Revealed – where is the most profitable city for BTL landlords?

23 September 2020 | Investment

Up-and-coming Salford is the most profitable city for buy-to-lets, followed by Manchester and Leeds.

That’s according to a new study by CIA Landlord, which has revealed the cities with the cheapest average house prices compared to the average rental cost to unveil the best cities and house types to invest in before the stamp duty holiday ends in March 2021.

With the stamp duty holiday ‘buying frenzy’ pushing house prices to an all-time high across the UK, despite the many challenges posed by Covid-19, the research outlines the buy-to-let hotspots where landlords and investors may want to consider putting their money.

For landlords looking to buy a new property which they plan to later let out, the study found Salford to be the best city in the UK for such a venture.

With an average house price of only £173,311, properties are towards the more affordable end of the spectrum. At the same time, with average rent prices in the region of £1,052 per month, it could prove to be extremely profitable as well.

Thanks to the stamp duty holiday – which also benefits buy-to-let landlords – someone investing in Salford could be looking to save almost £1,000 when purchasing a property in the city famous for Lowry and, more recently, MediaCityUK and the Class of ‘92-led Salford City FC.

In recent years it’s become a hotbed for Build to Rent developments, with one of the highest concentrations of schemes outside of the capital, and an increasingly popular place to live for young professionals thanks to the employment and leisure opportunities provided by MediaCityUK.

Salford’s very near neighbour, Manchester, ranks as the second-best city for buy-to-let hotspots for landlords. House prices average out at an affordable £193,681, with rental incomes averaging at £1,141. At present, investors can expect around £1,373 in stamp duty savings.

Leeds, Portsmouth and Belfast follow closely behind with house prices ranging between an affordable budget of £100,000-£250,000, with rental income reaching over £2,000 per month.

Where are the worst places for buy-to-let property buyers?

High Wycombe, a large market town in Buckinghamshire, nestled in the rolling countryside of the Chiltern Hills, ranked as the worst UK city for buy-to-let purchasers.

With average prices coming in at £430,891, the area is expensive for those looking to buy then let. Rent prices, too, average at a comparatively small £945 per month, which means the profitability margin is also very low as landlords will find it harder to generate a good enough return. 

The famous old university city of Cambridge, too – despite being known for its beauty, punting and thriving tech scene – doesn’t perform well on a buy-to-let basis.

House prices in the city average £448,432, whereas rental income only averages a mere £1,080. Other UK cities CIA Landlords advises investors to avoid investing in include Reading, Worcester and Watford, all places which have low rental incomes compared to average house prices of more than £400,000.

Where are London’s hotspots?

London is often dismissed as a bad investment choice when it comes to buy-to-let, because of the high initial buy-in values at play. While it’s true that house prices in London are considerably higher than other parts of the country, and especially so in prime central areas, the capital is a big place and there are 13 of its boroughs where average house prices fall below the £500,000 mark, excluding them from stamp duty while the holiday is in play.

CIA’s study revealed that Havering is the best borough for profitability, with house prices averaging at £395,832 and monthly rental prices reaching a high of £1,895. During the stamp duty holiday, investors can expect to save more than £9,000 when buying a property.

Following Havering is other more affordable boroughs like Newham, Barking & Dagenham and Enfield, with house prices averaging between £300,000-£400,000. With the average monthly rent price for all the top London boroughs surpassing £1,000 per month, landlords in the capital that look to invest further out of zones 1-3 could reap the rewards.

By contrast, Kensington and Chelsea ranks at the least sensible buy-to-let hotspot for stamp duty savings, with average house prices reaching over £2 million.

Bromley, Haringey and Ealing follow as the second, third and fourth-least business-savvy options with the exact same profitability ROI as Barking & Dagenham (£302,060) or Enfield (£399,517).

This being said, if you have a couple of million spare to invest and are just looking for the most profitable borough disregarding stamp duty savings, Westminster, with a profitability score of 8.04 out of 10, is your best bet – followed by Southwark, Lambeth, Brent, Wandsworth, Hammersmith, Barnet and Camden. No other borough below £500,000 comes near these areas’ return on investment margin (scores ranging from 6.56 to 8.04 out of 10).

Where are the most profitable buy-to-let hotspots based on house size?

The study also revealed the best areas to invest in based on number of bedrooms, to help investors or landlords looking to invest in a specific house type for families, couples, professionals or students.

It found that Grimsby – famous for its fisheries – ranks as the best city for those looking to buy and let a one-bedroom house. The initial investment will cost just £81,338, with rent at £375 on average.

Sunderland, meanwhile, ranks as the best city for those looking to buy and let a two-bedroom house – costing just £105,818 with rent at £531 on average.

Grimsby scores highest as the best city for those looking to buy and let a three-bedroom house – costing £125,768 with rent at £490 on average – while Doncaster ranks as the best city for those looking to buy a four-bedroom house, costing £252,710 with rent at £547 on average

Doncaster also ranks as the best city for those looking to buy a five-bedroom house – costing £274,995 with rent at £457 on average.

This post has originally been featured in Property Investor Today.