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The Best Areas in London for Buy-to-Let Yields This Year

Buy to Let – Since the onset of COVID-19, investors have turned away from many of the asset classes whose presumed security and capacity for long-term value creation were once thought unimpeachable. With international lockdowns accelerating existing trends towards flexible working practices and e-commerce, investors have seen billions wiped off the value of commercial property assets.

However, while commercial property has suffered, the value of residential assets has fared well during the pandemic. Thanks to the extended stamp duty holiday, the sales market is buoyant and price growth has exceeded expectations, while a surprisingly robust lettings market benefited from permission to continue operating during later lockdowns and a flurry of activity as renters seek out housing that more closely aligns with their post-COVID priorities.

At Home Made, we have analysed data from thousands of property listings across London to create an up-to-date guide on buy-to-let rental yields for investors in the capital. Here are the top 10 postcodes in London offering investors the best rental yields for 1, 2, and 3-bedroom properties.

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1-bedroom properties

  1. IG11 (Barking, Upney) – 6.12 per cent
  2. N9 (Lower Edmonton) – 5.89 per cent
  3. TW13 (Feltham, Twickenham) – 5.65 per cent
  4. EN8 (Cheshunt, Waltham Cross) – 5.57 per cent
  5. IG1 (Ilford) – 5.56 per cent
  6. EN3 (Enfield) – 5.50 per cent
  7. RM6 (Chadwell Heath, Goodmayes, Marks Gate, Little Heath) – 5.46 per cent
  8. RM1 (Romford) – 5.43 per cent
  9. RM7 (Romford, Dagenham, Hornchurch) – 5.39 per cent
  10. IG2 (Gants Hill, Newbury Park, Aldborough Hatch) – 5.35 per cent

2-bedroom properties

  1. UB1 (Southall) – 5.93 per cent
  2. IG11 (Barking, Upney) – 5.64 per cent
  3. EN3 (Enfield) – 5.52 per cent
  4. RM6 (Chadwell Heath, Goodmayes, Marks Gate, Little Heath) – 5.48 per cent
  5. N9 (Lower Edmonton) – 5.42 per cent
  6. TW5 (Hounslow) – 5.39 per cent
  7. N18 (Upper Edmonton) – 5.39 per cent
  8. IG1 (Ilford) – 5.37 per cent
  9. IG3 (Ilford, Cransbrook, Loxford) – 5.35 per cent
  10. RM1 (Romford) – 5.33 per cent

3-bedroom properties

  1. RM8 (Dagenham, Beacontree) – 5.13 per cent
  2. RM9 (Dagenham, Beacontree) – 5.01 per cent
  3. RM10 (Dagenham, Beacontree) – 4.90 per cent
  4. IG11 (Barking, Upney) – 4.80 per cent
  5. EN3 (Enfield) – 4.76 per cent
  6. RM3 (Harold Wood, Harold Hill) – 4.64 per cent
  7. N9 (Lower Edmonton) – 4.61 per cent
  8. CR0 (Croydon) – 4.56 per cent
  9. N18 (Upper Edmonton) – 4.54 per cent
  10. CR7 (Thornton Heath) – 4.54 per cent

Overall

  1. IG11 (Barking, Upney) – 5.13 per cent
  2. RM10 (Dagenham, Becontree) – 4.97 per cent
  3. RM9 (Dagenham, Becontree, Castle Green) – 4.94 per cent
  4. RM8 (Dagenham, Becontree, Becontree Heath, Chadwell Heath) – 4.91 per cent
  5. SE28 (Thamesmead, Greenwich, Bexley) – 4.88 per cent
  6. E13 (Plaistow, West Ham) – 4.59 per cent
  7. RM3 (Harold Wood, Harold Hill, Noak Hill, Harold Park) – 4.54 per cent
  8. N9 (Lower Edmonton) – 4.44 per cent
  9. E6 (East Ham, Beckton, Barking) – 4.40 per cent
  10. RM6 (Chadwell Heath, Marks Gate, Little Heath, Goodmayes) – 4.35 per cent

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What does the data show and why?

