blackpool are the best places to invest right.
But for most landlords with one or two properties the key to success is capital growth plus strong rental yields.
If the property you invest in grows in value, you will increase your total profits. Of course, future house price growth is impossible to predict with any accuracy, so the cost of property against the average annual rent, known as the “rental yield”, is a good indicator of where to buy.
Where should I buy-to-let?
Growing numbers of Britons are renting their homes instead of buying, thanks to rising house prices and relatively stagnant wages. More than a third of properties in some parts of London are privately rented. Other areas of the UK are moving this way. At least a quarter of properties in Manchester, Bournemouth, Oxford, Brighton and Hove and Reading are now owned by landlords.
But do your homework carefully and focus on locations where rents have outpaced house prices.
HSBC’s survey shows landlords in Manchester are making the biggest rental yields.
Here average house prices have increased by 4pc from £104,244 in 2014 to £108,870 now, while average annual rents have kept pace, up from £8,316 to £8,628. The average rental yield here is 7.98pc.
Manchester has one of the largest student populations in Europe, demand for rental accommodation is strong and by comparison with other regions housing is cheaper.
This compares to London and the South East, where prices have risen sharply relative to rents.
Other northern centres of Kingston upon Hull and Blackpool featured at the top of HSBC’s hotspot list for the first time, again thanks to low average property prices and strong rental demand.
With typical house prices of £69,135 and £79,654 respectively, Hull and Blackpool require the lowest initial investment of all 50 locations researched.
The area that has seen the fastest annual growth in rental yield is Forest Heath in Suffolk. Yield increased by a whopping 39pc thanks to growing demand for rental properties. The average annual rent rose 49pc, from £8,316 to £12,432, while average property prices grew just 8pc to £171,322.
What about London?
While demand for rental properties is greatest in the capital, so are property prices – the average is fast approaching £500,000. And with most buy-to-let mortgage lenders demanding a 25pc deposit, only investors with large sums of capital can afford to buy property here.
Newham, in east London, is the capital’s top BTL hotspot, with rental yields of 5.2pc. Despite providing the best returns in the capital due to relatively low property prices. This has been mirrored across the capital thanks to house price rises that far outstripped rental increases.
Southwark was second in the London top 10 with rental yields of 5.18pc, followed by Brent with 4.68pc.
In upmarket Kensington and Chelsea, average house prices now exceed £1m. This means that even with the highest rental prices of all locations, yields are extremely low at just 2.87pc. Investors here are having to count on capital appreciation for their returns, rather than obtaining an attractive, ongoing income.
Jordan Yaffe, one of Mayweather Estates directors comments “We have always firmly believed in investing in the North. All our investments go through a strict process of due diligence before we offer it to our investors. We are looking for low risk and medium to high returns in both capital returns and yields in all our deals.”
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