Seaside town revealed as the UK’s top buy-to-let destination

Southend-on-Sea is the UK’s number one buy-to-let hotspot, according to research carried out by independent mortgage broker Private Finance.

The seaside town, which offers average rental yields of 6.6% once mortgage costs are taken into account, can generate an annual rental income of £23,280 for landlords. Given the relatively affordable house prices (the average cost of a home in Southend-on-Sea is only slightly above the national average at £279,358) landlords can potentially enjoy excellent returns from a fairly modest upfront investment.

Despite a seaside town taking top spot, it was the UK’s major cities which dominated the rest of the top 10. Three London boroughs (Westminster, Tower Hamlets and Camden) all featured, alongside Nottingham, Edinburgh, Greater Manchester and Liverpool. The top 10 was completed by Coventry and Southampton.

Nottingham had the second highest average net rental yields in the UK (at 6.4%), followed by Westminster (5.1%) and Edinburgh (4.9%).

All the urban areas in the top 10 are home to a sizeable population of young professionals and university students, which helps to increase rental demand and in turn bolster rental prices. 

“Southend is a popular spot for renters, with all the benefits of living in a popular seaside town less than an hour’s commute from Central London, and with good airport connections,” Shaun Church, director at Private Finance, said.

“With the high cost of renting pricing many out of the city, towns in a commutable distance from London that offer a more relaxed lifestyle at an affordable price are becoming increasingly popular among young professionals. Rental demand is likely to grow in these pockets outside of London, offering good opportunities for buy-to-let investors.”

Private Finance’s analysis, which calculates rental yields in the 50 UK towns and cities with the highest quantity of privately rented housing stock, also revealed that house prices and mortgage costs can be just as important as rental income when it comes to deciding on the best locations to invest in. Four out of 10 of the areas with the lowest house prices – Liverpool, Nottingham, Greater Manchester and Coventry – feature in the top 10 buy-to-let hotspots, suggesting that investors should not merely be focusing on potential rental income when assessing where to invest.

Investors with smaller sums to invest will also be encouraged, as the above research suggests that spending millions to secure a lucrative property investment isn’t needed to ensure strong rental returns.

Those who are most interested in rental income, though, should look no further than London, with 9 out of the top 10 locations with the highest rents all situated in the capital. Southend-on-Sea, with average rents of £1,940 per month, was the only exception to this rule.

In a further boost to buy-to-let investors, the research revealed that buy-to-let mortgage rates are at near record lows – with lenders slashing costs to boost a market significantly affected by a host of tax changes in recent years.  

Based on a 75% buy-to-let loan against the average UK house price, the typical interest-only monthly repayments for a landlord have fallen by 54% since 2012 – down from £733 to £334. This means those who have re mortgaged onto today’s competitive rates could be set to experience an annual saving of £4,788 compared to six years ago.

“While recent stamp duty changes in the sector may have dampened landlords’ appetite, our analysis shows buy-to-let still remains a viable and lucrative investment,” Church added. “Strong rental incomes matched with declining mortgage costs mean that landlords can still enjoy a level of return on their investment they’d be hard pressed to find elsewhere.”

Church said that location is often the most important factor when considering a buy-to-let investment, as this will very often determine the yields investors can enjoy. “While investors may be wooed by the prospect of strong rental income, house prices can be just as influential in determining rental yield. Looking for areas with opportunities for house price growth can also provide landlords with the added benefit of a profit from the eventual sale of their property, in addition to a regular monthly rental income.”