According to new research from lettings management platform Howsy, high income districts rarely generate high rental yields for buy-to-let properties.
The company examined the average net annual income and the average rental yield in every local authority across the UK. The findings show that those areas with the lowest annual net income (£20,000-£25,000) have the lowest average rental cost, at £453 per month.
The average rent rises in proportion to the increase in annual income, and in neighbourhoods where occupants earn £45,000 or more per annum, they pay an average rent of £1,606 per month, 255pc more than in the areas of lowest income.
However, although rents may be higher, the districts with the highest incomes are not the best buy-to-let investments, as far as yields are concerned. The average rental yield currently is a mere 3.4pc in regions with the highest incomes, which increases in inverse proportion as the average income falls.
In localities with average incomes of £20,000-£25,000 per annum, the rental yield is highest, at 5.1pc.
Affordable areas best for buy-to-let
Calum Brannan, founder and CEO of Howsy, explained that there exists a widespread misunderstanding that a would-be landlord needs to spend a lot of money in an affluent district in order to create a stress-free, high return investment in the buy-to-let (BTL) sector. But this is largely untrue.
Buying property in districts with high earners, he said, will always result in a much larger initial investment outlay. Then there is the growing problem in the most affluent parts of London, of professional conmen hijacking a property to sublet for months on end, causing the landlord financial loss and involving him in a lengthy eviction process.
This type of criminal behaviour is not as common in parts with more affordable rental costs, Mr Brannan added. In fact, this sector of the market is often where the best tenants are to be found. The advantages for the landlord investing in this sector are lower investment costs and, consequently, more favourable yields.
Additionally, if problems arise, the cost of restoring a property to its original state is lower. So, all things considered, a less affluent district is one of the best in which to invest.
Mr Brannan added that platforms such as Howsy and add-ons such as Howsy Protect create a greater stress-free experience in the event of problems. The management of a BTL portfolio is easier, rents are guaranteed and any damage caused by a tenant is also covered.
Landbay updates entire BTL product range
Meanwhile, specialist BTL lender, Landbay, reacting promptly to ‘unprecedented demand’, has announced a comprehensive update of its core product range. As part of the makeover, the range features a free valuation on its most popular five-year fixed-rate mortgage and a rate reduced from 3.69pc to 3.65pc.
The mortgage is available up to 75pc LTV on properties up to £700,000. The free valuation, in conjunction with free Title Indemnity insurance, is included with Landbay’s standard products, which could save customers up to £1,200.
The company’s other five-year fixed rates start at 3.49pc, down from 3.54pc, while its standard two-year fixed rates now start at 3.19pc, previously 3.39pc.
Landbay has also enlarged its range with the introduction of a raft of new 70pc LTV products, keeping the rates unchanged from 60pc LTV. In addition, the firm has reduced rates on houses in multiple ocupation and multi-unit freehold block products.
Paul Brett, MD of intermediaries at Landbay, commented that the company has experienced extraordinary demand from brokers and their clients over the last month. Accustomed to responding quickly to market trends, they relaunched the whole product range with lower rates.
Mr Brett said that despite exceptional demand, the company is committed to providing excellent customer service, and added that their application process is online and, therefore, completely paperless and not subject to any delays caused by Royal Mail.