In recent times, the buy-to-let market has experienced significant changes. Landlords are now facing higher rates when remortgaging, alongside a reduction in mortgage interest relief. Additionally, a slowdown in house price inflation is impacting the capital growth that was once a staple of property investment. Despite these challenges, opportunities still exist, but it requires careful consideration of location and strategy.

Identifying High-Yield Locations

Research by digital mortgage lender Molo reveals that the average rental yield in England and Wales stands at 4.98%. However, certain regions offer considerably higher yields, especially outside of London and the southern areas. Francesca Carlesi, CEO of Molo, suggests focusing on northern locations with low property prices but high rental demands, as well as commuter cities and university towns, which offer a continuous flow of tenants and potential for capital investment growth.

Top Regions for Rental Yields

Molo’s research, based on their database, identifies several areas with impressive rental yields:

• Central Valleys: Boasting a gross rental yield of 7.96%, almost double the national average, this area offers an average monthly rent of £697 against property prices averaging £100,786.
• Hartlepool and Stockton-on-Tees: Here, landlords can expect an average yield of 7.9%, with typical rents at £592 and property prices around £85,774.
• South Teesside and Beyond: With a 7.66% yield, South Teesside follows closely, alongside Swansea and Coventry, both offering yields above 7%.

Areas with Lower Yields

In contrast, areas like London and the south of England, while popular, present lower profitability due to higher property prices. For instance, Camden and the City of London have an average yield of only 3.58%, despite high rents, due to the steep average property price of £672,104.

Strategies to Enhance Rental Yields

Property Enhancement

Mark Michaelides, Vice President of Strategy at Molo, advises landlords to consider property improvements like renovating kitchens or bathrooms, or adding extensions. These upgrades can elevate both rental potential and property value. Additionally, making properties more energy-efficient can also attract tenants due to the prospect of lower energy bills.

Market Trends and Rent Adjustments

With the average advertised rent reaching record highs, landlords are in a favorable position due to a current lack of supply. However, this situation might change, as the influx of new rental properties might lead to a decrease in rents. Hometrack predicts a 9% increase in rents for new lets in 2023, followed by a slower growth of 5-6% in 2024.