Buy-to-let income map revealed: Leeds postcode tops the list for rental returns, earning a bumper 11%
11-14-2016
- Leeds' LS6 postcode delivers highest potential rental yield
- Relatively cheap homes combined with high rent boosts potential of area popular with students, young professionals and families
- North - South divide, with London's expensive homes yielding just 3%
By Sarah Davidson For Thisismoney.co.uk
Landlords in parts of Leeds could earn higher returns than anywhere else in the country, with a combination of affordable properties and decent rental income netting them an almost 11 per cent yield.
That compares to a potential rental return before costs of just under 3 per cent across London.
Comparison site TotallyMoney analysed property prices and rental incomes across the UK in September and found a clear divide between the North and the South, with northern regions tending to offer investors much stronger yields.
While Leeds' LS6 postcode topped the list, with its 10.79 per cent yields, Bradford's BS1 and York's YO1 also offered particularly strong yields, of 10.33 per cent and 9.73 per cent respectively.
Nine out of the 10 highest yielding postcode districts were in Scotland and the North and Midlands regions.
The 10 lowest yielding postcodes, with the exception of Edgbaston and Holland Park in Birmingham, were all in Greater London, the South East and on the South coast.
Figures were worked out using the average cost of property for sale in the areas vs the average rent. While this calculation is relatively crude, as the properties for sale may not directly reflect those up for rent, it provides a pointer to potential average returns.
However, it is important for landlords to note that even when done on the same property, simple yield calculations do not take into account costs from running and letting a home - and so are unlikely to be the return actually achieved.
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The top-earning postcode, Leeds' LS6 is home to both a large number of student properties for the nearby university and also attracts young professionals and families. Its popularity drives up average rents, to £1,044, while property still remains relatively affordable to buy, at an average of £116,115, although the postcode includes some more expensive pockets.
Alastair Douglas, of TotallyMoney, said: 'Due to rapidly growing property prices, London is often seen as the best place to invest in property. However house price growth rate isn’t always mirrored in rent prices.
'This research shows that investors looking for high yields on rental developments might see better returns from properties in the cities of northern England and Scotland.'
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| Post town | Postcode | monthly rent | asking price | No. of properties | Yield |
|---|---|---|---|---|---|
| Bromley | BR2 | £1,300 | £788,293 | 195 | 1.98% |
| London | N21 | £1,339 | £825,700 | 141 | 1.95% |
| Northwood | HA6 | £1,732 | £1,103,645 | 106 | 1.88% |
| Birmingham | B15 | £1,013 | £656,412 | 91 | 1.85% |
| London | W8 | £4,920 | £3,320,116 | 266 | 1.78% |
| Reading | RG8 | £1,225 | £865,454 | 109 | 1.70% |
| London | N2 | £3,764 | £2,733,640 | 176 | 1.65% |
| Poole | BH14 | £1,288 | £1,000,795 | 195 | 1.54% |
| London | N6 | £2,779 | £2,418,305 | 146 | 1.38% |
| Poole | BH13 | £1,574 | £1,668,641 | 245 | 1.13% |
| Source: TotallyMoney |
The firm analysed 303,822 properties for sale and 137,955 properties for rent marketed online in September 2016 and found that Northern and Scottish investors have the best chances of getting a buy-to-let yield above the national average of 3.3 per cent.
The average 2.9 per cent buy-to-let yield for London postcodes is lower than any other UK city - mostly because house prices in the capital are so high.
Yet that is considerably higher than the lowest yielding postcode of BR2, in London's Bromley, where an average house price of £788,293, combined with relatively low monthly rent for London of £1,300, delivered a yield of just 1.98 per cent.
However, the stand-out numbers in the bottom ten were for Kensington's W8 postcode. Home to some of London's most expensive streets, here even an average rent of £4,920 per month could not lift the yield figure above 1.78 per cent, due to an average property asking price of £3,320,116.
| Post town | Postcode | monthly rent | asking price | No. of properties for sale | Yield |
|---|---|---|---|---|---|
| Leeds | LS6 | £1,044 | £116,115 | 92 | 10.79% |
| Bradford | BS1 | £552 | £64,108 | 48 | 10.33% |
| York | YO1 | £1,876 | £231,399 | 32 | 9.73% |
| Preston | PR1 | £952 | £125,810 | 553 | 9.08% |
| Middlesbrough | TS1 | £523 | £69,368 | 76 | 9.05% |
| Liverpool | L7 | £720 | £99,114 | 108 | 8.72% |
| Manchester | M3 | £1,230 | £177,546 | 166 | 8.31% |
| Sheffield | S1 | £823 | £118,861 | 54 | 8.31% |
| Huddersfield | HD1 | £656 | £101,536 | 69 | 7.75% |
| Cardiff | CF24 | £1,220 | £192,548 | 130 | 7.60% |
| Source: TotallyMoney |
Demand for buy-to-let has had a roller coaster year with multiple rule changes causing artificial peaks and troughs in activity.
This was particularly noticeable in the first quarter of the year as investors rushed through purchases before a 3 per cent surcharge was levied on all buy-to-let purchases in April 2016. Since then, activity has been more muted.
Landlords in Leeds can earn higher returns than anywhere else in the country
The latest figures from the Council of Mortgage Lenders show gross mortgage lending reached £20.5billion in September, 7 per cent lower than August’s lending total of £22.1billion, and 2 per cent higher than the £20.1billion lent in September last year.
This is the highest September figure since 2007 when gross lending reached £29.9billion.
A statement from the CML said: 'The stamp duty tax change in April created a distortion in the first and second quarter of this year, but data for July and August shows a market where transactions still look soft for buy-to-let.
'This looks set to continue, given that lenders have been tightening affordability criteria in anticipation of the forthcoming interest tax relief changes in April 2017, coupled with the Prudential Regulation Authority’s stress tests, which come into effect in January 2017.'
Last month the PRA recommended tougher rules for buy-to-let lenders which have prompted many to raise the minimum rental income they will accept before approving a mortgage.
Charles Haresnape, of challenger bank Aldermore, said: 'I think it’s important to remember that while the backdrop of Brexit may make some people more cautious, there is still a huge demand from people looking to buy.
'The latest CML figures also suggest that record low interest rates are providing an opportune time for homeowners and buy-to-let landlords to remortgage.'