Bristol, Oxford and Cambridge have been named as the best cities for landlords and investors to invest in for 2022, according to Aldermore’s Buy to Let City Tracker.
The Tracker examines and assesses five key indicators that impact buy-to-let desirability: namely average total rent, the best short-term returns through yield, long-term return through house price growth over the past decade, the lowest number of vacancies as a proportion of total housing stock, and the percentage of the city population in the rental market.
Through this, it found that Bristol – home to one of the country’s largest student populations, and an increasing hotbed for young professionals in recent years thanks to its bohemian vibe and green credentials – was the best city for investment next year, beating university titans and tech hubs Oxford and Cambridge into second and third place respectively.
Manchester, which took top spot last year, fell to fourth position, while Luton, London, Northampton, Brighton, Reading and Norwich also made the top 10.
Bristol, with a youthful population and more than a quarter (27%) of residents estimated to be privately renting, offers the best long-term investment for buy-to-let investors, according to the research.
As well as the long-term growth of property values in the area, it also has the lowest number of long-term property vacancies out of all 50 cities (at only 0.6% in 2021). Alongside a large and healthy rental market, since 2010 property prices in the city have increased by 5.1% on average per year, second only to Luton (narrowly ahead with 5.2% annual price growth) – meaning the prospects of capital gains and a good return on investment over time are high.
Aldermore says the short-term picture for Bristol, as with many of the cities ranked high in the Tracker, is more mixed. On the one hand, the average rent per room is a solid £514 per month, up 12% on last year, making Bristol one of only nine cities in the UK to command a rental value of more than £500 per month, and one of only two cities outside of the south and east of England, with the other being Edinburgh.
On the other, though, any investor will need a decent chunk of money to invest. With the average property price in Bristol standing at £348,543, likely yield will only be 4.6% on any purchase, comfortably below the 5.9% average across the 50 cities.
Luton, meanwhile, famed for its airport and its connections to easyJet, flew into the top 10 for the first time – reflective of much more affordable prices than London, a growing rental market and substantial regeneration.
The town entered the top 10 for the first time, rising from 12th to 5th place in the rankings due to the relative improvement in long-term house prices.
Luton, with 5.2% year-on-year house price growth over the last ten years, now has the strongest property price growth of any of the 50 cities – making investing here potentially an attractive long-term prospect for a buy-to-let investor.
By contrast, London fell down the rankings, slipping from 3rd last year to 6th this. That said, it didn’t feature at all in 2019’s rankings, so there has been a big improvement in that sense.
Despite generally lower yields, the capital continues to be an attractive investment proposition thanks to the long-term outlook for property prices, market potential, and relatively high proportion of private renters – London has the country’s biggest and most active rental market by quite some distance.
As for the other nations of the UK, Scotland’s competitive rental market remains a good investment for landlords, with its two major cities - Edinburgh and Glasgow - both sitting within the Tracker’s top 20. They are particularly attractive to landlords looking for short-term yields, with Glasgow (20th) providing one of the highest average rents per room (9.1% - £422). At the same time, the city has a low proportion of vacant properties (1.1%).
Edinburgh also benefits from a high percentage of private renters (86%), contributing to one of the highest rental returns of all cities (£546), but with a similarly small number of vacant properties (2.8%).
Unlike Scotland, Wales continues to struggle, with buy-to-let in the country continuing to be less attractive than other locations due to a fall in rental prices and a rise in property vacancies, creating greater supply and as a result a challenging market for landlords.
Swansea provides some longer-term value compared with other cities in Wales, thanks to a 3.0% increase in property prices, but Newport and Cardiff – Wales’s two other major cities - witnessed house prices decline along with their potential for short term yield.
Jon Cooper, head of mortgage distribution at Aldermore, said: “The City Tracker shows the UK housing market is rich with diverse and unique conditions across the regions that are ripe for investment opportunities. As we move towards a post-Covid environment, we hope this analysis gives food for thought to many landlords on where to look for those hidden gems and returns that meet their business strategies.”
He added: “Private landlords are a central part of the housing market, supporting over 4.5 million households in the UK and, as we emerge from the pandemic, landlords will need to meet the emerging demand for choice and variety from renters. With the economy opening up and EPC rating changes coming in 2025, now is a great time for landlords to talk with their broker to review where they want to take their portfolios in the future.”