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How To Find The Best Buy-To-Let Areas For UK Property Investors

Best Buy To Let Areas For UK Property Investors

As an investor, you’re always looking for the best place to put your money and when it comes to buy-to-let property, there are a few key areas in the UK that stand out as being particularly good investments at the moment. This includes 6 large towns in Scotland and 4 in the North of England, but as the property market is ever changing, you also need to know what to consider when choosing the right place to make your property investments in the future.

In this post, we’ll take a look at some of the current best buy-to-let areas in the UK in 2022 as well as share the key things to think about when choosing which areas to get the best rental returns for your investments. 

What Are The Best Buy-To- Let Areas In The UK?

The best buy-to-let areas in the UK will vary depending on several factors, such as the current economic climate, the local housing market, and your personal preferences such as whether you want to buy in an area you know and already live in or if you will outsource the management of the property once purchased.

These factors mean that the best buy-to-let areas are always changing, but some general tips can help you to choose a profitable area to invest in:

  • Look for areas with high demand for rental properties. This could be due to a growing population, being in a University town, a shortage of housing, or a strong local economy and great commuter links.
  • Consider areas where property prices are on the rise. This indicates that there is strong demand for housing in the area, which is likely to continue in the future.
  • Choose a location that is accessible to amenities and transport links. This will make it more attractive to potential tenants.
  • Do your research! Make sure you are aware of any upcoming developments in the area, as this could impact the demand for rental properties.

Some of the best buy-to-let areas in the UK at the moment include Scotland, Manchester, Birmingham, and London. These cities have strong economies and are also appealing to a wide range of tenants, from students to young professionals.

What Does The Housing Market Say?

According to figures released by Zoopla in Sept 2022, 6 of the top 10 investor hotspots were in Scotland with the rest of the top ten residing in the North of England.

AreaGross YieldRentAverage Rental Property Value – September 22 
East Ayreshire8.48%£504£71,334
West Dunbartonshire8.40%£562£80,326
North Lanarkshire8.07%£573£85,225
Renfewshire7.97%£606£91,249
North Ayrshire7.94%£524£79,237
Burney7.92%£493£74,681
Hartlepool7.80%£481£74,045
Middlesborough7.64%£531£83,333
Sunderland7.61%£546£86,078
Inverclyde7.55%£568£90,264

Best Areas For Buy-To-Let By Region In The UK 

The figures shared by Zoopla also put the following towns as the top places to invest in each region of the UK.

 

RegionBest Buy-To-Let AreaGross Rental Yield – Sept 22

East Midlands

City of Nottingham6.49% gross rental yield

East of England

Fenland District5.60% gross rental yield

London

Barking and Dagenham5.12% gross rental yield

North East

Hartlepool 7.64% gross rental yield

North West

Burnley7.92% gross rental yield

Scotland

East Ayrshire8.48% gross rental yield

South East

City of Portsmouth5.60% gross rental yield

South West 

City of Plymouth5.64% gross yield

Wales

Blaenau Gwent 7.02% gross yield

West Midlands

City of Stoke-on-Trent 6.63% gross yield

Yorkshire and the Humber

North East Lincolnshire 6.72% gross yield

What Does Buy-To-Let Mean?

The term buy-to-let is used in the United Kingdom to describe the purchase of a property to let it out to tenants. The phrase is also used in other types of property investment, such as commercial property.

What Is A Property Investor?

A property investor is somebody who purchases property intending to make a profit from it. This can be done in several ways, such as renting it out to tenants or selling it for a higher price. Property investors usually have a portfolio of properties, which they will buy, sell and rent out as part of their business.

Why Invest In Property?

Why invest in property

Property can also be a good source of income, especially if you can rent it out to tenants.

Property is a physical asset that can be bought, sold, or leased, and it usually increases in value over time. This makes it a popular choice for those who are looking to build up their wealth or generate an income from rental properties and as such, many people see it as a more stable investment than other options, such as stocks and shares.

Another benefit of investing in property is that it gives the investor more control than other investments. For example, an investor can choose the location of their property, the type of property, and the level of refurbishment required. This flexibility means that investors can tailor their portfolios to suit their own needs and risk appetite. Ultimately, investing in property can be a wise choice for those who are looking for stability, growth potential, and greater control over their investment.

Measurement Of Buy-To-Let Success

Rental Yield 

One of the most important things to consider when investing in buy-to-let property is the rental yield. This is a measure of how much income you can expect to receive from your property compared to the amount of money you have invested. For example, if you purchase a property for £100,000 and it generates £5,000 in rental income per year, then the rental yield would be 5%.

The higher the rental yield, the more profitable your investment is likely to be but yields can vary depending on several factors, such as the location of the property and the type of tenants you are looking to attract.

Capital Growth 

Another important factor to consider when measuring the success of your buy-to-let investment is capital growth. This is the increase in the value of your property over time and can be a great way to generate profit from your investment. For example, if you purchase a property for £100,000 and it increases in value to £150,000 over five years, then the capital growth would be 50%. Capital growth can never be guaranteed and will always depend on a number of factors, such as the location of the property and the state of the housing market.

