Where NOT to invest in buy-to-let property in the UK

Posted by Mark Lloyd, Property Mastery Academy on 3 October 2017 | Comments

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With interest rates low, buy-to-let is still a sound property investment, especially when you compare it to stocks and savings.

However, not every home is right for the buy-to-let market and, of course, location is always key to the success of any property investment.

Right property, wrong location

You may have found what you consider to be the perfect rental property, but ask yourself the following questions. Is it in a commuter belt? Does it benefit from a range of good transport links? Are there decent schools in the area for families? Will there be students from nearby universities looking for accommodation?

Basically, who are your tenants and why would they want to live in this location? These simple factors are the most crucial when it comes to acquiring regular tenancies with no void periods.

How far afield are you looking?

If you’re planning to manage your own properties, then it can end up eating into your margins if you have to travel too far every time you need to undertake maintenance tasks or liaise with a tenant over admin.

This isn’t a problem if you’re employing an agent to do it for you as you can find a local agency and let them handle everything.

It could be the case that while your hometown is the right place for you, it’s simply not suitable when it comes to buy-to-let investments. In which case, you’ll need to cast your eye over more fertile property investment ground.

Where NOT to invest in property

Research carried out by specialist mortgage lender, LendInvest, looked at each postcode around England and Wales and analysed a combination of the four critical metrics of capital value growth, transaction volumes, rental yield and rental price growth.

The following shows the decline in rental price growth in the Capital:

-3.4% Western Central London
-3.9% North West London
-3.0% West London

Other areas that are not faring well at present when it comes to rental price growth include Sunderland, Lancaster, Preston, Plymouth, Llandudno, Galashiels and Darlington.

Using Land Registry house price data and average private rents data from the Office of National Statistics to compare property in outer London with Manchester, Mark Weedon, head of research at crowdfunding platform Property Partner, found the following, “Based on current interest rates and assuming a loan-to-value ratio of 75%, you would need an outer London property which yields at least 4.1% to break even if you are a higher rate taxpayer, or 4.5% if you are an additional rate taxpayer.”

Meanwhile, Manchester, Nottingham and Birmingham are offering much higher yields. Manchester, in particular, has a strong economy with lower prices leading to higher rental yields.

According to LendInvest, Manchester saw significant rental price growth of 7.53%. Other areas to watch included Bedfordshire with a 7.37% rental price growth while Stevenage enjoyed a 7.47% increase.

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