Manchester has been ranked as the UK’s number one city for landlords to invest in, according to Aldermore’s 2020 buy-to-let city tracker.
The tracker, which includes a total of 50 cities, ranks each location after analysing five key indicators impacting desirability for a buy-to-let investor.
The indicators include the average rent, the best short-term returns through yield, the long-term return through house price growth over the past decade, the lowest number of vacancies as a proportion of total housing stock, and the percentage of the city population in the rental market.
The top 10 buy-to-let cities for investors according to Aldermore’s new buy-to-let city tracker
Manchester’s main selling point for private landlords is that it performs well on core factors such as rental returns and long-term house price growth.
But those are not the only things going for Manchester, according to the tracker.
The city is home to one of the largest rental markets in the UK with 31 per cent of its population private tenants, second only to Bournemouth, which ranks 35th on the tracker despite 33 per cent of its population living in the private rental market.
Manchester benefits from some of the lowest vacancy rates of any city included in the tracker, with only 0.5 per cent of its properties vacant, giving landlords a better chance of avoiding void periods.
Average rental prices of £428 per room per month sets monthly income for landlords above average, while property prices have risen 41 per cent over the past decade.
Manchester is currently deemed to be the best performing city overall for buy-to-let investors
Long-term investors look south
Aldermore’s tracker revealed that seven of the top 10 cities for landlords are in southern England.
Second-placed Cambridge has given its property investors a 61 per cent long-term return through house price growth over the past decade making it the best performing city on the tracker for house price appreciation.
Third-placed London is the best performing city on the tracker in terms of rental prices with an average rent per room of £627 but this goes hand in hand with having the lowest yields of any city on the tracker at 2.9 per cent on purchase price because house prices are so high relatively.
Oxford and Brighton also fared well for long-term returns with an average 5.3 per cent increase in property prices over the past decade.
London, which has seen house price growth of 56 per cent over the past 10 years, has the highest average rent per room of any city
Brighton scores well for rent, at an average of £544 per room, while the city also benefits from a high proportion of residents who privately rent at 29 per cent.
For any investors concerned about void periods, particularly during the pandemic, then seventh-placed Bristol was judged to be the city with the lowest number of vacancies as a proportion of total housing stock, at 0.4 per cent vacant.
Hull and Glasgow the best UK cities for rental yield
The rental yield is the percentage of return you can expect to make back on the purchase price each year.
For example, a 5 per cent yield on a £200,000 property would amount to £10,000 per year in rental income.
The tracker established that cities in Yorkshire are producing some of the highest yields with Hull, ranked twelfth on the list, producing the highest short-term yield of the 50 cities at 9.2 per cent.
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Hull currently has an average house price of £127,344 which means it also the most affordable city of the 50 locations included on the tracker.
Other high yielding cities include Glasgow, offering a 9.1 per cent yield, Stoke offering a 8.0 per cent yield, as well as Wigan, Doncaster and Barnsley, all three offering 7.9 per cent yields.
Jon Cooper, head of mortgage distribution at Aldermore, said: ‘Across the UK there is still great short and long-term returns to be had for landlords, with a number of cities providing excellent rental yields with room for capital growth.’
Aldermore’s new Buy-to-let City Tracker uses five indicators to rank 50 UK cities for buy-to-let
Which cities should buy-to-let-investors focus on?
Over the past 10 years, those who invested in buy-to-let in southern cities such as London and Cambridge would have reaped the rewards of considerable house price growth during that time.
With past performance being no guarantee for future success, property investors might be wise to focus to more affordable parts of the UK according to Aneisha Beveridge, head of research at Hamptons International.
‘We expect to see house prices grow quite considerably more in northern areas over the next four years so if it’s capital growth you are after as well as a higher yield then it’s looking like those northern cities are the strongest bet overall,’ said Beveridge.
Hamptons forecast that the north, Scotland and Wales will see the greatest house price growth over the next four years
Hamptons forecast that over the next four years, London will be one of the worst performing regions rising 6 per cent but the North East will perform best rising 11.5 per cent over four years.
Beveridge said: ‘Since the tax changes introduced in 2016, rental yields are becoming more important than ever, particularly for those with mortgages because it’s so much harder to get a mortgage on a buy-to-let property with banks now requiring a higher rent ratio.
‘This means investors are really having to focus on yield when considering a mortgage,’ she added.
Buy-to-let mortgages and other ways to invest in property
This is Money has partnered with L&C Mortgages, a firm of independent mortgage brokers who specialise in finding the best buy-to-let mortgage rates and the right deal for you.
>> Compare best buy-to-let mortgage deals
If you’re interested in investing in buy-to-let but don’t want the hassle of managing a property yourself, check out what Bricklane has to offer.
>> Invest in buy-to-let for less with a Bricklane Isa
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