Some cities offer an excellent investment return for landlords – but house prices are so high in some that making a profit is almost impossible.
To help property investors pick the best cities for buy to let investment, estate agent Cpoulters Property has analysed house price, mortgage and rent data.
The rankings show the cities with the best yields – and those with the worst.
Preston, Lancashire, tops the list with an average yield of 2.98 per cent.
Coventry, Swansea and Manchester are the only other cities to bust through the 2 per cent yield ceiling.
- 1 Cities where yields are in the red
- 2 12-year gap for paying off a buy to let mortgage
- 3 Calculating your rental property yield
- 4 Cities with the best yields for landlords
- 5 Cities with the worst yields for landlords
- 6 Best and worst cities for buy to let FAQ
Cities where yields are in the red
Warrington props up the rankings as the only city with more than a -1 per cent return.
Other cities in the red mainly due to the high costs of homes include Swindon, Reading, Cambridge and Oxford.
London slips into the ratings in 28th position, with an average yield of 0.42%.
The data also lays bare the low profits landlords with mortgage properties make.
The average yearly profit for a Preston landlord is £5,256, which is beaten in Coventry (£6,033) and York (£5,405), even though both cities have lower average rental yields.
12-year gap for paying off a buy to let mortgage
Preston and Coventry are also the cities where landlords can pay their mortgages the quickest.
Landlords in Preston take an average of 15 years to clear the debt on a £176,000 home. In Coventry, they take six months longer to be mortgage-free on a £220,000 property.
In Slough, Derby, Mansfield and Plymouth, paying down a buy to let loan takes 12 years longer -more than 27 years.
The average rental loss in England and Wales is £227 a month, leading to an average return on investment of -0.06 per cent.
In many cases, the loss is far worse, as the figures do not take running costs into account, such as insurance and letting agent fees
Calculating your rental property yield
Calculating the return on investment for your rental properties is easy.
- Tot up two figures – the yearly mortgage repayment and yearly rent
- Subtract the rent from the mortgage repayment to give the annual profit
- Divide the yearly profit by the property value and multiply by 100 to give a percentage figure
For example, a rental home in Birmingham is valued at £135,000. The annual rent is £7,800, and the mortgage repayment is £3,240.
The profit is £4,560 (£7,800 less £3,240).
Then the calculation is the profit (£4,560) divided by the property value (£135,000), multiplied by 100 to give a percentage, which is 3.37 per cent.
Cities with the best yields for landlords
|Rank||City||Average house price||Average rental||Years to pay for house||Average mortgage repayment||Monthly profit||Annual profit||Annual profit as % of
Source: Coulters Property
Cities with the worst yields for landlords
Source: Coulters Property
Best and worst cities for buy to let FAQ
How accurate are best and worst lists?
Remember, the figures are averages. That means some landlords do better, and some do worse than the quoted figures. The best way to interpret the data is as a benchmark, so consider the figures what the average landlord achieves and indicate what your returns should reach.
Do the figures include day-to-day property business running costs?
No. The only regular expenses included are the mortgage costs and rental income. Mortgage costs are calculated as a 3 per cent interest-only rate over an 80 per cent loan-to-value mortgage over 35 years.
Should landlords reject properties that fail the ROI test?
Rejecting a property after benchmarking the rents and outgoings is not always the best idea. Other considerations can make a property worth adding to a portfolio. For instance, the tables treat homes as single lets, whereas shared houses would have a much higher return on investment.
Management is another issue -buying close by makes a property more straightforward and cheaper to manage rather than owning one several hundred miles away.