Buy-to-let investors should look at Birmingham, Kent and Merseyside postcodes and shun London’s bumper rents for top yields, according to research.
The income hotspots for property investors have been highlighted in nationwide data by Move with US that looks at yields, rental income as a percentage of a property’s purchase price.
The B7 postcode can garner landlords a 10.6 per cent gross rental yield according to data from Move with Us revealing buy-to-let hotspots, while TN28 and L14 offer yields of 10.5 and 9.6 per cent respectively. But large areas of Greater London currently return an average yield of less than four per cent.
Hotspots: The map shows where buy-to-let landlords can get the best yields
The study looked at two-bedroom properties for sale and for rent and identifies that the highest yields are scattered widely across regions and mainly outside of Greater London.
London’s low returns come because while rents are high, properties in the capital are expensive. Rental returns are better in the area surrounding London, where property prices are lower but demand for lettings is still high
Sean King, chief executive officer at Move with Us, said: ‘Landlords looking to maximise yield will need to look outside of Central London.
‘Commuter belts to the west and east of London are clearly yield hot spots as renters look to access the capital’s work and social opportunities without the cost of renting a Central London property.’
Infrastructure investment and lower prices do mean that the Stratford area has created a lasting legacy for landlords with three of the top five Greater London postcodes clustered within sight of the Olympic area (E15, E13 and E6) returning yields of over seven per cent.
As the buy-to-let mortgage market continues to thaw and traditional savings rates fall drastically in 2014, many may be considering buying and renting a property as an investment.
According to the latest Census, which analyses data between 2001 and 2014, there was a rise in the share of households renting from a private landlord or letting agency – from nine per cent in 2001 to 15 per cent in 2013, or 3.6million households.
At the same time, the average monthly rent in Britain has risen to £738 in July. According to research by LSL Property Services, the next 12 months are set to be even better for landlords than the previous 12.
It says that if rental property prices continue to rise at the same pace as they have over the last three months, the average investor in England and Wales could expect to make a total annual return of 8.9 per cent over the next 12 months – equivalent to £14,735 per property.
London yields: Central London yields are far lower than surrounding areas
At the other end of the spectrum, rental property is only offering landlords a return in the region of two per cent in the more isolated areas of England and Wales.
Countryside locations, such as the Brecon Beacons, rural Devon, Peak District, Yorkshire Dales, Exmoor and Dartmoor, are more sparsely populated and tend to attract homeowners rather than the young professionals who will pay a rent premium for living near to work and nightlife.
The gross rental yield is defined as median annual rent divided by median asking price.
The data was collected during the first six months of 2014 for two-bedroom properties advertised online for sale and for rent.
TOP TEN YIELDING POSTAL DISTRICTS IN ENGLAND AND WALES
|Postal district||Gross rental yield|
TOP FIVE YIELDING POSTAL DISTRICTS IN GREATER LONDON
|Postal district||Gross rental yield|
|N9 Lower Edmonton||7.8%|
|SE2 Abbey Wood||7.4%|
|E6 East Ham||7.2%|
What can investors get for their money in hotspot B7?
Birmingham: The B7 postcode area is located within the red zone on this map
The B7 postcode in Birmingham is centrally located in Britain’s second biggest city – and a quick search on property website Rightmove shows a handful of two-bedroom houses priced between £75,000 and £99,950.
Looking at rental properties on the same website, the average two-bedroom property in the B7 postcode fetches around £725 to £695.
This mid-terrace example below is in Cook Street, Nechells, comes with central heating, double glazing, front/rear gardens and no onward chain and is priced in the mid-range of the values seen on the Rightmove website at £89,950.
House deals: This two-bedroom property is listed on Rightmove for under £90k
Should new investors chase a hotspot – or stay local?
Most budding landlords will think long and hard as to the location of their first buy-to-let property.
Do they stick to a property close to where they live – or should they ‘chase’ a higher yield in a town they may know nothing about?
This is Money asked Robin King, director of Move with Us, for his opinion.
He said: ‘Choosing further afield in unfamiliar areas may concern many new buy-to-let investors. However, by sticking to areas with good yields, amenities, transport links and working with a local management company, landlords can achieve higher returns. It may also give budding investors that are priced out of their current area the opportunity to buy.
‘The rental yield map helps identify where the better returns are available but landlords will still need to consider what type of property they’re letting out (e.g. old versus new build) and whether it’s located centrally or in the suburbs.
‘This will help to determine whether it will be suitable for a family let, professionals or a shared household.
‘Investors should do their own research by finding out how many properties are advertised for rent in the area and looking at what rents they are achieving so they know where to pitch their price.
‘Speaking to a local rental agent and asking which properties are easiest to rent and the type of tenant they attract is also advisable. When selecting a management company, new landlords should find out if they’re licensed and qualified by Association of Residential Letting Agents if they have quality marketing and a good online presence.
‘Ask if they can obtain references from other long distance landlords and find out if they have experienced staff. It’s also wise to understand how the management company operates – what systems, processes and procedures they have in place.
‘Long distance landlords should also find tradesmen local to their buy-to-let property such as plumbers or maintenance contractors in case any work is required although most rental management companies will have a maintenance department.
‘Landlords wishing to visit the property for the traditional yearly or bi-yearly check should remember that travel expenses are deductible from the income generated from the buy-to-let property.’