Despite tax changes designed to discourage new investors, and others that make it harder to make money on existing Buy-to-Let properties, there are still many people looking at the possibilities of buying residential property to let out.
The government’s measures, which include increased stamp duty on second properties and the end of tax concessions have made Buy-to-Let less attractive. But if building capital and securing an income from rental homes is not as easy as it once was, it is still entirely possible.
The difference between making a profit rather than a loss can now be heavily influenced by where you buy.
Location, location, location
The right location has always been central to successful home buying. Now, shrinking margins mean that it has become crucial to Buy-to-Let.
It comes down to some simple figures. In some parts of the country, high house prices mean that returns are unattractive, even with market rents. In other areas, although actual rents will be lower, lower property prices mean that returns will actually be much better. But it is not simply a matter of buying in areas where property prices are lowest. To get reasonable returns, there must be steady demand for rental property.
Fortunately, several specialist lenders have already researched the market, and found the areas that are best for Buy-to-Let.
Buy-to-Let specialists have looked at a combination of factors, including capital value growth, rental yield and rental price growth. Their precise findings differ – but there are some broad agreements on where to look for the best performing property investments.
Don’t escape to the country
Rural areas which are away from tourist traps may offer the lowest purchase prices, but this simply reflects a lack of demand from well-heeled tenants.
Demand is highest in metropolitan areas, but London property prices remain so inflated that despite high rents, it may actually be hard to see good rental yields. Other cities which are enjoying an economic boom may be more rewarding, as could the commuter towns which serve them.
Remember, though, there can be no single ‘best buy’. Good rental yields and prospects for capital growth can both be important, but the property that offers the biggest rental yield is unlikely to provide the highest potential growth for the future. If you are considering investing, you need to look at your own objectives.
Some hot spots
Commuter belt towns remain some of the best places to Buy-to-Let. Luton, Rochester, Southend-on-sea and Romford all serve London and offer potentially good returns. The outer London boroughs, such as Redbridge, Southall and Harrow may provide scope for investors.
A little further out, but still attracting commuters, are Colchester in Essex and Luton in Bedfordshire. Both can demonstrate good returns, and Colchester in particular offers strong capital growth.
Another key region to consider may be the Midlands. Leicester may offer rental opportunities, while Birmingham seems to be growing in popularity and benefits from a large professional service sector. The HS2 rail line will mean faster travel times into London, and should lead to further regeneration which is likely to feed into the rental market.
Perhaps the most rewarding Buy-to-Let market of all may be Manchester. Manchester is offering high rental yields and rental price growth, together with good prospects for capital growth in the years to come.
But wherever you are looking at Buy-to-Let, it pays to get professional advice. The property and tax experts at Continuum could be the best place to start.
Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.
The Financial Conduct Authority does not regulate some aspects of Buy-to-Let mortgages.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
simplybusiness.co.uk – Best buy-to-let areas in the UK for 2018 – 26th January 2018
telegraph.co.uk – The UK’s top 10 property investment hotspots – 29th March 2018
simplybusiness.co.uk – Could these top commuter towns be ideal for BTL investment? – 5th April 2017