Buying to let is an investment and, just like any investment, you will be focussed on getting the best returns. So where should landlords look to get the best yield on buy to let properties in the UK?
Higher mortgage rates, greater regulation, and already financially-stretched tenants will arguably make 2023 a tough year for landlords, and stricter rules on LTV (loan to value) from mortgage providers may make expanding a portfolio harder. Many investors might be choosing where and what to buy more carefully. Some may be waiting until the latter half of the year when we might expect to see greater certainty on where interest rates are going to settle. Either way, you can do your groundwork now, so you’re ready to act when the time comes.
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What to consider when looking for the best buy-to-let areas
Depending on how long you intend to keep a property, capital appreciation and the overall local trend in property prices will be increasingly important when deciding the best buy-to-let areas in the UK. There’s also your budget to take into account.
Scotland and the North-east had the highest yields in 2022, with Hartlepool landlords, for instance grossing about twice as much as those in prime central London (7.8% vs less than 4% gross yields) according to Zoopla.
How about convenience of the location? If you are going to outsource everything to a letting agent, location may not be a practical issue, but if not then proximity to your own home and practicality of visiting can l become a consideration. The good news here is that the 10 cities for long term property returns in the last year are dotted across the country.
Your timescale may also affect the type of property to let. How long do you envisage keeping the property? Are you looking for a regular retirement income, perhaps, or a retirement lump sum? Do you want long-term tenants such as growing families, or a fast turnover of young professionals or students that will provide plenty of ‘natural breaks’ for you to sell up?
Clearly there’s a balance to be found, and we should avoid using headline figures on gross yields as the only point of reference.
Best buy to let locations 2023
Figures published by specialist lender Aldermore at the end of last year in its fourth annual index for buy to let investors looked back at 2022 to see which city was best for buy-to-let investors predicted where you should look at putting your money this year.
It analyses five key indicators that impact buy to let desirability: 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.
And the results? The lenderhas named Manchester with property prices rising and 31% of the population privately renting, London with its high rents and occupancy offsetting slightly lower yields,Bristol with high property price rises, and Cambridge and Peterborough with above-average rents as the best cities for landlords to invest in for 2023.
Here’s the lender’s top 10:
- Manchester
- London
- Bristol
- Cambridge
- Peterborough
- Milton Keynes
- Luton
- Reading
- Southend
- Coventry
Look East! No fewer than seven cities in the East of England featured in the Top 20: Cambridge, Peterborough, Luton, Southend, Basildon, Norwich, and Chelmsford. All of these cities were seen to have offered attractive long-term returns in 2022, with Southend seeing the biggest average annual increase in house price of all 50 cities featured, with a rise of 5.9%.
House prices
If capital gain is a major consideration, then Aldermore’s index implies the smart money is in Southend and Luton, where average house price increases were 5.9%. However, Manchester, which topped the buy-to-let desirability board, also saw similar house price increase percentages, at 5.6%. The national average house price was recorded as 4.4%.
Protecting your investment
Keep your investment safe, whether it’s a single property or a portfolio. Being a landlord has various laws and regulations to keep up with and there are various risks associated with letting a residential home. Our comprehensive Landlord Insurance can help protect you from financial risks, including accidental and malicious damage by tenants, as well as loss of rent.
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The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Just Landlords accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
Reviewed 01/05/2024
