Landlords can find the best rental yields in university towns in the North West, according to a new study by LendInvest.
Although London is a very popular buy-to-let hotspot, the research found that the North West has been the most lucrative area for rental yields in the past five years.
Between 2010-15, Manchester and Liverpool came out on top for rental yields, while the south dominated for capital growth and return on investment.
Best Rental Yields Found in University Towns in the North West
The highest average annual rental yields were seen in Manchester at 6.02%, followed by 5.15% in Liverpool. Returns in London are surprisingly low – just 4.86% in outer London and 4.71% in the centre of the capital.
Estate agent Savills reports that the five largest rental markets outside of London are Manchester, Liverpool, Leeds, Bristol and Birmingham – all popular university cities, where an average 23% of the population live in the private rental sector.
Property investor Peter Armistead, of Armistead Property, advises: “Landlords will find the best returns in urban areas with a concentration of students and young professionals. Yields in Houses in Multiple Occupation (HMOs) can be high. If you’re targeting the student or young professionals market, buy a multiple-bedroom property near the university or city. Students and young professionals are looking for high-spec accommodation with good appliances and a quality finish that have good transport links nearby, such as train stations and main roads.
“It is important to remember that yields are calculated before maintenance costs, void periods, mortgage payments and letting agent fees. So before acquiring a rental property, ensure you factor in all these costs.”
He explains: “An average residential property in Manchester is just £155,000, while a flat in good area costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and, by comparison with other regions, housing is cheaper.
“House prices in London are about five times what they are in Manchester, but salaries are only 30% higher. Manchester is a very affordable place to live, and demand for property is soaring in the city, thanks to the expansion of the Metrolink tram system, the trendy Northern Quarter and the BBC Media City. It has vibrant restaurants, bars, clubs, plus a great music scene, galleries and museums.”
Armistead concludes: “In the second half of this year, we may start to see a shift in investment focus away from London and towards the more lucrative and profitable buy-to-let areas in the UK. Many investors will be looking at ways to protect potential new investments in 2016 from the impact of the Chancellor’s new tax measures.
“If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term. Certainly the recent changes have made it a lot harder to make money in buy-to-let. But where there are challenges, there are opportunities if you can think outside the box.”