Which areas have the most lucrative buy-to-let potential?

Regional centres have proven to be the best locations for profitable returns in buy-to-let investment, with 25% of properties in places like Manchester, Nottingham and Southampton now privately rented. London is no longer the place to be if you’re after the best buy-to-let returns, with investors looking beyond the capital and at regions where yields are 300% higher, according to data from lender HSBC.

The data showed that certain parts of the UK – such as Blackpool, Nottingham, Hull and Southampton, offered the outstanding rental yields when compared to other areas of the UK. HSBC also outlined the number of properties already owned by landlords, which was significantly higher in areas where the rental yield was also much more lucrative.

Experts have looked to explain why these areas in particular are standout locations for buy-to-let investment. Many say that certain characteristics are consistent in areas such as Hull, Blackpool and Manchester, including low house prices and a high demand for rental options. Students and young people are readily seeking rental opportunities in major city locations such as these.

It’s no surprise that HSBC’s data shows much lower yields in London, where property prices have skyrocketed at a pace that rental growth simply cannot match. 38% of property in Westminster is privately rented and London in general possesses a higher proportion of rental property compared to elsewhere.

The reason for such a large number of rental properties in London is down to the attractive rental prices which are far superior compared to anywhere else in the UK. Consider the average monthly rent in Kensington and Chelsea for instance, which stands at £2,968. This may seem like an attractive proposition but in truth, the gross rental yield is 2.88% which is far less than in Southampton where gross rental yield is 8.73%.

The head of mortgages at HSBC, Peter Dockar, said in the Guardian: “House prices in the top-yielding locations, while still out of reach among many first time buyers, are relatively affordable for landlords investing in property and the demand from young professionals has pushed up rents and driven up the returns.”

Dockar went on to emphasise the popularity of London-based investment opportunities, saying that many investors believe “the streets are paved with gold”. These high rents may be attractive but, with average house prices in Kensington reaching the imposing heights of £1,236,605, Dockar explains that this “squeezes yields and limits the returns available”.

There’s absolutely no doubt that rental yields are far more attractive in locations outside of London where house prices aren’t as high, so all that’s really needed is a bit of research from landlords seeking profitable buy-to-let opportunities.

It’s so important that you get a lucrative yield from your investment and not just enough to keep you going or to cover the added costs you have to pay. If you do purchase a property with a low rental yield that doesn’t cover your costs, you may be forced into an early sale during a time that‘s not particularly profitable, resulting an unwanted loss.

The report from HSBC takes official data from the Office for National Statistics and Land Registry. Rental data provided by Home.co.uk.

 

Content contributed by Mike James on behalf of Property Frontiers.

Photo credit to Lars Plougmann

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Caroline Engstrom

Caroline Engstrom has a passion to help landlords and tenants by providing helpful tips and advice regarding real estates.

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