The best postcodes for buy-to-let revealed: Forget London, it’s Birmingham that pays off when it comes to rents
Forget London’s overheated property market, it is landlords with properties in the Midlands who are benefiting from the UK’s best rental yields.
Data from property peer-to-peer lending platform LendInvest shows the highest rental yield postcodes from the first quarter of this year can now be found in Birmingham, Ipswich, Liverpool and Glasgow.
But postcodes around north and central London are still delivering the best overall returns on investment, thanks to capital gains delivered by rising house prices. So how is your buy-to-let postcode performing? The maps below reveal how returns stack up.
Should you look further afield for buy-to-let?
It can be tempting to just look locally when building a buy-to-let portfolio, but there can be big differences in the amount of rental income you receive and how much your property will appreciate by.
Landlords should be looking for a high rental yield so that they can comfortably cover any mortgage payments and make some profit from the income return, but you also want the property to rise in value over time so you can get some capital growth when you come to sell.
Using annual data from Zoopla over the first quarter of 2015, LendInvest has created an index of rents and capital growth in the buy-to-let sector. It also created a total return index.
The platform has created interactive maps where you can even break down returns by postcode and number of bedrooms.
Based on data from the first quarter of 2015, the LendInvest Buy-to-Let Index shows the average rental yield for a one-bed property across the UK is 5.9 per cent, compared with 5.3 per cent for a two-bed, 4.7 per cent for a three-bed and 4 per cent for a four-bed.
You can use the interactive maps below to search rental yield, capital growth and return on investment figures by postcode.
Enter your postcode using the search button by clicking the magnifying glass on the top left of each image. Click on the coloured sections on each image to see data from surrounding areas.
The rental yield is worked out by taking the annual rental income your get from the property and calculating it as a percentage of the property cost.
Using around 1,000,000 sales and 500,000 rental listings from Zoopla, LendInvest has taken the average asking rental price per year and divided it by the average asking property purchase price and then broken it down by the first part of a postcode, known as the outcode.
The map shows four of the 10 highest rental yielding areas are in Birmingham, with 13.6 per cent in B44, 11.9 per cent in B42, 10.5 per cent in B98 and 9.1 per cent in B23.
In Ipswich or Liverpool you could get 10.8 per cent in IP4 and 9 per cent in L28 respectively, while Glasgow areas G34, G21 and G22 are yielding 11.9 per cent, 10.1 per cent and 9.2 per cent respectively.
When you come to sell your buy-to-let property it would be nice to make a handsome profit. Any profit you make on the sale of a buy-to-let is known as the capital gain.
According to the LendInvest Buy-to-Let Index, capital gains on average in the first quarter of 2015 are 2.6 per cent. They have historically been the highest for cental and north London areas, with 21 per cent in WC, 16 per cent in N5 and 15 per cent in W3.
Areas in Manchester and Liverpool have actually experienced declines in house prices year on year, with a 4 per cent drop in M5 and 3.3 per cent fall in L9.
Total return on investment
Ultimately you want to be making gains from both your rent and house price growth, particularly when you want to sell.
When combined, the rental yield and capital growth gives you the return on investment.
LendInvest has taken the rental yields and annual capital gains to work out the return on investment you would get around the UK on a buy-to-let property.
London-based areas WC1, WC2 and N5 offer the best returns on investment for landlords at up to 25 per cent.