Making the right investment choice in the first place is the biggest factor in influencing later rental yields, which may sound obvious but is more vital than ever in today’s property market.
While house prices have risen by around 17% in the UK over the past three years, buy-to-let investors have seen average rents go up by just 4.7% over the same period – meaning many are making more money through capital appreciation than through rental income.
The location of the buy-to-let investment is still one of the most important aspects of the purchase for most investors, with the best annual yields to be found in Burnley in Lancashire, according to research from Direct Line. Here, the average home costs just £76,300, while rents will bring in £5,388 for the typical landlord – making an impressive monthly yield of 7.1%.
According to Daniel Bailey, Middleton Finance principal, it is the original purchase price which is key.
“Most of my buy-to-let investors don’t tend to pay more than £125,000. If they go beyond that then the yield tends to not be as good.”
“Purchase price is a major factor and some areas will attract a better monthly rent. I have some clients achieving yields of 7 to 10%,” he added.
Getting the right balance for investors
Glasgow and Belfast were other top performers in the Direct Line data, with typical buy-to-let landlords achieving monthly rental yields of 6.9% and 6.4% respectively, compared to the national average of 3.6%.
In London, where house prices tend to be well above the UK average and restrictively high for many buyers, yields were just 4.4% on average, despite bringing in more than £20,000 a year for many landlords. In the east of England, with homes costing an average £289,000, yields were even lower at a typical 3.5%.
Generally, properties in the north of England come at a lower price, which is why many investors are increasingly looking to Manchester, Liverpool, Leeds, Sheffield and other surrounding areas as the next emerging markets for the highest yields. With more young professionals now moving to these cities in search of a better life balance outside London, demand on rental properties is high in these areas which creates better yields.
Investing in off-plan property can further maximise the ultimate rental yields an investor can make, as the property is purchased at the lowest possible price before the building has been completed, and the buyer then benefits from the additional capital appreciation as well as higher rental income.
Some of BuyAssociation’s off-plan investment opportunities can be found here.
