Specialist mortgage lender Aldermore has named what it believes to be the five best cities for landlords to invest in for 2023.
The lender analyses five key indicators that impact buy to let desirability, to reach its conclusions.
These are average total rent, the best short-term returns through yield, long-term return through house price growth over the past decade, the lowest number of vacancies as a proportion of total housing stock, and the percentage of the city population in the rental market.
The top five are:
Manchester offers best long-term investment for buy to let investors – Manchester has jumped back into the top spot for the first time since 2020, due to the long-term return growth of property in the city. Since 2020, the average property price has risen by 5.6 per cent and now stands at £247,341. It also has a healthy rental market with 31 per cent of the city’s residents privately renting, offering landlords both the benefit of short-term demand and the opportunity to make a good return should they sell the property at a later date. The average rent per room (£454) is also high compared to other cities in the North West such as Warrington, Liverpool and Wigan.
London climbs to its highest ever spot – After falling for the last few years, London has risen up the leaderboard, from 6th to 2nd place. The capital continues to offer the highest average room rent for all cities in the analysis, although shorter term yields remain comparatively low at 5.1 per cent. The demand and size of the private rental market continues to be healthy at 29 per cent, higher than the national average of 21 per cent.
Peterborough and Milton Keynes soar up the rankings – Peterborough and Milton Keynes have stormed into the top 10, with Peterborough jumping 11 places up the leaderboard to 5th place and Milton Keynes climbing an impressive 28 places to 6th place. With more people working from home post-Covid and new rail links connecting people around the country, these cities make an attractive base for many commuters. The longer-term return prospects for these cities have jumped over the last year with property price growth in Milton Keynes rising from 4.6 per cent in 2021 to 5.6 per cent in 2022, and in Peterborough from 3.86 to 5.2 per cent during the same period. Above average rental values have seen these cities become very attractive prospects for buy to let landlords looking to expand their portfolio.
Opportunities in the East rank high but several key cities fall down the leaderboard – The analysis revealed that seven cities in the East region featured in the Top 20, the highest number compared to other regions. These included Cambridge, Peterborough, Luton, Southend, Basildon, Norwich and Chelmsford. All cities offered attractive long-term returns with Southend seeing the biggest average annual increase in house price of all 50 cities featured, with a rise of 5.9 per cent.
Surprisingly, Oxford dropped significantly from 2nd place to 11th in one year. The main factors causing were a decrease in rental revenue from last year, dropping from £627 to £595 this year, while short-term yield was also lower combined with a drop-in long-term return. Leicester, Northampton and Derby took a dive in 2022 with each performing worse across several categories when compared to how they benchmarked against other cities last year.
Jon Cooper, head of mortgages at Aldermore, comments: “Year on year, we’ve seen the cities offering the best investment for landlords shift consistently. This highlights how landlords really have to be on top of their game to ensure they maximise their investment, looking for areas that offer value not only for the short term but for the longer term too.
“The mortgage industry has experienced a series of testing events with interest rates hikes, uncertainty in the UK economy, as well as stamp duty shifts and looming Energy Performance Certificate changes; factors that are not only affecting landlords but also their tenants, putting both groups under pressure. We encourage landlords to work together with their brokers, reviewing their portfolios to ensure they’re future proofed for further shocks that may lie ahead.”
