Best Buy-to-Let Areas in 2024
In today's competitive property market, savvy buy-to-let investors are seeking hidden gems offering substantial rental yields. In 2023, more than 83,000 buy-to-let mortgages were approved by UK lenders (Source: Uswitch).
While traditional hotspots may still be lucrative, emerging areas across England and Wales present exciting opportunities for those looking to maximise their returns.
Our latest research highlights regions with promising rental yields and more affordable property prices, making them ideal for investors seeking to capitalise on the growing demand for rental properties. The top three cities in the UK for the highest rental yield are Sunderland (9%), Burnley (8%), and Middlesbrough (8%).
What is buy-to-let?
Buy-to-let investing involves purchasing a property to rent it out for profit. This popular investment strategy can offer a source of income and long-term capital appreciation.
Buy-to-let strategies for property investment:
- Buy and hold: This involves purchasing a property and holding it for the long term, aiming to benefit from both rental income and capital appreciation. Read our article on types of tenancy agreements.
- Buy and sell: This strategy involves purchasing a property to sell it for a profit within a shorter timeframe.
- Refurbishment and resale: This involves purchasing a property (perhaps a doer-upper), renovating it, and then selling it for a profit.
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The 2024 buy-to-let hotspot list
The top three cities in the UK for the highest rental yield are Sunderland (9%), Burnley (8%), and Middlesbrough (8%).
Average property prices have either declined or remained stagnant in the past year, while rents have continued to increase. This combination has led to higher gross rental yields in all regions of the country.
The average gross rental yield in the UK is 5.60%, with an average buy-to-let property costing £261,897 and the average rent at £1,223.
Rent in the North West and North East is cheaper than anywhere else in the country and so are buy-to-let properties. Sunderland and Burnley top the charts with average gross yields of over 8%.
While London may not have the highest rental yields, its allure and strong demand make it a prime UK investment destination for buy-to-let landlords.
It's important to note that potential growth in house prices is not considered, and although it can be estimated from past performance, there are no guarantees.
Is buy-to-let dead in the UK?
Despite the increasing regulatory burden, rising costs, and limitations on tenant evictions, there are still opportunities for investors willing to adapt to the changing landscape. Buy-to-let is not dead.
Stricter regulations:
No-fault eviction reforms will make it more difficult for landlords to evict their tenants. These regulations can increase the costs and administrative burdens on landlords, making it challenging to manage their properties effectively.Rising costs:
The cost of purchasing, maintaining, and managing rental properties has been on the rise. Rising interest rates, higher property taxes, and increased energy costs can reduce profitability.
Strong demand:
Despite these challenges, there remains a strong demand for rental properties in the UK. This is driven by population growth, increased urbanisation, and affordability issues in the housing market.Niche markets:
By focusing on specific markets such as student accommodation or HMOs, landlords may be able to find opportunities that are less affected by broader market trends.
The looming threat of EPC regulations
One of the most pressing concerns for landlords is the upcoming Energy Performance Certificate (EPC) regulations. Starting in 2025, all properties rented out in the UK must have an EPC rating of at least C.
Landlords who fail to meet this standard could face hefty fines. This requirement is expected to drive up the cost of maintaining rental properties, potentially squeezing profit margins.
What is rental yield?
Rental yield is a key metric used to measure the profitability of a buy-to-let investment. It is calculated by dividing the annual rental income by the property's purchase price and expressing the result as a percentage.
For example, if a property is purchased for £200,000 and generates £12,000 in annual rental income, the rental yield would be 6%.
A higher rental yield indicates a more profitable investment. However, it's important to consider other factors, such as property management costs, potential rental voids, rental demand, and the long-term outlook for the property market.
How do you increase your buy to let rental yield?
Buy near a University or College:
Having a regular churn of new tenants will limit the number of empty months.Buy in more affordable areas:
A lower property price will help increase your average rental yield.Reduce your costs:
Negotiate with managing agents, insurers, and other costs the tenant doesn't have to cover.Review buying as a company:
You may find buying the property through a company will enable you to reduce all of your costs from the income you gain from the property.
