Top buy-to-let hot spots in Britain
When buying property to rent, try Southampton, Manchester and Nottingham (and avoid London) to reap a princely payback
To let sign outside a house
Do your research before buying a property to rent for high yield Photo: Alamy
By Justin Harper
Expats looking to buy property in the UK to rent out should be aware of the wide differences in rental income across the country.
For example, if you became a buy-to-let investor in Southampton rental yields are as high as 8.73 per cent whereas some parts of London only offer yields of 2.7 per cent (Hammersmith and Fulham) as property prices have rocketed so much in parts of the capital. By being out of the UK an expat can lose touch with escalating property prices, which have a major impact on the rental yields.
The "yield" is the annual return, calculated by expressing a year's rental income as a percentage of how much the property cost.
According to research from HSBC, Southampton took the top spot for the highest rents for buy-to-let investors while in second place was Manchester at 7.98 per cent followed by Nottingham in third spot with 7.67 per cent. No London borough made it into the top 10.
Peter Dockar, head of mortgages at HSBC, said: "Landlords outside of London are reaping the benefit as young professionals say goodbye to capital living in favour of more affordable commuter towns."
The highest average yield available in London was Newham, east London, at 6 per cent.
However, London is still very popular among foreign investors and expats alike given its stable prices and strong rental demand. While rental yields have been squeezed, capital appreciation has been strong in recent years. For buy-to-let landlords only interested in the highest rental yields it may pay to look further afield. Research by Knight Frank shows that gross yields ranged from 4.3 per cent in central London to 8.2 per cent in Leeds this year.
For those interested in capital appreciation alongside rental yields, Hamptons International ranks Cambridge as the number one buy-to-let spot for landlords. Johnny Morris, head of research at Hamptons International, said: "Cambridge has seen particularly strong house price growth in the last year, which makes up for a fairly average yield. The continued growth of the city means that it’s a safe bet, albeit at a high entry price."
Experts predict that house price growth is set to ease in the coming months, making the yield of the rental income all the more important in 2015. With rental growth set to increase in 2015 yields should be increasing slightly too.
According to HSBC’s hot spots, many northern cities make it into the top locations for rental yields including Nottingham, Manchester, Blackpool and Hull. This is attributed to their relatively low house prices combined with strong demand for rental property from students and young professionals.
One city seeing rapidly rising yields is Reading which is home to many multinational companies and a large university. The prospect of Crossrail and the redevelopment of much of the town centre is expected to be a boon for the area in the coming years. Crossrail is a high-speed trainline that will provide a new east-west line across Greater London and its surrounding area. It is due to be completed by 2018.
Another popular property investment among expats is student accommodation. But Mr Morris cautioned against buying a property in a university town. He said: ‘’Expats might want to think twice before dipping their toe into the student market, as student properties can be difficult to manage well. A mid-market two- or three-bedroom property in an area popular with young professionals will generally be much easier to manage from a distance.’’
Top 10 buy-to-let hot spots by rental yield
1. Southampton 8.73 per cent
2. Manchester 7.98 per cent
3. Nottingham 7.67 per cent
4. Blackpool 7.63 per cent
5. Kingston upon Hull 7.47 per cent
6. Coventry 7.09 per cent
7. Oxford 7.02 per cent
8. Portsmouth 6.5 per cent
9. Liverpool 6.5 per cent
10. Cambridge 6.48 per cent