Liverpool has been identified as the UK’s number one buy-to-let hotspot, with landlords who own property in the city achieving rental yields of around 8% on average once mortgage costs are taken into consideration, according to fresh research.
Buy-to-let investors with properties in Liverpool are achieving higher yields than anywhere else in the country, thanks to the combination of low average home prices at £122,283 and strong rents at £1,021 per month.
Nottingham comes second with a rental yield of 5.6%, followed by Coventry at 5.4%, Greater Manchester at 4.3% and Portsmouth at 4.2%, the analysis from Private Finance shows.
Just three of the top 10 buy-to-let hotspots are located in the south of England, and are restricted exclusively to the coastal towns of Portsmouth, Bournemouth and Southampton, with popular student and holiday rental markets. This is rather unsurprising given the fact that property prices are generally highest down south.
Within the top 10 buy-to-let hotspots, average annual interest-only mortgage costs vary significantly from £5,940 in Blackpool to £13,548 in Bournemouth. Areas with higher housing and mortgage costs require greater levels of rental income to remain a viable choice for investors.
Private Finance’s findings suggest that property prices and mortgage costs can be more influential than rental income when assessing which locations provide the best rental yields.
According to the research – which calculated rental yields in the 50 UK towns and cities with the highest proportion of private rental housing stock – six out of 10 of the areas with the lowest house prices are also in the top 10 list for best rental yields.
Yet none of the locations with the top 10 highest average rents are buy-to-let hotspots. Situated almost exclusively in London, these locations bring up to £5,000 in monthly rents – but come associated with hefty purchase costs.
Shaun Church, director of Private Finance, commented: “It’s not only the residential property market that’s all about location, location, location. Many landlords will treat property as a long-term investment, looking for reward in the form of capital gain.
“Succeeding in making a long-term profit depends on buying an affordable property and being confident its value will appreciate at a higher rate than mortgage borrowing. However, for more immediate returns, landlords can optimise rental yields by choosing their buy-to-let location carefully.”
Church advises investors to look for areas with strong rental demand, especially within larger cities and university towns which generally have better performing rental markets, as this will help to avoid lengthy void periods that can damage landlords’ profitability.
He added: “Investors may also want to stay away from areas with very high house prices. Although these locations can provide high rental income, a large initial investment can prevent investors from achieving good returns.
“When purchasing with a mortgage, landlords should keep in mind that the larger the loan, the higher their mortgage costs will be. Now that tax relief on mortgage interest is being restricted, keeping mortgage costs down is particularly important.
“The good news is all landlords are benefitting from ultra-low mortgage rates. An independent mortgage broker has access to products that might not be available if going it alone, and can help track down the most affordable and suitable option.”
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