As the data indicates, the most attractive investment prospects right now are mainly clustered in London’s outermost Eastern boroughs: Barking and Dagenham, Redbridge, and Havering. A review of our previous yields analysis (published in late 2019) suggests that there has been a sustained eastwards shift in the location of postcodes offering the best potential ROI for buy-to-let landlords.

There are several likely reasons why this is the case, with trends established both before and during the pandemic responsible for the continuing eastwards shift.

Improvements to transport infrastructure

As was the case in our original 2019 analysis, improvements to London’s transport infrastructure mean that residents in high-yield areas can commute into the major economic hubs of the city centre with relative ease. The forthcoming Elizabeth line will drastically improve transport connections between many of this year’s best performing locations to the rest of the TfL network, with stations opening in Ilford, Goodmayes, Chadwell Heath, and Romford. We know that rental prices react more quickly than sales values to infrastructural improvements, so investors should expect to see an even greater spike in rental yield value in these East London suburbs.

The impact of urban redevelopment

Urban redevelopment schemes that introduce thousands of units of high-specification housing and modern amenities tend to change the profile of tenants, making them more attractive to working professionals on higher incomes. This increases the value of nearby property, leading to a sustained rise in rental yields over the medium term as rental price growth outpaces the growth in sales prices.

East London’s outer boroughs are currently further behind in their redevelopment journey than many of the more central neighbourhoods that have already been transformed by various urban renewal projects (e.g Stratford, Royal Docks). Ambitious redevelopment plans underway in the East, particularly in Havering, are set to have a similar impact, and investors should expect to see consistent growth in rental yields along with significant appreciation in the sales value of any property.

Consumer and renter behaviour

Tenant migration patterns have been altered significantly by COVID-19. Since the onset of the pandemic, the widespread adoption of flexible working practices has meant that renters have had more freedom to move across the city without as much concern for the impact on their daily commute. When we analysed enquiry data for rental properties in TfL travel zones 4, 5, and 6, we found that 40 per cent of the renters enquiring on properties in these areas were currently based in zones 1, 2, and 3, suggesting a significant spike in the number of tenants moving towards London’s suburbs. Similarly, 64 per cent of the renters logged in our database in 2020 were moving to a completely new area of the city, with an average travel time of 44 minutes between their previous property and prospective new home.

As well as having the flexibility to stray further away from the workplace, tenant priorities have changed drastically following our collective experiences of successive lockdowns. The so-called ‘race for space’ is well documented, with many tenants moving to the suburbs or leaving the city altogether in search of larger properties with more access to green space and better suited to pet ownership – features which are now a higher priority for many than proximity to the workplace.

Many have also moved further away from the centre to reduce costs during a period of sustained economic upheaval. For many of London’s working professionals, it no longer makes financial sense to pay a premium for expensive central property when there is no need to maintain a daily physical presence in the workplace. Properties in high-yield areas are able to satisfy both the post-COVID lifestyle priorities and affordability criteria of London’s renters.

Overall, the residential lettings market has proven remarkably adaptable when faced with unprecedented economic and social circumstances, along with various existing trends that disrupt the way people rent and let property. As a result, buy to let rental yields in outer zones have remained high, and even increased in the last 18 months, as renters expanded their search radius to include the new areas that they would now consider living in.

BY PETE CARVILL

Source: Property Wire

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A third of landlords have expanded buy-to-let portfolios

Buy to Let – The ‘opportunity to buy at a discount’ is driving many landlords to increase their portfolio a new survey has revealed.

In a study of more than 300 landlords, 34% said they had either recently purchased another buy-to-let property (BTL) or intended to buy one within the next nine months.

While the most common reason for their additional purchase was the opportunity to buy at a discount, other key factors included long‑term investment (35%), stamp duty savings (34%) and diversification by either location (26%) or property type (23%).

The survey also revealed how 43% of landlords surveyed said that they had temporarily lowered rents during the pandemic to help tenants, with 22% saying they had refinanced their mortgages since the arrival of coronavirus.

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Paul Fryers said: “Understanding the purchasing motivations behind professional landlords is an essential factor for Zephyr and our mortgage broker clients.

“It’s equally important to recognise and appreciate some of the challenges landlords have been facing during the past year and how they will affect their current and future applications.

