For obvious reasons, the COVID-19 crisis has had a negative impact on buy to let mortgage activity across much of the UK. Even with exceptionally competitive mortgage rates available, new and established investors have been reluctant to make major purchase decisions.
Trends, regarding buy to let property hotspots across the UK, have remained relatively static throughout. Figures published by the property lettings management specialists at Howsy have confirmed that the affluence of an area doesn’t always mean elevated rent yields. In fact, it can often be the exact opposite.
Higher Rents, Higher Average Income, Lower Yields
Unsurprisingly, the report published by Howsy indicated that areas of lower average annual net income were also where the lowest average rental costs could be found. In the lowest net income bracket, £20,000 to £25,000, the average monthly rental cost was £453. Meanwhile, areas with an average net income of £45,000 or more recorded an average monthly rental cost of £1,606.
This means those in higher income areas are paying around 255% more per month than their lower income counterparts, however, this does not necessarily mean that buy to let investors are raking it in where net incomes and monthly rents are elevated. According to the figures published by Howsy, the average rent yield in the UK’s higher income areas is currently around 3.4%. By contrast, buy to let investors letting out properties in lower income areas are achieving average rental yields of 5.1%.
Commenting on the findings, Howsy’s CEO advised prospective first time buyer buy to let investors to think twice about where they purchase rental properties.
“There’s a common misconception that you need to invest big and in an affluent area if you want a stress free, high return investment in the buy to let market, but this is rarely the case,” Calum Brannan said.
“Areas with higher earners are always going to require a much largest investment cost upfront. We’ve also seen the huge problems posed in the most affluent areas of London, in particular, whereby professional crooks take over a property to sub-let for months on end to the financial detriment of the landlord,”
“This sort of practice isn’t as prevalent at the more affordable rental thresholds and, in fact, these areas of the market are often where the best tenants are found. The bonus for landlords investing in this segment of the market is that investment costs are lower and as a result, yields are much more favourable,”
“Should any problems arise, the cost to return a property back to its original standard is also far lower and so all in all, a less affluent area is actually the best place to invest.”