Whilst Southampton remains the Buy To Let (BTL) hotspot in the UK for investors, with yields of 8.73%, rental yields in Reading and Brighton at 12.8% and 12.6% higher than a year ago, are the fastest growing in the UK as young professionals move out of London. The highest yields available in London are found in Newham, Southwark and Brent, according to research by HSBC.
Average yields in Reading now stand at 5.48%, up from 4.86% last year, while in Brighton average yields now stand at 6.17% up from 5.68%. The average Reading property is currently priced at £207,934 while in Brighton average prices currently stand at £242,535. Average monthly rents are now £950 in Reading and £1,248 in Brighton.
Peter Dockar, Head of Mortgages at HSBC, commented:
“Landlords are reaping the benefit as young professionals say goodbye to capital living in favour of more affordable commuter towns. Despite the inevitable increase in commuter costs associated with moving further out, many still feel the move is worthwhile in order to save towards property deposits. House prices in these locations – while still out of reach among many first time buyers – are relatively affordable for landlords investing in property and the demand from young professionals has pushed up rents and driven up the returns.”
While Reading and Brighton offer the fastest growing yields, Southampton continues to be the BTL hotspot for investors. Rental yields of 8.73% in the coastal town (up from 7.82% last year) are currently the highest in the country. The city’s landlords benefit from relatively inexpensive house prices as well as strong rental demand driven by its position on the coast for seasonal workers and holidaymakers, together with students attending the city’s university.
Manchester, Nottingham, Blackpool and Hull complete the top five locations with the best rental yield at 7.98%, 7.67%, 7.63% and 7.47% respectively. Manchester and Nottingham have climbed as they both benefit from relatively low house prices with strong demand for rental property from student and young professional populations.
London has some of the highest concentration levels of private rental housing, but high property prices put pressure on the returns landlords are able to make. It is the less popular and less high-profile areas within the capital which offer the greatest returns. The combination of cheaper property relative to many neighbouring areas, and high demand among private renters unable to get on the housing ladder, has helped boost yields in these locations.
The highest average yield available in London can be found in Newham at 6%, followed by Southwark and Brent at 5.55% and 5.27% respectively. Although yields have been under pressure over the last twelve months as property prices have grown faster than rents, year-on-year yield growth has increased in Hammersmith & Fulham. It leads the way with a 2.7% growth, one of the few areas in London where yields have increased. Returns in Newham, Redbridge and Camden have also improved, rising 1.8%, 0.4% and 0.3% respectively.
Peter Dockar further commented:
“London is often seen as the haven of property investment with many believing the streets are paved with gold. However, while the highest rents in the country are an attractive draw for landlords, high house prices in the capital squeeze yields and limit the returns available. As a result, returns can often be far more attractive in other areas so it certainly pays landlords to do their research’’.