“During the pandemic we saw a significant rise in the use of limited companies to buy and manage property portfolios, and it seems a significant proportion of landlords have made the most of the opportunities provided by the buoyant market conditions we have experienced over the past six months.”

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The survey also revealed only 7% of landlords had taken a mortgage holiday and 13% had sold a property during the pandemic.

Those landlords who did not purchase additional buy-to-let properties over the last year cited ‘declining rental yields’ (51%) and ‘concern about economic stability’ (42%) as their main reasons.

Matt Trevett added: “Although the buy-to-let market has remained more buoyant than some predicted, the last year has not been without its challenges for many tenants and landlords.

“The survey suggests a large proportion of landlords have been acting to support their tenants, with a significant proportion saying they had temporarily lowered rents during the pandemic.

“A recent survey also showed that the pandemic has triggered movement from cities to towns and the countryside, so landlords seeking to rebalance their portfolios may look to make purchases that reflect that trend.”

Source: Mortgage Finance Gazette

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Third of landlords either bought or buying new buy-to-let properties

More than a third (34%) of landlords have recently purchased another buy-to-let property (BTL) or intend to buy one within the next nine months, a survey by The Deposit Protection Service (The DPS) and Zephyr Homeloans has found.

Results from the poll of 300-plus landlords suggest that the ‘opportunity to buy at a discount’ is the most commonly cited reason among those who have recently bought or soon intend to buy additional rental property.

Other key factors including long-term investment (35%), stamp duty savings (34%) and diversification by either location (26%) or property type (23%).

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Paul Fryers, managing director at Zephyr Homeloans, said: “Understanding the purchasing motivations behind professional landlords is an essential factor for Zephyr and our mortgage broker clients.

“It’s equally important to recognise and appreciate some of the challenges landlords have been facing during the past year and how they will affect their current and future applications.

“During the pandemic we saw a significant rise in the use of limited companies to buy and manage property portfolios, and it seems a significant proportion of landlords have made the most of the opportunities provided by the buoyant market conditions we have experienced over the past six months.”

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Some 43% of landlords surveyed said that they had temporarily lowered rents during the pandemic to help tenants, with 22% saying they had refinanced their mortgages since the arrival of coronavirus.

Matt Trevett, managing director at The DPS, added: “Although the buy-to-let market has remained more buoyant than some predicted, the last year has not been without its challenges for many tenants and landlords.

“The survey suggests a large proportion of landlords have been acting to support their tenants, with a significant proportion saying they had temporarily lowered rents during the pandemic.

“A recent survey from The DPS also showed that the pandemic has triggered movement from cities to towns and the countryside, so landlords seeking to rebalance their portfolios may look to make purchases that reflect that trend.”

Source: Mortgage Introducer

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Govt’s proposals on renting reforms expected to improve BTL reputation

Government proposals on renting reforms could improve the buy-to-let sector’s reputation, brokers have said, although a warning has been sounded on their effect on the investment appeal for landlords.

In yesterday’s Queen’s Speech (May 11) the government said it would ‘enhance’ the rights of those who rent, in addition to helping more people own their own home.

Measures proposed by the government in its policy paper included bringing forward reforms this year to drive improvements in rented accommodation standards, well targeted enforcement that drives out criminal landlords, and exploring the merits of a landlord register.

The government also said the reform package was expected to require all private landlords to sign up to a redress scheme for tenants.

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Ben Beadle said the government’s proposals amounted to some of the biggest changes in the private rented sector in 30 years.

Beadle added: “We welcome the government’s ambitions to drive out bad landlords from the sector without penalising those who do the right thing. We want to root out all those who bring the sector into disrepute.”

Bob Young likewise said “proportionate and fair” measures would benefit both tenants and ‘good’ landlords.

Young said: “For decades now a small minority of landlords have effectively got away with properties that are not suitable for habitation and as a buy-to-let lender we’ve seen some appalling examples of this.

“This minority is damaging the reputation of the vast majority of landlords who look after their properties and are responsive to their tenants’ requests.”

In its policy paper the government also said it would publish its consultation response on abolishing ‘no fault’ evictions and strengthening repossession grounds for landlords when they have valid cause.

Paul Brett commented: “There is an absolute need for landlords to be able to retake possession of their properties when circumstances dictate that they need to, but tying this with changes to drive up standards is the right thing to do.