Pros and cons of buy-to-let rental properties
Pros
Regular income:
One of the primary benefits of buy-to-let investing is the regular stream of rental income. This is a passive source of income, which can be particularly valuable for those seeking financial security or retirement planning.Capital appreciation:
Over time, property values can increase, leading to capital appreciation. This means that the value of your investment may grow, even if you don't sell the property.Tax benefits:
In some cases, buy-to-let investors might be eligible for tax benefits to reduce their taxable income such as mortgage interest relief, wear and tear allowance, and capital gains relief.
Cons
Rental voids:
Periods without tenants can have a significant impact on rental income. Factors such as economic conditions, property location, and rental pricing can influence the likelihood of rental voids.Maintenance costs:
These expenses can include repairs, upgrades, and routine upkeep. The age and condition of the property, as well as the location, can influence the level of maintenance required.Tenant issues:
Rent arrears, property damage, and disputes can arise which causes stress and consumes time. Effective tenant management strategies, including thorough screening and clear communication, can help mitigate these risks.
Is buy-to-let worth it in 2024 in the UK?
Setting a competitive rental price is essential for attracting tenants and maximising your rental income. Research prices for similar local properties to determine a fair market value. Consider the property's size, condition, amenities, and the local rental market.
If you decide to manage the property, be prepared to handle tasks such as tenant screening, rent collection, maintenance, and repairs. A professional property management company can handle these tasks for a fee.
- Being close to schools, shops, and transportation can be desirable to tenants.
- Research the rental market in the area to assess the demand for different property types.
- Consider the long-term growth prospects of the area to maximise your investment returns.
Taxes
Rental income is generally subject to income tax. However, landlords may be eligible for certain tax reliefs or deductions, such as:
- In some cases, landlords may be able to deduct a portion of their mortgage interest payments from their taxable income.
- Landlords can claim a deduction for the wear and tear on the property, reducing their taxable income.
If you sell a rental property for a profit, you may be liable for capital gains tax. The amount of capital gains tax you'll need to pay will depend on your overall income and the profit made on the sale.
There may be certain exemptions or reliefs available, such as principal private residence relief, which can reduce or eliminate capital gains tax on the sale of your main home.
As a landlord, you need to pay council tax on the rental property. The amount of council tax will depend on the property's band, which is determined by its value. You may be eligible for a discount on council tax if the property is empty or if it is occupied by full-time students.
Landlord responsibilities
Legal obligations:
Landlords are legally obligated to ensure that the rental property is safe and habitable for tenants.Hazards and defects:
This includes ensuring the property is free from hazards such as mould, pests, and structural defects. Landlords must also comply with building regulations and safety standards.Repairs and maintenance:
Landlords are responsible for necessary repairs and maintenance to the rental property. This includes addressing leaks, broken appliances, and structural defects. Failure to maintain the property can lead to legal action and damage the landlord's reputation.Civil penalties:
Local councils might impose civil penalties on the landlord if they fail to keep the property free from hazards or neglect to make necessary repairs. These can range from a few hundred pounds to several thousand pounds.Deposit protection:
Tenant deposits must be protected in a government-approved scheme. This ensures that the deposit is held securely and disputes between the landlord and tenant can be resolved through an independent adjudication service. Landlords who fail to protect a tenant's deposit can be fined up to three times the amount. This means that if a landlord fails to protect a deposit of £1,000, they could be fined up to £3,000.EPC:
An Energy Performance Certificate (EPC) is required for the rental property. The EPC rates the property's energy efficiency and recommends improvements. Landlords may be fined if they fail to provide an EPC. The initial fine for failing to provide an EPC ranges from £50 to £200, and they could face fines of £200 per day if they continue to fail to provide the certificate.
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Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
