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Revealed: where are the highest yielding buy-to-let properties?

Where can landlords find the best yields?

Rents in the South West of England are rising at the fastest rate, according to new data from Your Move – yet landlords with properties in northern areas of the country are enjoying the highest yields.

We reveal where in England and Wales rent prices have increased the most and in which areas landlords can expect the best returns.


Rent prices in England and Wales

The average rent price for properties in England and Wales appears to have plateaued, according to the latest Your Move buy-to-let property index.

Across all regions, the average monthly rent – adjusted to remove seasonal variations – now stands at £861. This is just a 2% increase on last year.

Overall, the South West of England saw rents rise at the fastest rate year on year, with a 3.3% from £664 to £686.

Property rentals remain the cheapest in the North East, and rent prices fell 1.6% year-on-year to £535, down from £544 the year prior.

Interestingly, the London rental market is continuing to cool, with the average monthly rent falling 0.5% to £1,271, down from £1,277 last June.

The map below shows the average rental prices for England and Wales over the past year.

Highest yielding areas for buy-to-let properties

As a buy-to-let investor, rents only tell part of the story. You also need to consider how much properties cost to buy in a particular region. The yield shows you the rental income as a percentage of the buying costs.

In June 2018, landlords and property investors in northern regions of the country continued to enjoy higher percentage yield returns than those in the south.

The biggest returns were seen in the North East of England, where the average property offered landlords a 5% return.

A similar story was seen in the North West and Wales, where landlords enjoyed strong returns of 4.8% and 4.6% respectively.

Yields in London were slightly more lacklustre at 3.16% – well below the national average rental yield return of 4.4%. Given rental prices are much higher in the capital, however, the absolute returns in London above those seen in northern regions.

 

The map below shows the average rental yields for England and Wales.

Capital growth on buy-to-let

When looking at buy-to-let properties, another key factor to consider is capital growth, as this will affect how much profit you can make when selling your property in the long term.

Interestingly, capital growth on properties in the North East has outpaced those in London year on year.

The average property price in the North East stands at £124,381, up £2,083 from £122,298 in March 2017, according to the Land Registry House Price Index.

Property prices in London, which are £471,944 on average, are only up £202 from £471,742 over the same period.

Don’t forget to look beyond the average price for a region, however, and weigh up the sales history of similar properties in the local area or even the same street.

While past performance is no guarantee of future growth, you can get an idea of how property values in that area have previously changed.

Finding the best buy-to-let mortgage deal

It’s essential to do your research before taking out a buy-to-let mortgage.

You need to be confident that your rental income will be enough to cover your mortgage and any other expenses comfortably, including periods when your property is standing empty.

As a general rule, lenders will want evidence that your rent covers at least 125% of your mortgage payments.

Buy-to-let mortgage rates can be higher than residential mortgages, due to additional risk factors, so if you’re hoping to become a landlord, you can often expect to pay 1% to 2% more in interest.

There are, however, lots of competitive rates on the market and you could still get a good deal.

Having a larger deposit for a property means that you’ll be able to get a better interest rate. It’s typical for prospective landlords to have a deposit of at least 25%, although a limited selection of lenders will allow you to get a buy-to-let mortgage of 20%.

Getting impartial advice from a mortgage broker can help you find the best buy-to-let lenders for your circumstances and make a financial plan, too.

Which? Mortgage Advisers is an independent mortgage broker that can offer guidance on how to get the best mortgage deal.

For a free consultation, call 0800 197 8461 or fill in the form below to get a free call back at a later date. 

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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