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The 10 best towns for landlords
Rents on private homes are going through the roof at the moment and on average they are up 4.2% compared to March 2012.
This is good news for buy-to-let landlords who could see returns of 10.9% if rents continue upwards, according to LSL Property Services.
But what income you make will depend on where you own property. So if you’re thinking of buying it’s important to make sure it’s in the right location.
Top 10 rental hotspots
Southampton is the top pick for buy-to-let landlords to buy because it has the highest rental yield of 7.82%, according to data from HSBC. This is because the city has a relatively affordable average rent of £901 a month.
It’s followed by Blackpool, with an average return of 7.81% and then Kingston upon Hull, with a slightly lower yield of 7.77%.
Here is the list from HSBC of the ten locations where demand from tenants is highest (almost all of which are university towns/cities):
Town/City | Average property price | Average rent (monthly) | Rental yield |
Southampton | £138,311 | £901 | 7.82% |
Blackpool | £75,943 | £494 | 7.81% |
Kingston upon Hull | £69,519 | £450 | 7.77% |
Manchester | £102,631 | £650 | 7.60% |
Nottingham | £83,313 | £524 | 7.55% |
Coventry | £104,970 | £624 | 7.13% |
Slough | £171,581 | £975 | 6.82% |
Oxford | £244,893 | £1,375 | 6.74% |
Liverpool | £91,012 | £498 | 6.57% |
Portsmouth | £141,971 | £775 | 6.55% |
Bad for tenants, good for landlords
These figures are good news for buy-to-let landlords looking for an above-average return. In the list of the top 50 buy-to-let locations, 23 offered yields of more than 5% which is a much better deal than you’d get from the savings market.
In the top ten list most locations are university towns with an average rental price.
Surprisingly London, the most expensive city to live in the UK, didn’t make the list. This is because prices are so expensive, the amount coming in through rent is relatively modest. In Southwark for example, the borough with the highest rental yield, the average return is 6.15% - well below those at the top of the list.
As rents rise for tenants, arrears have also increased. 8.5% of all rent in England and Wales is now in arrears. Given the current state of the economy this pattern is likely to continue and could prove problematic for landlords if they’re left short.
Renting out a room
With demand for rooms so high, homeowners could make some extra income by taking up some of the slack from a booming rental market struggling to cope with demand.
If you're a cash-strapped homeowner looking to make ends meet, why not consider renting out a room in your home? Under the government's Rent a Room scheme, you can earn up to £4,250 a year tax-free (£2,125 if letting jointly) by letting a furnished room in your own home to a lodger.
Seven tips for better buy-to-let loans
If you're thinking about becoming a buy-to-let landlord, or already have an existing portfolio of rented properties, here are six tips to find your ideal buy-to-let mortgage:
The most successful investors view their properties as long-term investments rather than hoping for quick capital gains.
Thanks to the credit crunch, it's much harder to get a buy-to-let mortgage now than at the peak in 2007 and you'll need a deposit of at least a quarter (25%) of a property's value.
Watch out for hefty arrangement fees, as some major lenders charge fees of 3%+ of the sum borrowed.
Rates may have fallen a lot recently but if you’re hit with a massive fee this will negate any benefit of a lower fee.
Be very wary of new-build flats. Prices of these properties get hugely over-inflated during bubbles, before crashing spectacularly. For new-builds to be tempting, they need to be at bargain-basement prices.
Lenders won't lend against just any property; they are wary of lending on buildings with non-standard construction (such as timber-framed or concrete, instead of brick).
Be conservative when calculating a property's rental yield. In other words, make sure that the proposed rent comfortably covers the BTL mortgage repayments, plus an extra margin to pay for repairs, maintenance, etc.
Most lenders will insist on rental cover of 1.25 times mortgage repayments.
Best buys for buy-to-let loans
Lastly, here's a list of the best buy-to-let loans on offer this week, courtesy of Lovemoney's highly praised mortgage service:
Provider and mortgage type | Initial rate and period | APR | Max LTV | Fees and charges |
3.49% until 29/06/15 | 4.9% | 55% | Arrangement fee: £995 ERC: 5% until 30/06/15 | |
3.68% until 30/05/15 | 5.5% | 70% | Arrangement fee: £995 ERC: 3% reducing to 2% until 31/05/15 | |
4.69% until 29/06/15 | 5.4% | 80% | Arrangement fee:£0 ERC: 5% until 30/06/15 | |
4.98% for two years | 5.9% | 80% | Arrangement fee: £1,999 ERC: 5% reducing to 4% after two years |
Notes:
1.
All figures based on a repayment loan of £120,000 over 25 years.
2.
The APR (Annual Percentage Rate) shown is the overall cost for comparison over each loan's 25-year life.
3.
Max LTV = maximum loan-to-value ratio (what proportion of a property's value you can borrow).
4.
ERC = early repayment charge (the fee payable on early exit).
5.
The Bank of England's base rate ('Base') is currently 0.5% a year.
