London areas including Southwark, Newham and Tower Hamlets are among the top 20 buy-to-let hotspots in the UK, according to a study by mortgage brokers Private Finance.
However, the capital lagged behind Liverpool, Nottingham and Coventry which were named the three best cities for buy-to-let investments.
Liverpool offers rental yields of eight per cent once mortgage costs are taken into account. The area benefits from a combination of low average house prices (£122,283) and strong rents (£1,021), the study found.
The Midlands boasts the second and third best performing investment locations, with average rental returns of 5.6 per cent in Nottingham and 5.4 per cent in Coventry. Greater Manchester (4.3 per cent) and Portsmouth (4.2 per cent) also made the top five.
In contrast, Southwark, Newham and Tower Hamlets provide rental returns of between 3.3 and 3.7 per cent.
|Location||Average house price (Jan 17)||Average mortgage costs* (Annual)||Average rent 2017 (Monthly)||Average rent 2017 (Annual)||Net rental yield 2017 (excluding tax)|
|Liverpool||£122,283||£2,421||£1,021||£12,252||Eight per cent|
|Nottingham||£127,302||£2,521||£808||£9,696||5.6 per cent|
|Coventry||£166,324||£3,293||£1,025||£12,300||5.4 per cent|
|Greater Manchester||£154,037||£3,050||£809||£9,708||4.3 per cent|
|Portsmouth||£197,141||£3,903||£1,019||£12,228||4.2 per cent|
|Cardiff||£192,482||£3,811||£946||£11,352||3.9 per cent|
|Blackpool||£101,125||£2,002||£495||£5,940||3.9 per cent|
|Lincoln||£140,345||£2,779||£684||£8,208||3.9 per cent|
|Bournemouth||£234,609||£4,645||£1,129||£13,548||3.8 per cent|
|Southampton||£201,983||£3,999||£958||£11,496||3.7 per cent|
Shaun Church, director of Private Finance, said: “It’s not only the residential property market that’s all about location, location, location. Many landlords will treat property as a long-term investment, looking for reward in the form of capital gain.
“Succeeding in making a long-term profit depends on buying an affordable property and being confident its value will appreciate at a higher rate than mortgage borrowing. However, for more immediate returns, landlords can optimise rental yields by choosing their buy-to-let location carefully.
“Investors should look for areas with strong rental demand. Larger cities and university towns generally have better performing rental markets: this will help to avoid lengthy void periods that can damage landlords’ profitability. Investors may also want to stay away from areas with very high house prices. Although these locations can provide high rental income, a large initial investment can prevent investors from achieving good returns.”
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Southampton / From £142,900
Liverpool / From £94,000
Liverpool / From £119,950
Hull / From £59,950
Bracknell / From £210,950
Liverpool / From £119,900
London / From £229,571
Liverpool / From £109,900
Leeds / From £89,900
Liverpool / From £64,030