“This will support responsible landlords, which in turn will enable them to help more tenants.”

In 2019 the then-government announced proposals to prevent private landlords from evicting tenants at short notice and without good reason before launching a consultation.

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Under section 21 of the Housing Act, private landlords can repossess their properties from assured shorthold tenants without having to establish fault on the part of the tenant.

Angus Stewart said: “Landlords have been bracing themselves for the Renters Reform Bill for some time now, so we welcome the fact we now have a way forward.”

Stewart added: “Landlords need to know they can take back properties when they have a legitimate reason for doing so and tenants need to be able to plan their futures.

“We should not forget mortgage lenders who will be looking for reassurance as to their rights as creditors. Getting the balance right will be crucial and as ever the devil will be in the detail.”

But Bulent Kandemir said the renters’ reforms come after private landlords have been “hit very hard” in the past few years, such as with restrictions to income tax relief.

Kandemir added: “I would question whether these landlords have the appetite to keep doing this going forward, as the profitability of owning a property to let is arguably no longer there.”

By Chloe Cheung

Source: FT Adviser

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Broker optimism on BTL at seven-year high

The number of brokers expecting more buy-to-let business over the next 12 months is at its highest level since 2014, according to a survey by Paragon Bank.

In a February/March survey of 195 intermediaries, half said they were anticipating higher levels of buy-to-let mortgage business over the coming year, up from 41 per cent in Q4 2020.

The number of brokers who already saw strong demand for buy-to-let mortgages also rose, to 47 per cent in the first quarter of this year, up from 44 per cent in Q4 2020.

Meanwhile, the number of intermediaries who reported weak buy-to-let mortgage demand was at its lowest since before the start of the pandemic, at 12 per cent.

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Richard Rowntree, managing director of mortgages at Paragon Bank, said: “It’s fantastic to see that such high levels of optimism have been recorded following the challenges of the past year or so and that this is being driven by strong levels of demand.

“The extension of the stamp duty holiday is certainly a driver of that, but it is underpinned by longer-term demand for rental property.”

Carl Shave, director at Just Mortgage Brokers, commented: “With 2020 being a subdued year for buy-to-let investment due to the economic climate from the pandemic, it is pleasing to see the optimism from brokers and the positive reports of an uptake in demand. Indeed this is being reflected in the increase in enquiries for our advisers.

“The stamp duty holiday extension will at present add a little fuel to the fire as investors look to take advantage of the potential savings this can provide. It will therefore be interesting to see what impact this has on the market when it expires and the resulting longer term outlook.”

Paragon’s findings come after analysis by Hamptons found the number of properties sold by landlords last year slowed to a seven-year low, despite the first annual rise in profits on sales in more than five years.

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Earlier research from Foundation Home Loans before the stamp duty holiday was extended also suggested the end of the tax break would not prevent landlords from adding to their portfolios.

Hiten Ganatra said his firm was seeing an increased appetite from professional landlords looking to grow their portfolio, with returns being realised from BTL investments “far superior than to leave money in the banks”.

Ganatra said: “Landlords are happy to generate yields of 5 to 7 per cent, which invariably gives them an even great return on investment than holding cash.

“We are also seeing more and more landlords moving into the HMO [houses in multiple occupation] space which is helping to enhance yields to 8 per cent-plus.”

On the supply side, meanwhile, data from Moneyfacts has shown that product availability in the buy-to-let market continued to improve for a fifth consecutive month in March.

By Chloe Cheung

Source: FT Adviser

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Landlords intend to continue purchasing after SDLT deadline

BTL landlords intend to continue purchasing rental property after the stamp duty holiday has reached its conclusion, according to Foundation Home Loans.

The data revealed that 16% of landlords intend to purchase over the next 12 months, 48% plan to do so in Q1, 41% in Q2, 28% in Q3, and 29% in Q4.

In addition, just 14% of landlords said that they would abort their transaction if completion before the SDLT deadline did not look achievable.

Of those landlords intending to purchase in Q1, 65% said they were very or quite confident they would complete by 31 March.

When the respondents were questioned whether they believed the government would extend the stamp duty deadline, 28% said yes, while 31% disagreed.

