16th
Jul 2013
One of the leading lenders has named Southampton, Blackpool and Hull as the country’s best cities to buy-to-let for landlords to maximise their returns from investments in the rental property market.
- In first place was Southampton with its average monthly rental price of £901 coupled with its comparatively affordable houses. Average price for a house is around £138,000 and this can bring in an average rental yield of 7.82%.
- In second place was Blackpool with its seaside views and the many tourist attractions ensuring holiday rentals and to cope with the seasonal influx, workers looking to rent as well. The rental yield is approximately 7.81% with average rents of £494 per month.
Not surprisingly because of their relatively affordable property prices, northern cities and towns came out on top with Hull taking third place due to its high student population with Manchester following in fourth position.
It has been a great time over the last year for some regions where rents have rocketed with increased demand for rented properties. Lenders are also beginning to increase their buy-to-let investments to meet the market’s upsurge.
A spokesman for the lender said : "Buy-to-let remains a good investment for those looking for above-average returns. Twenty-three of the top 50 areas offer yields above 5%, significantly more than is available from more traditional savings options.
- "However, it is clear there is a fine line between a property in a desirable area, the rents that can be achieved and the returns that can be yielded so it is key landlords do their research as often the most popular locations may not offer the best return."
The figures came from a survey of 50 towns and cities in England and Wales that had the highest concentrated numbers of private rented properties. Cardiff just missed making the Top10 when it achieved eleventh position with annual rental yields of 6.39%.
London, despite its high rents, did not feature very highly in terms of returns on investment because of the high costs of properties. One borough that did reasonably well was Southwark with an average rental yield of 6.15%.
Out of the 50 areas surveyed, Hammersmith and Fulham and Kensington and Chelsea yielded the lowest figures of returns of 3.42% and 3.34% respectively.
PIMS COMMENT
- Beware of the Ghetto - Yield is critical but most investors consider long term capital growth as their key objective. Due to changes in the Local Housing Allowance. Tenants will only be able to live in areas of lower rental value, this by default reduces the average rental value in the broader rental market. Due to the calculations used to assess rents - rent increases will be suppressed. In addition as from April 2012 Housing Benefit increases are now linked to Housing Benefit (LHA) will be set in line with the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI). The RPI includes mortgage interest payments and housing depreciation, while the CPI does not. As of Nov CPI inflation was 3.1%, whilst RPI 4.6% in effect Housing Benefit will reduce by 1.5% below the inflation measure previously used. Long term rents from LHA Tenants will be reduced and Tenants will only beable to live in certain parts of a town. If one were to use an hypothosis higher unemployment higher crime would make an area less desirable in turn reducing an investors capital growth.
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