University towns offer buy to let landlords the chance to turn a healthy profit
Property investors hoping to join the buy-to-let boom should look to university towns beyond London to find the best returns, according to a new survey. Mortgage lending to landlords is at a five-year high as banks continue to slash interest rates and deposit requirements, with many deals below 3 per cent.
But as more investors are tempted by cheap buy-to-let mortgages, the market can become saturated, so it’s more important than ever to choose your location wisely.
London is most popular for landlords, but generates a surprisingly low yield of 5.7 per cent because house prices are so high, according to mortgage lender Landlord Centre. It says the average yield nationwide — that is, rent as a percentage of the property value — is 6.2 per cent.
Sophie Chick, an analyst at Savills estate agency, says: ‘While the potential for long-term capital growth is greater in London, you may get a similar monthly income from rent on a much cheaper property outside the capital.’
Savills says the five largest rental markets outside London are Manchester, Liverpool, Bristol, Birmingham and Leeds — all popular university cities where an average of 23 per cent of the population live in the private rented sector.
‘Landlords generally find the best returns in urban areas with a concentration of students or young professionals,’ adds Ms Chick.
Alexander Gosling, at house simple.co.uk, says: ‘If you’re targeting the student market, buy a multiple-bedroom property near the university or in popular student areas.’
Estate agency housesimple.co.uk has a three-bedroom house on Sandlewood Close in Leeds, 1.5 miles from the station and 2.5 miles from the university, on at £139,950.
The agent says rooms could be rented to individual students at £325 per month, generating £975 a month in total, a yield of 8.3 per cent.
Letting to students may be higher-risk, but the yields on so-called ‘houses in multiple occupation’ can be temptingly high.
Bairstow Eves has a six-bedroom, two-bathroom home on Osborne Street in Nottingham, close to the centre, and accepting offers over £130,000. It says landlords could charge from £240 to £280 per month for each room, giving a total rent of between £1,440 and £1,680 or an impressive yield of 14 per cent.
Student lets are a competitive market so be sure your property stands out. Secure bike storage and good locks on windows and doors, for example, will be appreciated as students are vulnerable to theft. Always ask parents to act as guarantors for rent.
Letting agents can manage the property by dealing with repairs and rent collection, but this will cost you about 10 per cent of the rent.
If you can’t face the clean-up after students, focus on young professionals. ‘Good-quality appliances and a high-level finish is key. Professionals will also be looking for properties close to rail stations and main roads,’ says Alexander Gosling.
Housesimple has a modern one-bedroom apartment on Cheetham Hill Road in Manchester, just a mile and a half from Manchester Piccadilly station, for £70,000. It would expect rents of £450 a month, producing a yield of 7.7 per cent.
Yields are before maintenance costs, periods when the property is empty, mortgage payments and letting agent fees, so factor in all of these costs before taking the plunge.
The good news is mortgage lending is picking up significantly, with the number of loans given to landlords at the highest since 2008.
Landlords able to put down 40 per cent of the property’s value can get a two-year tracker mortgage with Principality BS at just 2.39 per cent, though it comes with an arrangement fee of 2.5 per cent of the loan size. As buy-to-let mortgages are normally repaid on an interest-only basis, the monthly payments on a £150,000 mortgage would be £299.
Those with a 30 per cent deposit could get a three-year fixed-rate with Virgin Money at 4.85 per cent, with a lower arrangement fee of £995. Monthly payments on a £150,000 mortgage would be £608.
Talk to a fee-free whole of market mortgage broker such as London & Country for more advice on finding the right buy-to-let deal.
Article courtesy of This Is Money