A buy-to-let property having a high yield might appear to be an attractive investment, but not if it’s standing empty. New data has revealed the towns with the highest void periods and lowest affordability for tenants.
When looking for the best place to buy in, landlords often consider the yield – the cost of the home divided by the achievable rent. Equally important, however, is when easy it is to find a tenant.
Which? explains the trends and factors you should think about when buying a property being an investment.
Towns where landlords are most vulnerable
Yield is often surface of mind for landlords buying inside a new area. However, a property will only produce income if it includes a tenant, and that's why void periods will also be worth considering.
New data from Gatehouse Bank has evaluated areas by annual yield, average time on market (meaning days a house is advertised before a tenant moves in) and rent as a percentage of average earnings in the region.
These factors were then evenly weighted to identify areas where buy-to-let income was potentially insecure. Namely, those with comparatively long days on market and low yields, but where rent makes up a substantial portion of earnings.
On this basis, Gatehouse Bank named Winchester as the town where landlords are most vulnerable. Typically, it requires landlords 248 days (over fifty percent a year) to find a new tenant in Winchester. The average property prices are a somewhat high lb549,706, which brings on the annual yield, and tenants spend more than half their income on rent.
Cambridge, in second place, had a level higher rate of days on market minimizing yield. But was redeemed by its comparative affordability, with tenants spending 45% of the income on rent.
You can easily see the full listing of the ten areas Gatehouse ranked as the riskiest for investment below.
Rank | City/town | Avg. price | Avg. days on market | Annual yield (%) | Rent as a % of earnings |
1 | Winchester | lb549,706 | 248 | 3.1 | 56.2 |
2 | Cambridge | lb446,938 | 251 | 2.9 | 45.6 |
3 | Chichester | lb413,343 | 269 | 3.3 | 45.8 |
4 | Warwick | lb353,197 | 254 | 3.0 | 40.0 |
5 | Reading | lb415,192 | 230 | 3.4 | 46.7 |
6 | Woking | lb515,941 | 229 | 3.6 | 61.3 |
7 | Watford | lb419,815 | 207 | 3.2 | 47.3 |
8 | Chelmsford | lb375,346 | 224 | 3.2 | 42.8 |
9 | Oxford | lb510,110 | 261 | 4.2 | 70.8 |
10 | Guildford | lb571,279 | 202 | 3.6 | 69.4 |
Of course, this doesn’t mean all buy-to-let properties during these areas are equal. For those who have a property that's specifically in demand, the time it requires to find a tenant might be much shorter.
Moreover, averages don’t let you know much about how your unique property will perform. For just about any property you’re considering buying, it’s important to compare it to similar properties in the immediate vicinity, instead of relying on general statistics.
Strong areas for landlords
Using exactly the same methodology, Gatehouse identified the areas where landlords were in a strong position – meaning fewer days on market, high annual yield and rent creating a small percentage of average earnings.
Bootle in Merseyside become the most favourable area, with a high yield of 5.6%, just 183 days on market and rent creating just one quarter of average income.
The top 10 towns recognized by the research are below.
Rank | City/town | Avg. price | Avg. days on market | Annual yield (%) | Rent as a % of Earnings |
1 | Bootle | lb100,527 | 183 | 5.6 | 22.3 |
2 | Inverness | lb184,849 | 124 | 4.8 | 30.9 |
3 | Stoke-on-Trent | lb145,904 | 147 | 4.2 | 22.6 |
4 | Barnsley | lb136,497 | 168 | 4.3 | 22.3 |
5 | St Helens | lb133,460 | 178 | 4.3 | 21.6 |
6 | Telford | lb167,408 | 131 | 4.0 | 25.2 |
7 | Dundee | lb154,714 | 169 | 4.3 | 23.3 |
8 | Oldham | lb146,511 | 173 | 4.5 | 24.5 |
9 | Southport | lb195,796 | 115 | 4.2 | 30.9 |
10 | Bolton | lb154,710 | 173 | 4.7 | 27.3 |
How important is capital growth?
Rental earnings are one of the key advantages of property investment, but it’s also worth thinking about if the worth of the house will grow over time.
Take, for instance, Winchester. Between 2013 and 2022, the typical house price in the region is continuing to grow by a lot more than 30%, netting a tidy profit for landlords who purchased at the right time.
The local authority in which Bootle sits, meanwhile, has grown by 20% in the same timeframe.
Of course, past performance isn't any guarantee of future growth. Even just in fast-growing regions, prices may slow in coming years, or even start to decline. Numerous factors affect the value of properties, many of which can't be predicted at the time of buying.
That said, it’s worth taking a look at sales prices in the region, and considering what factors may promote (or hinder) price development in the time you’ll own the property.
How to choose an area for buy-to-let
When deciding where to invest in property, it’s vital that you consider the following factors:
If you’re deciding between multiple possible areas, you can compare key stats using the tool in our guide to finding the best places to buy.