While there are many things to consider when looking at the UK buy to let market one of the most important factors is the rental yield. This will literally determine your return on funds invested in a similar manner to a savings rate on your savings account. HSBC produces an annual review of the UK buy to let market which very often throws up some interesting opportunities.
So, where are the current buy to let hotspots in the UK and what kind of yield and rental income can you expect?
Top buy to let areas
First of all it is worth mentioning that both house price values and rental yields are not static and will vary from place to place and time to time. In reality the long-term trend on house prices and rental income is upwards although as the rental yield is rental income as a percentage of house price value this is subject to change depending on market conditions.
The top 10 buy to let areas in the UK over the last year have been Manchester with a yield of 7.98% (rental income of £719 per month), Kingston-upon-Hull at 7.81% (£450), Blackpool at 7.35% (£488), Forest Heath at 7.26% (£1036), Coventry at 7.20% (£702), Southampton with a yield of 7.13% (£900), Nottingham bringing in 7.04% (£524), Liverpool at 6.56% (£494), Cardiff with a yield of 6.38% (£802) and Portsmouth in 10th place at 6.36% (£825 rent per month).
It is worth noting that while there are entries from many areas of the UK, the London area does not feature on the list.
Is rental yield really important?
As we touched on above, rental yield basically gives you a return measure on the value of the property asset in question and is a very useful indicator. This figure must be taken into consideration along with the value of the property as a whole because if you have seen a reduction in the value of the assets then you would expect an increase in the rental yield. On the flip side of the coin, you might see a reduction in your rental yield after a significant increase in the value of your property asset.
In a perfect world it should be relatively straightforward to buy property offering an attractive yield and as the price goes up continue to compare and contrast against the changing rental yield. For example, if you have a property valued at £100,000 which earns you £10,000 per annum in rent then the rental yield would be 10%. However, if the property increased in value up to £200,000 with the rental income increasing at a slower rate, say up to £15,000, then your rental yield would be 7.5%. These figures are simplified to highlight the situation and what you need to consider going forward.
If your rental yield is going down as the value of your property is going up, with limited scope to introduce an increase in rent, it may well be worth considering selling the asset and reinvesting into another property with a higher rental yield (as well as potential for long-term capital growth). You obviously the need to take professional financial advice in this particular situation but there are opportunities to use the figures as a basis for trading your assets as and when possible.