Revealed: The top profit-making towns for landlords
The stone portico of the town hall in Rugby, Warwickshire, is inscribed with the local motto Floreat Rugbeia, meaning “may Rugby flourish”.
Rugby has had a tough few years, but one sector of its economy is certainly blooming right now: its rental market. It is the most in-demand rental location in the UK, with 20 applicants for every home, according to Hamptons estate agency.
Kat Elleker, of Red Brick Sales and Lettings, isn’t surprised that Rugby leads the country for rental demand. Business is booming – Rugby has plenty of major manufacturing and engineering companies and their staff need homes.
The NHS is another big source of tenants, while others work in nearby Coventry or Birmingham, but prefer a small-time life in Rugby. “We also get people coming from London,” says Elleker. “It is less than an hour on the train.”
Meanwhile, many landlords are selling their properties, often citing changes to mortgage tax relief and rising interest rates as the reason, squeezing supply.
A ready supply of would-be tenants is clearly an important factor for anybody considering a buy-to-let investment. Beyond Rugby, Hamptons found that being in commuting distance to London creates strong demand.
Click here to view this content.
The top 10 locations include Surrey Heath, St Albans, Central Bedfordshire, Slough, Maidstone, and Eastbourne. Further afield, there is Exeter. Ealing is the only London neighbourhood on the list, with its good amenities and fast links to central London and the City.
All of these top performing locations recorded at least 14 tenant applicants per available property.
The role of yields
This league table of rental demand poses the question: what is the best way to decide where to invest in a buy-to-let property? Good tenant demand is important, but for a prospective buy-to-let landlord, also crucial are yields – the calculation of how much annual return to expect.
Hamptons found that the best investments are to be found in the North East, with an average property price of £158,000 and annual gross yields of 9.7pc – even though tenant demand is slightly more muted. The North West, Yorkshire and the Humber, and Wales all have average gross yields of more than 8pc.
Click here to view this content.
These three regions also top Savills’ latest price growth forecasts. By 2028, average property prices are expected to increase by 26pc in Wales, 28pc in Yorkshire, and almost 20pc in the North West. Landlords might be able to look forward not only to strong rental demand and high yields, but also longer term capital growth.
“We are very busy at the moment,” says Greg Cameron of Bridgeford’s estate agents. His patch includes Newcastle city centre and Gateshead, where there are 10 to 12 applicants per property.
“We have got professionals and postgraduates from the two universities, so it is a busy time of year, and then all the new students will arrive,” he said. “We also have two hospitals and we get a lot of people coming from there because they are always recruiting.”
Most of Cameron’s tenants want a modern two-bedroom two-bathroom apartment.
Rents have increased strongly over the past year – Cameron estimates around 10pc – and landlords’ yields stand, on average, at 6pc to 7pc.
London, despite years of record rent increases, trails the list with an average annual yield of 5.7pc – more than you would make in the bank, but not by much more once expenses are factored in.
What yields and rental statistics don’t allow for is local improvements, which can push up both capital values and rents. On that basis, Anna Ambrose, of Strutt & Parker, has her eye on what she terms the “triangle of potential” between Oxford, Milton Keynes, and Cambridge.
“While Oxford and Cambridge are well-established hubs of science and technology, Milton Keynes is following in their footsteps with its ambition to become a smart city,” she says.
“With a boom in new jobs and businesses, we’re guaranteed to see fresh demand from a new tribe of buyers which will impact both the city centre market, along with neighbouring towns in Bedfordshire and on the Hertfordshire border.
“The city’s industry growth is also complemented by the prospect of a new East-West train line which would connect Oxford and Cambridge with Milton Keynes; such infrastructure investment is always a positive for house prices.
“As it stands, you can buy a two-bedroom terraced home in Milton Keynes for £320,000 and expect a monthly rent of around £1,400 – which gives you a yield of just over 5.25pc. But I’m sure we can expect to see these figures steadily rise.”
Gut instinct and local knowledge
In reality, landlords seem to base their decisions more on a combination of gut instinct and local knowledge.
Hannah Mayfield has known the seaside town of Margate from visiting its beach regularly with her family as a child. She grew up in Kent, and at the start of the pandemic was living in Manchester and working in fashion.
In 2021 Mayfield, 32, decided to shake things up. She moved to Lisbon, Portugal, where she runs What is Wealth, a financial education platform aimed at women.
In January, to help secure her own financial future, she invested in a buy-to-let property in Margate, which is rapidly shaking off its old kiss-me-quick reputation and instead attracting young, hip, arty types.
The property was originally made up of two small flats which Mayfield is converting into a three-bedroom house, as she is aware there is a real shortage of family housing.
“I think it is really helpful to invest somewhere you already know,” says Mayfield. “And a lot of people want to live by the sea and still be able to get to London. Margate has changed a lot and it is still changing, so I think it’s a good choice.”
The property cost £248,000, and the renovations will be around £70,000. She thinks she will get around £1,350 per month in rent, representing a 5pc gross yield. Her strategy is to seek long-term tenants and slowly pay down the mortgage, giving her a modest income and an asset for the future.
Zygi Noreika moved to Watford, Hertfordshire with his wife and their two sons in 2019, and quickly realised he had made a good choice. “I saw that property prices were going up, quite a lot actually,” he says.
The promise of future capital growth encouraged Noreika, 41, to invest in two one-bedroom flats at the London Square Watford development, one in May 2023 and the second in July of this year.
The properties each cost £285,000, and are rented for £1,550 and £1,650 respectively, meaning Zygi’s annual yield comes in at almost 7pc.
“I am happy with that,” he says. “I did look at a development that was in Liverpool, which was interesting but I felt more comfortable with something closer to home – I’ve never even been there.”
Being close to the flats means Noreika, who works as a construction manager, will be on hand if there are any problems, and he believes the money he can save thanks to his professional contacts will outweigh higher yields further away.
“At the moment the profit margin is quite tight but this is an investment for the future,” he says. “In a few years interest rates will be a bit lower, and I am hoping there will have been some capital growth. And then who knows? One minute we think we might go and live there ourselves one day, the next the boys are deciding which one they want.”