The Best Buy To Let Areas in the UK for Investment

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It is no secret that the UK Buy to Let market it is in somewhat of a crisis. Despite the doom-mongering of the mainstream media, Buy to Lets remain viable for good profitability in certain areas.

The most important factors to consider when looking for a Buy to Let mortgage is to calculate your rental yield correctly, the location of your rental property and the mortgage interest rate. By encompassing these three factors in your Buy to Let planning you are in good stead to achieve a strong return on your investment.

Let’s explore the complex topic of the best areas for Buy to Lets in the UK further.

What is a Buy to Let Mortgage

A Buy to Let mortgage is a special mortgage product that allows you to buy property to rent out. A traditional residential mortgage is not suitable for this as most lenders stipulate you must reside in the property.

Buy to Let mortgages have different criteria to residential mortgages. You will need to put down a much higher deposit with a Buy to Let mortgage and the security property will need to pass the lender’s rental stress test.

This stress test is how much a lender believes you will achieve in rental income, and it must be higher than your mortgage payment. Lenders operate different thresholds above your mortgage payment, but a typical stress test will be around 5.5%.

Due to problems in the wider rental market and rising interest rates, lenders have begun to increase this stress test, making it a little more difficult to obtain a Buy to Let mortgage.

What is Rental Yield?

Your rental yield is the annualised profit when you account for your initial investment.

When you purchase a Buy to Let property you will have 4 main costs:

  • Mortgage application fees/Conveyancing fees
  • Deposit for the mortgage
  • Stamp Duty
  • Mortgage payment

You may also have further costs such as renovation or habitation costs (making a property legal for rental) and property management costs.

In general, it is advisable to spend money carefully, ensuring your property is compliant with housing regulation.

The average Buy to Let rental yield is 6% in the UK. Because this is an average figure, there are properties achieving less and more than 6% rental yield to provide this average.

When you consider the interest rate on a typical savings account now, it is easy to see how mismanaging your Buy to Let could make it a fruitless investment. When compared to a traditional savings account, a Buy to Let carries more risk too.

Interest Only Mortgages

To achieve the best rental yield, you should aim for an interest only mortgage. This means your mortgage payment consists of just the interest on the loan.

At the end of the interest only mortgage you will need to repay the capital in full. Most Buy to Let landlords anticipate selling the property at this point to repay the mortgage.

Capital Repayment Mortgages

Some landlords are keen to build property portfolios without the necessity of selling property at the end of a mortgage term.

Although rare, it is possible to obtain a capital repayment Buy to Let mortgage. Capital repayment Buy to Let mortgages are much more difficult to obtain because your stress test will be higher due to the higher monthly mortgage payment.

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10 Areas with the Highest Rental Yield

Now that we have identified how your rental yield is calculated you will be wondering where in the UK provides the best rental yield.

Overall, you should be aiming for an area with low-cost property and a high rental market.

The table below outlines the 10 best areas in the UK for rental yield with an average property price (according to Rightmove’s 2022 figures) and estimated rental yield.

LocationRental Yield AchievableAverage Property Price

Problem Areas in the UK for Rental Yields

London is the area with the lowest overall rental yield due to high property prices eating into profit margins. The average London rental yield is just 3.33%.

Wales and Northern Ireland have the opposite problem as properties are generally much cheaper, but the rental values are weak.

Currently, Scotland is a high-risk country for landlords due to anti-landlord legislation. Although historically rental yields have been favourable, legislation enforcing rent freezes have brought these yields down to be the most uncompetitive in the U.K. This is because a rent freeze prevents a landlord from increasing the rent despite the mortgage costs going up due to rising interest rates. As a result, following rent freezes, it should be of no surprise that many landlords decide to sell their properties. This rapid sale of rental properties from landlords reduces the number of properties available for tenants to rent. Sadly, this creates a real risk of homelessness for those unable to find a property to rent, unable to purchase a property and unable to access social housing. For this reason, rental freezes are typically frowned upon in the housing market.

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Holiday Lets as an Alternative to Buy to Let

The property market is fast moving and an area with a high yield initially can become a low yield area over time, especially if new landlords buy up property in the area hoping to achieve those high yields.

As a result, there has been a growing interest in Holiday Lets as opposed to Buy to Lets. Holiday Lets typically have a higher yield (an average of 8% compared to 6%) than a Buy to Let.

In the short term you may feel daunted by your retirement pot being eaten away by paying off your mortgage. Holiday Let mortgagers operate in a slightly different way to a Buy to Let mortgage and you should ask your mortgage broker to explain the differences so you can make an informed choice about which investment is best for your personal circumstances.

How to Get a Buy to Let Mortgage

Any investment carries risk and Buy to Let mortgages are no different. You should be aware of pressure points that can cause long term financial problems.

Once you have decided that you are comfortable with the risks, a mortgage broker will be able to source you the best Buy to Let mortgage deal, which is important for the abovementioned rental yields.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provides fee free mortgage advice and arrangement.

Contact Boon Brokers to discuss Buy to Let mortgages today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.