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In addition, only 4% of those surveyed said they were purchasing because of the availability of the stamp duty holiday

A quarter of those intending to purchase in 2021 said they were holding off purchasing as they believed property prices were currently inflated.

The research was undertaken by BVA BDRC and carried out between December and January with the results based on 846 online interviews.

George Gee, commercial director at Foundation Home Loans, said: “As we know landlords think long and hard before adding to their portfolios and, as our research reveals, they are unlikely to just confine any purchase activity to the first quarter of this year in order to simply benefit from the stamp duty holiday.

“There are a number of positive results to come out of our exclusive research, not least landlords’ continued intention to keep on purchasing after the deadline has passed, and the news that many BTL landlords will not abort their transactions if there is no extension and they look unlikely to complete by 31 March.

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“In that regard, the next month and a half is very important for the sector.

“Foundation has put in place significant extra resources to our completions team in order to ensure we can complete as many cases as possible by the end of March.

“Looking beyond Q1, there will clearly be ongoing opportunities for advisers active in the landlord borrower space, and all the signals point to significant activity taking place in both the purchase and remortgage sectors.

“We should not forget that many landlords’ special rates are coming to an end over the months ahead, especially those that bought prior to the last stamp duty surcharge increase for additional homeowners back in Q1 2016.

“Foundation’s new range of buy-to-let products and our new limited edition limited company deals should offer landlord clients a variety of options, in order to achieve their aims through 2021.”

By Jake Carter

Source: Mortgage Introducer

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These 10 UK cities are the most profitable for buy to let landlords

CIA Landlord has revealed its annual ranking of the best UK cities to buy to let for 2021, with some areas proving to be more profitable than others. The analysis is based on the average property price, mortgage cost, average rent income, and the monthly costs of being a landlord to calculate the monthly profit. Listed are the 10 cities with the highest monthly earnings for landlords.

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  1. Brighton
    Average property price: £410,541. Average rent: £2,044. Monthly mortgage cost: £1,411. Monthly profit: £571.85
  2. Bangor
    Average property price: £185,833. Average rent: £1,193. Monthly mortgage cost: £639. Monthly profit: £500.53.
  3. Portsmouth
    Average property price: £243,945.. Average rent: £1,379. Monthly mortgage cost: £838. Monthly profit: £479.27.
  4. Leeds
    Average property price: £228,424. Average rent: £1,323. Monthly mortgage cost: £785. Monthly profit: £477.60.
  5. Lancaster
    Average property price: £210,979. Average rent: £873. Monthly mortgage cost: £725. Monthly profit: £474.54.
  6. Bristol
    Average property price: £344,667. Average rent: £1,699. Monthly mortgage cost: £1,184. Monthly profit: £453.20.
  7. Coventry
    Average property price: £209,309. Average rent: £1,213. Monthly mortgage cost: £719. Monthly profit: £432.27.
  8. Manchester
    Average property price: £200,517. Average rent: £1,176. Monthly mortgage cost: £689. Monthly profit: £425.48.
  9. Nottingham
    Average property price: £225,917. Average rent: £1,248. Monthly mortgage cost: £776. Monthly profit: £410.21.
  10. Salford
    Average property price: £172,622. Average rent: £1,048. Monthly mortgage cost: £593. Monthly profit: £393.33.

By Claire Schofield

Source: The Scotsman

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More landlords look to expand outside London and the South East

One in 10 landlords plan to purchase buy-to-let properties this year, up from 3% at the end last year, Source Business research shows.

The rise in landlord confidence and a change in tenant priorities following the lockdowns is leading investors to a move away from London and the South East, to less built-up areas.

Increasingly tenants want greater home working space and leisure time, resulting into a spike in demand for larger properties.

Mish Liyanage, managing director of The Mistoria Group, said: “We are seeing a rise in professional landlords looking to acquire affordable terraced properties with gardens and apartments in the North West. Lower prices, high yields, expanding population and Northern Power house initiative/HS2 have contributed to this interest.

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“A significant proportion of the professional landlords that we work with are located in the Midlands and the South, but want to invest in the North West, because of the attractive property prices, high yields and occupancy rates. Many investors are moving away from London and the South East and are searching for regions that give them exceptional returns.”

