Buy-to-let landlords squeezed by recent tax changes may find better returns by targeting towns with strong student populations, research suggests.
University towns and cities where housing is cheap, such as Liverpool and Middlesbrough, provide rental yields up to seven times higher than in London, a study by credit specialists Totally Money found.
Its report compared average rents to house prices to highlight the most profitable places for buy-to-let and named a pair of postcodes close to two of Liverpool’s three universities as a hotspot for property investment – with rental yields of almost 12 per cent.
The top ten buy-to-let hotspots for rental returns compared to house prices were revealed in the TotallyMoney report
The Liverpool postcodes L7 and L6 took first and second place, with average rental yields of 11.79 per cent and 11.59 per cent, respectively.
Average rents in the two postcodes were £1,162 and £1,046, according to the research, whereas house prices were £118,225 and £109,940, respectively.
Middlesbrough’s TS1 town centre postcode, home to Teeside University, took third place, with an average rental yield of 10.94 per cent.
The area has average rents of £595 per month but an an average asking house price of just over £65,000, making it one of the most affordable spots to buy into.
Landlords whose hearts are set on a buy-to-let investment in the capital should look to east London for the best returns. East Ham, Plaistow, Manor Park, Chingford, Stratford, and Poplar all rank in the top 10 London postcodes for rental profits.
At the other end of the spectrum, the worst performing area outside of London was Bournemouth’s BH14, which has average rental yields of 1.68 per cent. Crewe’s CW12 comes next, with 1.74 per cent.
All postcodes in the 25 lowest yielding areas have average house prices of more than £300,000, suggesting that more affordable house prices generate better rental yields than hoping that costly properties will rent for more.
The effect of the 3 per cent stamp duty surcharge is also mitigated by buying cheaper property.
|Rank||Postcode||Postcode Town||Properties for Rent||Average Monthly Rental Value||Properties for Sale||Average Asking Price||Yield|
|6||NE6||Newcastle upon Tyne||883||£883||237||£111,767||9.48%|
|Source: TotallyMoney June 2018|
Liverpool, with a student population of 70,000, provides average rental yields of 11.79 per cent
Totally Money’s Joe Gardiner said: ‘With students flocking to university cities year after year and looking for a place to live, it’s no surprise the student market is a dependable one for landlords.
‘Since so many students are looking for accommodation, landlords may use this as an opportunity to drum up competition between them.’
Nick Morrey of mortgage broker John Charcol agreed that students can be worth targeting but said there are tougher rules for prospective landlords.
He said: ‘We have known for a while that renting a property to students can be significantly more profitable for landlords, especially if they can convert a living room to a bedroom.’
Morrey added that the difficulty brokers face is finding a lender who will allow a valuer to give a rental assessment based on students renting a property rather than a single ‘family unit’.
‘However, the more demand they see in this market the more lenders are likely to change their criteria,’ he added.
A number of tax and regulatory changes have hit landlords’ profits in recent months, including the limiting of landlords’ mortgage interest tax relief from April 2017 and the introduction of a 3 per cent stamp duty surcharge in April 2016.
It means it is now much more expensive to both buy and run buy-to-let properties than it was two years ago.
Postcodes in the 25 lowest yielding areas have average house prices of more than £300,000
Last month, it was reported that landlords are offloading 3,800 buy-to-let properties a month, marking the end of a rise in the volume of rental dwelling stock that had been ongoing for nearly two decades.
Andy Golding, chief executive of OneSavings Bank, said: ‘Landlords were left reeling after the introduction of tighter regulation and higher taxes, while the spectre of Brexit is already weighing on the housing market.
‘Political opinion may be set against the private rented sector, but without it, the housing crisis would be deeper still.
‘A housing market with dwindling supply of rental accommodation yet growing demand would, without a significant rise in affordable housing, provide the worst of all worlds for tenants: higher rents, with less choice and security, hampering their ability to save to buy a home.’
Tips for letting to students
Aim for a property which has at least three bedrooms. Students tend to rent in groups of three to five people. Having more than one bathroom will also be a big selling point
· Location-wise, look for properties with good access to the university campus as well as basic shops and services
· It’s a good idea to ask for a guarantor for each student tenant. That way, even if the student doesn’t pay the rent, you can recover it from the guarantor
· Consider using a joint tenancy agreement, rather than an individual agreement with each tenant. This way, if one tenant drops out or leaves, you will not miss out on rent while the room is unoccupied
· Some universities, like the University of Southampton, compile directories of accredited private student accommodation in the area. You will need to comply with certain standards in order to get onto these directories, but they are a great way of directly reaching suitable tenants