Where can you currently achieve the best buy-to-let yields for your portfolio?
The time has come to add to your ever-growing buy-to-let portfolio – and when it comes to choosing where to purchase your next property, being flexible can really pay off in the long run. After all, the most successful investment strategies are centred on one thing and one thing alone: location, location, location.
The only way is up
So, which regions in the UK should you be eyeing up as viable investment opportunities? According to a number of recent reports from property experts, the north continues to offer the greatest yields for buy-to-let landlords.
Data from Your Move's Buy to Let index revealed that landlords operating in the North East enjoyed an average 5.2% yield in May this year, while those with properties in the North West saw returns of 5% on average. As the report explains, these were the only areas of the UK to generate average yields of 5% or above.
Another report, published last month by Property Partner and cited by Business Money, hails Stoke-on-Trent as the UK's current buy-to-let sweet spot. This Staffordshire town offers landlords the best combination of affordability and rental return, leading to more efficient investments than anywhere else in the UK.
The report ranked Britain's 100 major towns and cities based on average income, property price and rent; and was compiled using data from Home.com. It highlighted the stark North-South rental market divide, with the top ten areas enjoying the greatest yields all located up north.
Stoke-on-Trent rental properties enjoyed an average annual yield of 5.67% and a yield/(house price/ earnings) (HP/E) ratio of 1.27%. This was followed by Oldham, which had an average annual yield of 5.46% and yield/ (HP/E) ratio of 1.24%; and Liverpool with a 5.96% average yield and 1.08% yield/ (HP/E) score. Leeds, Middlesbrough and Newcastle-upon-Tyne made up the top six.
As a property investor, you'd need a deposit of £29,397 to secure an average buy-to-let property in Stoke-on-Trent, on a 75% loan-to-value. The average price of a property in the town stands at just £117,586.
To compare, the ten areas with the lowest yields were all situated in the south, where high demand continues to push up prices. Landlords in Poole faced the most challenging investment, with an average annual yield of just 1.94% and yield/ (HP/E) score of 0.08%. This was followed by central London with an average yield of 3.15% and yield (HP/E) score of 0.12%. These areas were followed by Sevenoaks, Bournemouth, Cambridge and Oxford.
Commenting on the results, Property Planner's founder, Dan Gandesha, said: "We have always been at pains to point out to investors that prime locations such as Kensington and Chelsea can offer some of the lowest yields available, because prices have raced ahead while rents have failed to keep pace.
"It just goes to show, you shouldn't always follow the crowd and the right investment could be on your doorstep where there is far less overall demand."
Yields hold steady
Back to the Your Move index, and the statistics show that the recent decline in yields has finally come to an end, with every region in its survey offering landlords at least the same return as in the previous month. Average yields across England and Wales was 4.4% in May; though, this is still considerably lower than the 5% recorded in May 2016.
Your Move asserts that political uncertainty surrounding the general election has had no appreciable effect on the rental market, adding that rents in the capital have increased month-on-month for the first time in six months.
How to get the best return on your investment
Once you've settled on location, there are a number of other things you can do to guarantee a great return on your investment. These include:
- Shopping around for the best buy-to-let mortgage. An independent broker will be able to search the market to find you the best deals.
- Think about your target audience and tailor your search accordingly. For instance, if you wish to rent to young professionals, opt for an area with good bars and transport links; for families, buy a property close to good schools and green space.
- Consider properties that need some work as a way of boosting the value of your investment. Even carrying out minor improvements to a property can significantly raise its estimated rental value.
- Use the fact that you're not on a chain to your advantage and haggle with the seller.
- Utilise all rooms within a house. If you wish to rent an HMO, can the backroom be turned into a bedroom?
- Think about making your rental pet-friendly, as eager owners may be willing to pay more if you're open to accommodating their furry companions.
Hopefully, with the above tips in mind, you will be able to generate high rental yields from your next property and enjoy a strong return on your investment. In the meantime, why not speak to Stride about our quality portfolio insurance, which will protect both your properties and money?