Following a considerable period of buy-to-let boom, landlords and investors alike are beginning to feel the strain, with average yields dipping across England and Wales.
Total yields for houses in multiple occupation (HMOs) fell by 1.3% to 9.3% between the first and second quarters of 2015, whereas yields for typical buy-to-let properties fell less sharply, from 6.4% to 5.8%.[1]
Regional differences
With some landlords and investors feeling the squeeze, the regional data is very different. Research from HSBC shows that the average rental yield in Manchester is 7.98%, taking pole position in the best place to make a buy-to-let investment. Kingston-upon-Hull and Blackpool came next on the list.
Manchester’s position has been built on property prices and strong rental demand. The survey by HSBC indicates that prices in the region have increased by 4%, from £104,244 in 2014 to £108,870. Average rents remained at a steady pace, up from £8,316 to £8,628 in the second quarter of the year.[1]
The complete top-ten was as follows:
| Location | % of housing stock privately rented | Average house price | Average annual rent | Rental yield |
| Manchester | 26.85% | £108,870 | £8,628 | 7.98% |
| Kingston upon Hull | 19.02% | £69,135 | £5,400 | 7.81% |
| Blackpool | 24.16% | £79,654 | £5,856 | 7.35% |
| Forest Heath | 21.80% | £171,322 | £12,432 | 7.26% |
| Coventry | 19.02% | £116,946 | £8,424 | 7.20% |
| Southampton | 23.42% | £151,415 | £10,800 | 7.13% |
| Nottingham | 21.64% | £89,312 | £6,288 | 7.04% |
| Liverpool | 21.75% | £90,426 | £5,928 | 6.56% |
| Cardiff | 20.32% | £150,892 | £9,624 | 6.38% |
| Portsmouth | 22.28% | £155,696 | £9,900 | 6.36% |
Top location
‘Manchester has one of the largest student populations in Europe and demand for rental accommodation is strong and by comparison with other regions, housing is cheaper,’ said Peter Armistead.[1]
He feels that the city is, ‘undoubtedly a great place to invest,’ and said, ‘as a seasoned property investor, I have built a successful, mid-sized portfolio of buy-to-let properties in South Manchester. Over the last 12 months I have enjoyed average yields of 6% across my 80 properties. While location is an important factor when considering a buy-to-let investment, the most important lesson I have learned is that landlords need to treat their property as a business. Treat it seriously and get yourself surrounded by a great team of professionals who are better than you.’[1]
‘Whilst the recent property price rises are generally a good thing for home owners, they can be a double edged sword for investors. With yield cooling, monthly profit margins will be squeezed and investors now more than ever need to make sure they have a solid business plan which is risk management focused. If investors are acquiring buy-to-let properties, it is vital that they purchase below market value in the right area. This may mean taking on properties that require refurbishment. As long as all the refurb the costs have been accurately factored into cashflow with a contingency budget, then investors have the potential of higher yields on ‘nearly new’ properties,’ Armistead concluded.[1]
[1] http://www.propertyreporter.co.uk/landlords/landlords-feel-the-pressure-as-yields-cool.html