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Neil Faulkner

Best & worst buy-to-let locations

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Southampton, Blackpool and Hull top the list of the most promising areas to purchase a buy-to-let property. Personal finance writer Neil Faulkner takes a look.

Estate agents

There's a common, albeit simplistic, way for buy-to-let investors to measure how good their investment is.

Simply divide the annual rent by the purchase price and multiply by 100.

Hence, £6,000 in annual rent on a purchase price of £100,000 is a 6 per cent "rental yield".

Using this broad measure, banking giant HSBC looked at the most promising areas to purchase buy-to-let properties today.

Top 10 buy-to-let locations

Location Rental yield / average rent Average property price
Manchester 7.98% yield on average rents of £709  £108,870 
Kingston upon Hull 7.81% yield on average rents of £450
£69,135 
Blackpool 7.35% yield on average rents of £488
£79,654
Forest Heath 7.26% yield on average rents of £1,036
£171,322
Coventry 7.20% yield on average rents of £702
£116,946
Southampton 7.13% yield on average rents of £900
£151,415
Nottingham 7.04% yield on average rents of £524
£89,312
Liverpool 6.56% yield on average rents of £494
£90,426
Cardiff 6.38% yield on average rents of £802
£150,892
Portsmouth 6.36% yield on average rents of £825
£155,696

What's a good rental yield?

When looking at rental yields over the past 25 years, a yield of less than 6 per cent has meant you can expect a property price crash and even a fall in rental income.

However, a yield of above 9 per cent has been outstanding.

Using that as a simple rule-of-thumb, landlords buying today in Manchester and Kingston upon Hull are looking pretty okay then, with their yields of more than 7.5 per cent.

Contrast that now with the bottom 10 buy-to-let locations in HSBC's top 50 and you'll get a worrying picture if you want to be a landlord in many parts of London.

Landlords in the capital typically receive less than half the yield of the top 10, and far below the 6 per cent crash barrier.

Bottom 10 buy-to-let-locations

Location Rental yeild / average rent Average property price
Kingston and Chelsea
2.87% yield on average rents of £3,131
£1,310,083
Westminster
3.15% yield on average rents of £2,600 £990,898
Hammersmith and Fulham 3.23% yield on average rents of £2,145 £797,170
Haringey, London 3.40% yield on average rents of £1,387 £489,291
Camden, London 3.46% yield on average rents of £2,383 £826,156
Hastings 3.64% yield on average rents of £600 £197,560
Richmond upon Thames 3.71% yield on average rents of £1,950 £631,440
Harrow 3.94% yield on average rents of £1,248 £380,196
Eastbourne 3.95% yield on average rents of £650 £197,560
Redbridge 3.98% yield on average rents of £1,200 £361,822

One-bed flats highest rental yield

If the average price of £69,135 for a Hull property seems too steep for you, UK lettings agent Countrywide has found that one-bed flats currently return the highest rental yield.

So spending less on a property can lead to a better return on the money you put in.

Protect your investment

An important area for prospective landlords to consider is insurance, as standard home cover is unlikely to protect your property after you rent it out.

Dedicated landlords insurance or buy to let insurance policies differ from residential cover in a number of ways.

For example, the maximum period the property can be left unoccupied is usually longer - 90 days for example, instead of 30.

You can also opt for cover against tenants failing to pay their rent, and for insurance against any emergency maintenance issues that could arise, such as a boiler breakdown.

It is also worth adding legal cover, to protect you against any claims arising from accidents suffered by tenants, or to pay the cost of any legal disputes with tenants.

*Stats updated May 2015

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