Yields on houses in multiple occupation (HMOs) have dropped 1.3% to 9.3% between the first and second quarters of 2015, while average yields for standard buy-to-let have experienced a less marked decline, dipping from 6.4% to 5.8%.
While some landlords an investors are feeling the pinch, the regional picture is very different. Recent research by HSBC shows that the average rental yield in Manchester is 7.98 per cent and it took pole position as the best place to invest, followed by Kingston upon Hull and Blackpool.
Manchester’s buy-to-let glory is down to its property price rises and strong rental demand. HSBC’s survey shows landlords in Manchester are making the biggest rental yields. It has seen average house prices increase by 4 per cent from £104,244 in 2014 to £108,870, while average annual rents kept pace, up from £8,316 to £8,628 (Second quarter 2015).
|
Location |
% of housing stock privately rented |
Average house price |
Average annual rent |
Rental yield |
|
Manchester |
26.85% |
£108,870 |
£8,628 |
7.98% |
|
Kingston upon Hull |
19.02% |
£69,135 |
£5,400 |
7.81% |
|
Blackpool |
24.16% |
£79,654 |
£5,856 |
7.35% |
|
Forest Heath |
21.80% |
£171,322 |
£12,432 |
7.26% |
|
Coventry |
19.02% |
£116,946 |
£8,424 |
7.20% |
|
Southampton |
23.42% |
£151,415 |
£10,800 |
7.13% |
|
Nottingham |
21.64% |
£89,312 |
£6,288 |
7.04% |
|
Liverpool |
21.75% |
£90,426 |
£5,928 |
6.56% |
|
Cardiff |
20.32% |
£150,892 |
£9,624 |
6.38% |
|
Portsmouth |
22.28% |
£155,696 |
£9,900 |
6.36% |
Peter Armistead of Armistead Property commented: “Manchester has one of the largest student populations in Europe and demand for rental accommodation is strong and by comparison with other regions, housing is cheaper.
“It is undoubtedly a great place to invest and as a seasoned property investor, I have built a successful, mid-sized portfolio of buy-to-let properties in South Manchester. Over the last 12 months I have enjoyed average yields of 6% per cent across my 80 properties. While location is an important factor when considering a buy-to-let investment, the most important lesson I have learned is that landlords need to treat their property as a business. Treat it seriously and get yourself surrounded by a great team of professionals who are better than you.
Whilst the recent property price rises are generally a good thing for home owners, they can be a double edged sword for investors. With yield cooling, monthly profit margins will be squeezed and investors now more than ever need to make sure they have a solid business plan which is risk management focused.
If investors are acquiring buy-to-let properties, it is vital that they purchase below market value in the right area. This may mean taking on properties that require refurbishment. As long as all the refurb the costs have been accurately factored into cashflow with a contingency budget, then investors have the potential of higher yields on ‘nearly new’ properties.