Income Tax 

Another thing to consider when measuring the success of your buy-to-let investment is the amount of income tax you will have to pay. Income tax is a levy that is charged on any money you earn from your property, and it is important to remember that this includes rental income as well as any capital gains you make from selling your property.

The amount of income tax you will have to pay will depend on factors such as your taxable income and the rate of tax that you are liable for. There are also several tax reliefs available for landlords, which can help to reduce the amount of tax you have to pay.

These reliefs include the wear and tear allowance, which allows you to deduct 10% of your rental income to cover the costs of repairing and maintaining your property, and the mortgage interest relief, which allows you to deduct the interest you pay on your buy-to-let mortgage from your taxable income.

What Is Rental Yield? 

What is rental yield

Rental yield is a key financial metric that measures the return on investment for a buy-to-let property. It is calculated by dividing the annual rent by the purchase price of the property and is usually expressed as a percentage.

  • For example, if you purchase a buy-to-let property for £100,000 and it generates £5,000 in rental income per year, the gross rental yield would be 5%.
  • It is important to remember that the rental yield is a gross figure, and does not take into account any associated costs such as mortgage interest, repairs, or maintenance.

To generate a good rental yield, it is important to consider the property’s value, the annual rent, and associated costs such as mortgage interest, repairs, or maintenance.

Working Out Your Gross & Net Rental Yields

Gross Rental Yield = (Annual Rent / Purchase Price) x 100

For example: Property value: £100,000

  • Annual rent: £5,000
  • Gross rental yield = (5,000 / 100,000) x 100 = 5%

 

Net Rental Yield = (Annual Rent – Total Expenses) / Purchase Price) x 100

For example: Property value: £100,000

  • Annual rent: £5,000
  • Total expenses: £1,500
  • Net rental yield = (5,000 – 1,500) / 100,000 x 100 = 4%

Which Is A Better Metric For Investors – Net Or Gross Rental Yield?

It depends on your investment strategy and what you are looking to achieve from your property portfolio. If you are looking for immediate income and are not too concerned about capital growth, then a gross rental yield might be more important to you. However, if you are looking to build a long-term portfolio that will generate both income and capital growth, then a net rental yield might be more important.

Things To Consider Before Investing 

Thinking of investing in one of the top cities mentioned? Whilst property investment is a popular way to build wealth, you should always consider the following points before parting with your cash and remember that property investment is a long-term game – don’t expect to get rich quick!

  • What is the potential for house price growth in the area?
  • Rental Yield, but remember, a higher yielding market might not deliver much house price growth, which is a key element of getting returns from an investment property.
  • Tenant demand in the area. Areas with a younger population including students, areas with new business investment, holiday let areas and commuter hotspots will all drive up the demand for rental spaces
  • Does the opportunity fit with your investment strategy? Do your due diligence on the area, the property, and the developer. Don’t overstretch yourself – make sure you can afford the mortgage payments even if there is a void period and have a realistic exit strategy in place.
  • Adding a student rental or HMO to your property portfolio? – does it fit with your long-term goals?
  • What are the risks associated with the investment?
  • Can you afford the upfront costs and ongoing running costs?
  • What are the tax implications, and do you need help from a specialist? House purchases come with tax liabilities but there are also opportunities to make tax savings such as buying multiple properties in the same transaction. It’s worth discussing your by to let intentions with a tax advisor.
  • Do you have the time and expertise to manage the property yourself, or will you need to employ a letting agent?

How To Find The Best Buy-To-Let Properties 

The best way to find good buy-to-let opportunities in the area you want to buy is to speak to local Estate Agents and research the market carefully to look at a wide range of properties in different locations, so you can get an idea of what’s available and how much it costs.

Don’t forget to:

  •  Negotiate the price. Don’t be afraid to haggle with the seller to get a lower price for the property.
  • Look for properties that need work. These will usually be cheaper than ones that are ready to rent out, but it’s important to factor in the cost of any necessary repairs or renovations.
  • Use a letting agent. They will have access to a range of properties that are not listed on the open market, which gives you a wider choice of properties to choose from.

Summary

In 2022, some of the best buy-to-let areas for UK property investors are in Scotland and the North of England, but there are excellent rental yield opportunities to be found in every region if you know what to look for.

To recap, buy-to-let properties can be a lucrative investment, but it is important to do your research before parting with your cash and remember that rental yield isn’t the only factor to consider, and there is no one-size-fits-all approach to measuring the success of your investment. You could buy a property with a strong yield, but if house prices aren’t rising or you can’t find tenants, it might not be the best investment.

It is also important to think about your long-term investment strategy and whether you are looking for immediate income or capital growth. If you are thinking of investing in buy-to-let, make sure you speak to local estate agents and carry out due diligence on the area, the property, and the developer before making any decisions.

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