Where are landlords raking in the biggest profits?  

Rising house prices, more stamp duty to pay and less tax relief have all piledpressure on to landlord finances in recent years but there are still healthy returns on offer in some parts of the UK.

Research carried out by Totally Money looked at annual yields on 500,000 buy-to-let properties across Britain and found that while landlords in London are struggling to make a decent return, those letting out homes in Liverpool are firmly in the black.

Liverpool’s centre, Edge Hill, Fairfield and Kensington areas are the most profitable places in the UK to be a landlord, according to the study, offering an annual return equivalent to 12.63 per cent.

And that is mostly thanks to Liverpool’s lower house prices, three universities and huge demand for rented accommodation from students.

Manchester, Nottingham, Sheffield, Glasgow, Cardiff and Plymouth – all university strongholds with large student bodies in need of rented accommodation – also placed highly in the top 25 postcodes and delivered buy-to-let yields in excess of 7.25 per cent.

Landlords in London and the South East, meanwhile, are finding returns far harder to come by, with sky high house prices meaning it takes years for landlords to cover their costs and make a decent profit.

In London’s SE1 postcode, the average property price is a cool £1.3million, while monthly rents average £2,510, delivering landlords an annual yield of just 2.36 per cent.

Landlords have had a lot of change to deal with over the past couple of years. In April 2016, a 3 per cent stamp duty surcharge was introduced on all buy-to-let purchases.

The Bank of England then issued a warning to buy-to-let lenders, forcing them to impose much tougher lending standards that have made it harder to get a buy-to-let mortgage. 

Then in April this year the government began its roll-back of tax relief on buy-to-let mortgage interest from a previous maximum of 45 per cent to a tax credit of 20 per cent. 

This flipped the way that landlords have to declare their income, meaning they now pay tax on all of their rental income rather than just on their profit. 

It has hit the pockets of many landlords, with those worst affected tending to operate in areas where house prices are particularly high. 

Joe Gardiner, of Totally Money, said: ‘Realising a decent return on a buy-to-let rental property is becoming increasingly difficult. Property prices continue to rise steadily, albeit more slowly, and rule changes have made lenders more cautious.

‘Prospective landlords need to go into property investment armed with the facts: they need to focus on property investment in areas that can give them the highest yield.’ 

Where to invest in buy-to-let 

Liverpool postcodes dominated the top table with six of the top spots.

In Plymouth, the PL4 postcode rose up the table from 15th to fourth place with a yield of 10.15 per cent.

Middlesborough’s TS1 postcode is home to Teeside University and made the top five, with an average yield of 10.06 per cent and an average property asking price of £64,500.

With four universities and a student population of 100,000, the Manchester rental market is also strong. 

The city boasts two of the highest yields in the study, with 8.25 per cent in the M6 postcode and 7.98 per cent for M14, student favourite and home to the University of Manchester’s Fallowfield Campus.

Two Scottish postcodes made it into the top 25 of the buy-to-let yield table – Glasgow’s G3 covering Anderston, Finnieston, Garnethill, Park, Woodlands, Yorkhill and Aberdeen’s AB11 covering the city centre and Torry, both with yields in excess of 7 per cent.

The key element throughout most of the top postcodes is that property prices remain relatively affordable for the UK, but demand to live there is reasonably high – something which a strong student population bolsters.

In contrast, expensive property areas in London and the South East dominate the places where landlords will make a lower rental return – as although tenant demand there is strong, house prices have risen so high as to depress prospective yields.

Where buy-to-let yields are lowest

The worst returns were found in London and the South East. In some parts of London, although rents are almost £4,000 per month, at nearly £3million the average house price is 13 times the national average depressing yields to less than 2 per cent.

Brighton, Southampton, Gloucester and Bournemouth also produced poor yields.  

Graham Davidson, managing director of buy-to-let specialist Sequre Property Investment, said: ‘Buy-to-let investors are turning their attention to areas of the north, such as Manchester, Liverpool and Sheffield, where price increases have been much steadier and therefore sustainable. 

‘These cities and their commutable surroundings are likely to continue to thrive within the current housing market, making them the ideal hot spots for investment.’