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Britain's buy-to-let property hotspots revealed

Manchester has been identified as the top city for rental yield but London offers buy-to-let landlords the best overall returns, a new report has revealed.

The research by LendInvest, which looked at where landlords are seeing the biggest returns on buy-to-let investments by analysing historical purchase prices from the Land Registry and current average rental prices on property website Zoopla, allowed the online lending and investment platform to identify the most profitable areas in the UK to be a landlord.

Manchester tops a list of postcode areas in England and Wales where rental returns are most profitable for landlords, with the average rental yield in the city reaching 6.8% between 2010 and 2016, according to Lendinvest’s Buy To Let Index.

Other high yielding regions include Outer London, Luton and Coventry - all offering gross rental returns of 5.8% for buy-to-let investors over the corresponding period.

When it comes to capital gains on property, however, the west central postcode area of London unsurprisingly ranks highest, with an average 11% return as price growth outstripped all other parts of the country.

For overall return on investment - including rental yield and capital gain - east London tops the list at 17.8%. In contrast, Sunderland, at 3.2%, has recorded the worst ROI over the past six years.

Intriguingly, there was a correlation between how areas voted in the EU referendum last month, with those living in areas offering the highest rental yields opting to vote to leave the EU, while those with the biggest house price gains voted to remain a part of the 28-member state.

LendInvest said that only two of the top 20 local authority districts for rental yield - Manchester and Liverpool - voted to remain, while just two of the top 20 for capital gains - Barking & Dagenham and Spelthorne - voted to leave.

“It’s very interesting that the top districts for rental yield, which are often found in the North East and North West, voted so overwhelmingly for Brexit,” said Christian Faes, Co-Founder and CEO of LendInvest. 

He continued: “The areas that have seen the best of the recent boom times have generally enjoyed the biggest house price rises, and with that offered the greatest capital gains. Perhaps it is no surprise that they were sufficiently content with the status quo to vote Remain. Areas which have seen far more modest house price rises, appear to have been more disposed to voting for the change promised by Brexit.

“Brexit may create opportunities for property investors, particularly professional and experienced ones. House prices are expected to soften, so some would-be buyers may put off buying. But they still need somewhere to live, which is good news for landlords. What’s more, if house prices do cool as predicted, then investing in property will become even more enticing.”

LendInvest’s latest figures breaking down the rental yields, capital gains and overall return on investment for different postcode areas:

Manchester 6.8% (rental yield)

Coventry 5.8%

Luton 5.8%

Outer London 5.8%

Blackburn 5.7%

Oldham 5.6%

Northampton 5.6%

Cardiff 5.6%

Sunderland 5.6%

Rochester 5.5%

Milton Keynes 5.5%

Inner London 5.5%

Southend-on-Sea 5.5%

Liverpool 5.4%

Sheffield 5.4%

  • Commercial Trust

    Tax hikes and tightening of underwriting standards will make it all the more difficult to lend in high-value areas such as London and the South East. If legislators and regulators are not careful, this could hinder the rental market in these areas. Responsible lending is of course paramount, but lenders need the freedom to underwrite based on the overall strength of the investment where it is sensible to do so.

  • icon

    Classic example of where retrospective data can give a totally misleading picture of the best way forward

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