If you’re contemplating buy-to-let investments in 2016, you should be focusing your attention on the North West or the South East, according to research carried out by LendInvest. (1)

Using data from Zoopla and the Land Registry collected between 2010 and 2016, LendInvest’s Buy-to-Let Index showed that the South East dominates the market when it comes to capital gains and overall return on investment, while rental yields are divided between the South East and the North West, with Manchester the dominant location outside of the capital.

Here’s a closer look at their findings.

Rental Yields

To calculate rental yields, you take the average rent received on a property as a percentage of its overall market value.

In recent years, the highest rental yields were found in the North West, with Manchester and Liverpool dominating the market. But while Manchester remains strong, East London has taken over as the best location for average rental yields with a huge 7.4%.

Here are the top locations according to LendInvest:

  • East London, 7.4%
  • Manchester, 6.8%
  • South East London, 6.7%
  • Romford, 6.5%
  • Southall, 6.5%
  • Croydon, 5.9%
  • Blackburn, 5.8%
  • Cardiff, 5.8%

Five locations in the South East also offered a rental yield of 5.7% – Dartford, North London, Watford, Harrow, and Twickenham – while the average rental yield in the UK for this period was 5%. (2)

Capital Gains

A high average rental yield isn’t the only thing buy-to-let investors need to consider when purchasing property. They also may wish to make a decent profit when they decide to sell. Unsurprisingly London and the South East dominate the market when it comes to capital growth on house prices.

The LendInvest Index used data from 2010 to 2016 to calculate its figures, with inner London, specifically South West, West, and North West seeing the biggest gains. (3)

Here are the top ten areas for capital growth:

  • South West London, 13.8%
  • West London, 13.4%
  • North West London, 12.9%
  • Harrow, 12%
  • North London, 11.9%
  • East London, 11.4%
  • South East London, 11.3%
  • Ilford, 10.8%
  • Twickenham, 10.6%
  • Croydon, 10%

Return on Investment

Ultimately, landlords generally want to benefit from both a good rental yield and make a profit when they sell the property. The total return on investment adds the rental yields plus the annual average capital gains.

Once again, the South East dominates the market, topped by East London, which offers an average of 18.9% return on investment. (4)

Here are the top areas for buy-to-let property in terms of overall return on investment:

  • East London, 18.9%
  • South West London, 18.6%
  • North West London, 18.1%
  • South East London, 18%
  • West London, 17.8%
  • Harrow, 17.7%
  • North London, 17.6%
  • Ilford, 16.9%
  • Twickenham, 16.3%
  • Croydon, 15.9%

However, with house prices inevitably higher in the South East, it’s worth examining the data around the country, with Manchester, Stockport, and Leeds all offering a decent return on investment in the North West.

 

  1. https://www.lendinvest.com/buy-to-let-index/
  2. https://www.lendinvest.com/buy-to-let-index/rental-yield/
  3. https://www.lendinvest.com/buy-to-let-index/capital-gains/
  4. https://www.lendinvest.com/buy-to-let-index/total-roi/

 

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