The Upad Landlord: Where are the best places to invest in Buy-To-Let properties at the moment?
That depends on whether you’re investing for capital growth or rental income.
If you’re looking for a long-term investment and you have a large amount of cash to invest, properties in London and the southeast are the most likely to give you the best capital growth.
Areas of the city where house prices are tipped to grow the most include those set to benefit from new transport infrastructure, including the Northern Line extension, Crossrail and the 13 proposed new Thames crossings.
The much overlooked Stockwell and Oval in South London are also likely to benefit from the nearby Nine Elms redevelopment, while the West London boroughs of Acton, Harlesden and Willesden should see price rises on the back of a new transport hub.
However, around half of all landlords need to borrow to buy and if you’re one of them, you can’t just focus on capital growth, you’ll also need a healthy rental yield otherwise, these days, you’ll struggle to raise a mortgage.
This is because the Bank of England, fearful that landlords have overstretched themselves so will be start to panic-sell when interest rates rise, has instructed lenders to “stress test” BTL mortgages to ensure that landlords will still be able to repay their loans if interest rates reach 5.5 percent.
You’ll find it hard if not impossible to get a yield above 5 per cent in central London where high price inflation has outstripped rental growth in recent years, but there are plenty of other cities that offer smashing returns.
Take Manchester, Sheffield and Liverpool. You can buy a two-bedroom property in the M11 postcode of Manchester for less than £60,000 and earn a rent of £550 per month, giving you a whopping yield of 11 per cent.
Like Manchester, Sheffield and Liverpool benefit from being large university cities with high populations, and you can expect to get a yield of 8 to 11 percent yield on a typical two-bed buy-to-let in both.
So, what about the rest of the country?
Heading west, you can get a cracking yield in Cardiff, another university city. A two-bedroom flat in the CF14 postcode, currently on the market for £75,000, would earn you £600 a month rent. In nearby Bristol, where property prices are higher, yields are lower at around 6 per cent.
Heading east, you should be looking at a rental yield of 8 per cent on a two-bedroom property in Rochester or Gillingham in Kent, which knocks the spots off nearby Chatham.
These are just some examples of good places to consider and obviously there are huge property price variations in every city but, generally speaking, the more expensive the borough, the lower the rental yield.
The secret is to buy in the most affordable but still desirable areas with high tenant demand due to good infrastructure including hospitals, schools and, perhaps most importantly, good transport links to the city centre, then you should manage to squeeze a good yield from your property and see long-term capital growth.