Liverpool and Nottingham are the UK’s best performing locations for landlords with average net rental yields of 6.2 per cent, the latest analysis of buy-to-let hotspots by Private Finance shows.
Overall rental yields in the top 10 locations in the country have increased by an average of 0.9 per cent since May 2017 with the biggest increase of 2.2 per cent recorded in Southampton where rents are rising faster than house prices.
Nottingham is now joint top after moving up from second position due to a £121 increase in average monthly rents.
Cardiff, with a net rental yield of 6 per cent, comes third, followed by Southampton and Greater Manchester both at 5.9 per cent.
Shaun Church, director of Private Finance, said: “Finding the right buy-to-let location is a careful balancing act.
“Too large an initial investment makes it difficult to achieve a healthy yield, but landlords must also be confident that property values will appreciate at a higher rate than mortgage borrowing to achieve a long-term profit.
“Strong rental demand is also key to prevent lengthy void periods that can damage affordability.
“While there has been some movement in the top 10 buy-to-let hotspots, larger cities and university towns tend to offer the greatest opportunity for investors as they offer the highest rental demand.
“Although the buy to let sector is facing many challenges, one area where landlords have benefited is falling mortgage rates.
“However, seeking independent advice is becoming increasingly important for landlords to find and be accepted for the best deals.
“With house prices on the rise, too large a loan can negate any savings made from low rates, so landlords need to consider all aspects of their mortgage.”
There was a slight increase in average mortgage rates towards the end of 2017 as November brought the first interest rate rise in 10 years, up to 0.5 per cent.
However, Bank of England data shows the average two year 75 per cent loan to value buy-to-let fixed rate is at its lowest point at 2.47 per cent since tracking began in January 2012 and has fallen by 2.62 per cent since May 2017.
As a result, many landlords across the UK will have seen their annual mortgage costs fall.
Within the top 10 hotspots, Brighton and Hove has seen the biggest reduction in mortgage costs. Despite a 2.1 per cent increase in house prices in the area in the past eight months, meaning the size of a 75 per cent loan has increased, as a result of falling mortgage rates a landlord would now pay £6,681 in interest annually compared to £6,993 last May, a saving of £312.
Source: Simple Landlords Insurance