Research by TotallyMoney has revealed that buy-to-let landlords facing increased taxation and diminishing profits could find better yields in UK towns and cities with a high student population.
Rental yields in university towns and cities such as Liverpool and Middlesbrough, where property prices are typically more affordable, are up to seven times higher than in London. The findings showed that two postcodes close to two of Liverpool’s three universities, L7 and L6, were the first and second hotspots for rental property investment, generating yields of nearly 12%.
Average rents in the two postcodes were £1,162 and £1,046, whereas house prices stood at £118,225 and £109,940 respectively.
In third place was Middlesbrough’s TS1 town centre postcode, home to Teeside University, which offers average rental yields of 10.94%. While average rents in the area are £595 per month, the average asking house price is just over £65,000, making it one of the most affordable spots to invest in.
The best yields in London, meanwhile, are found in the east of the city, with Plaistow, Manor Park, Chingford, Stratford, East Ham and Poplar all ranking in the top 10 London postcodes for rental profits.
Bournemouth’s BH14, however, had the lowest scoring yields, with an average return of 1.68%, closely followed by Crewe’s CW12 with 1.74%.
Areas with more affordable house prices typically generate better yields than areas with more expensive properties, and the TotallyMoney research backed this up. It found that all postcodes in the 25 lowest yielding areas have average house prices of more than £300,000, while the relatively low yields in London are a direct effect of very high house values in the capital. This, however, is offset by much higher capital gains.
“Landlords and letting agents that let to UK and international students know they are getting some of the best yields in the country,” Jeremy Robinson, managing director of student guarantor service Housing Hand, said.
“Students today want high-end accommodation and are prepared to pay a premium price for ensuites, plasma TVs, premium white goods, super-fast broadband and security.”
He said that, according to research, students outside London are paying an average of £568 rent per month. “We know that students will pay more for shared accommodation that is close to a university,” he added. “International students have even larger budgets for a rental property, especially those coming from UAE and China. The low value of sterling means that many international students will be starting university in 2018, with a sizeable budget of between £1,000 and £2,000 a month.”
The number one choice for new students after halls is an HMO, which – Robinson says - offers excellent yields for landlords. Each bedroom is rented, unlike a family home where there are usually only two people on the lease.
“Even though many international students can’t provide a good credit history in the UK, we can stand as their UK guarantor, providing landlords with rent guarantee for the whole length of the lease, which they don’t have to fund. It’s a win win,” Robinson concluded. “The letting agents and landlords that work with us have been able to widen their market of tenants in university towns and cities across the UK.”