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At the end of 2019, 82% of landlords claimed that they had no plans to acquire another property in 2020, while just 3% were intending to add more than a single property to their portfolio.

Soon after the stamp duty holiday was implemented, 10% of landlords said they are now planning to purchase more properties and build on their portfolio, while just 5% said they had any intention to sell any existing properties.

BY RYAN BEMBRIDGE

Source: Property Wire

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A positive outlook for BTL: Seeking more than a room with a view

As the final quarter of 2020 begins – following an unprecedented six months – the buy-to-let (BTL) market is bouncing back strongly, in a way that few commentators predicted a few months ago, in my opinion.

The residential and buy-to-let markets both felt a significant impact during the initial stages of the pandemic. Public health measures made it difficult for surveyors to visit properties, contributing to nearly two months of disruption in the housing market. However, since property valuations became possible again, demand has returned, and the UK property market is demonstrating its resilience.

It has quickly become apparent to me that landlords and investors have not lost their appetite within the buy-to-let sector either. Demand for new tenancies has risen and historically such increases have often continued when supported by a growing market for property sales, as we are seeing now. The Chancellor’s stamp duty cut has further fuelled interest.

In fact, by July the number of new tenancies was nearly back to pre-pandemic levels, according to The Deposit Protection Service’s (DPS) quarterly Rent Index.

Most of the growth in new tenancies has been at properties owned by professional landlords, and we expect to see this trend increasing. Professional landlords with reliable portfolios of good properties are often in a better position to absorb financial shocks.

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According to the Savills Global Market Sentiment Survey, concerns over the pandemic are driving more UK residents to seek properties in rural locations.

The rise of home working means there are fewer benefits in living close to workplaces, particularly those in city centres. More people seem to be taking up the chance to find a property with a garden or a garage – or simply a bigger home, whether to accommodate greater home working or simply to enjoy more space. Such properties are more plentiful in the shires, meaning demand in urban areas may continue to fluctuate.

The Royal Institute of Charted Surveyors’ (RICS) August survey found that 83% of surveyors in the UK anticipate greater demand for homes with gardens or balconies in the next two years and that 68% expect the desirability of properties with a ‘more private’ outdoor space to grow. The increased demand for properties with specifically ‘roomier’ features has led to confidence in the housing market rising to a four-year high.

Overall, I believe this represents a relatively positive picture for brokers, professional landlords and buy-to-let investors. The fact that rates are low, loan-to-values (LTVs) are almost back to pre-pandemic levels can only go to support this positive picture.

Demand for rental properties is likely to increase in many areas, as renters seek tenancies with more than just ‘a room with a view’ to make staying and working at home more comfortable.

By Paul Fryers

Source: Mortgage Introducer

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Salford most profitable UK city for BTLs according to new study

A new study has revealed that Salford is the most profitable buy-to-let city for landlords, following the stamp duty holiday pushing UK house prices to an all-time high.

The research by CIA Landlord reveals that Salford, with an average house price of £173,311 and average rent prices of £1,052 per month, is the best city for landlords looking to buy a new property for buy-to-let purposes.

CIA Landlord calculated the best cities for buy-to-lets under the Government’s latest stamp duty holiday by analysing the average house price, rental price and stamp duty savings in every UK city for the cheapest home prices and highest rental yield in order to calculate profitability.

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Manchester follows closely behind Salford with house prices averaging at £193,681 and rental incomes at £1,141 per month. Leeds, Portsmouth and Belfast also feature in the top five buy-to-let hotspots.

High Wycombe in Buckinghamshire ranked as the worst city for landlords purchasing a buy-to-let property, with average house prices reaching £430,891 and rental prices averaging at £945 per month. Cambridge also saw low profitability margins, with average house prices at £448,432 and rental income averaging £1,080 per month. Reading, Worcester and Watford also feature on the bottom of the table in terms of profitability.

In the capital, Havering was the best borough for profitability according to the study, with house prices averaging £395,832 and monthly rental prices reaching £1,895. Alternatively, with average house prices reaching over £2m and average monthly rent coming to £4,003, properties in Kensington and Chelsea see the lowest profitability margins.

Source: Property Wire