Start Up A-Z have compiled a data-led study below, to find out which locations in the UK are the most profitable for buy-to-lets.
If you’re looking to take the buy-to-let property market by storm, choosing the right location is crucial. Perhaps you’re looking to expand your property portfolio, or you’re a newcomer to the real estate market. Whatever your circumstances, we’re here to help you make the right decision when choosing buy-to-let locations, to improve your chances of business success.
In December 2023, average house prices were estimated to have fallen by 2.1% due to high mortgage rates and the cost of living crisis. But the market will likely pick up again, with 47% of landlords believing the Bank of England’s base rate will fall in 2024 – great news for those starting in the real estate industry.
We’ve explored 50 of the biggest cities to uncover the best buy-to-let locations in the UK, looking at average property prices, rental costs and letting agent fees in each city to determine the net yield and potential returns on property investment. We’ve also reached out to current buy-to-let business owners who have shared insight into the property market and current considerations. So, what are you waiting for?
Benefits of a buy-to-let limited company
If the buy-to-let industry is calling your name, you’ll need to decide if you’d prefer to keep the properties in your name, as a sole trader, or if you’d benefit from forming a limited company. There are several benefits to starting a buy-to-let limited company, especially when it comes to business tax and legal protection.
Let’s delve into the benefits of operating as a limited company:
- Limited liability: Should you face financial difficulties as a limited company, you’ll receive protection in the form of limited liability. This means your business is legally classified as an ‘individual’ and a separate legal entity. So, should you run into financial trouble as a business, the business itself is responsible, not you personally. You wouldn’t be obligated to pay any debts or personally cover any financial losses.
- Tax efficiency: Operating as a limited company can be more tax-efficient than working as a sole trader. As a limited company, you’ll pay 19-25% Corporation Tax on profits compared to the 20-45% Income Tax you’d pay as a sole trader.
- Professionalism: Choosing to operate as a limited company may give your professionalism and credibility a boost. Your potential customers are likely to perceive you as more trustworthy and established.
The UK’s most profitable buy-to-let hotspots
So, where is the best place for buy-to-let? We’ve uncovered the top UK cities for buy-to-let, based on their property prices, monthly rent prices, management fees and best net rental yield. Net yield is the return, or potential return, of a rental property after costs have been deducted such as letting and management fees.
The top buy-to-let hotspots in the UK, coming out in joint first place, are Manchester, Glasgow and Aberdeen, all with a net yield of 6.9%. The average buy-to-let property price in Manchester is £251,557, with an average monthly rent of £1,713. Compared to the average UK house price of £290,000 in July 2023, Manchester’s property prices are significantly cheaper than the national average, making them a worthwhile investment for buy-to-let investors. Glasgow and Aberdeen’s average buy-to-let prices also fell significantly below the national average, at £230,619 and £189,633 respectively, making them attractive buy-to-let locations for those looking to invest in property. It seems that opting for cities in the North of England and Scotland are generally better for yields than cities in the South of England and London. This is true for Stoke-on-Trent and Birmingham which came out in second place for the most profitable, with net yields of 6.8%.
Benefits of these locations
These best areas for buy-to-let offer more than just profitability, they’re also prime locations known for their culture scene and business opportunities.
As mentioned, Manchester ranked in first place for most profitable buy-to-let hotspots, alongside Glasgow and Aberdeen, and is a bustling city to consider. With an economy worth £62.8 billion, it has firmly cemented itself as a major business hub in the UK. If you’re a music buff, you’ll know what Joy Division, The Smiths and Oasis all have in common – Manchester! It’s renowned for its vibrant music scene and unmissable music venues such as the Warehouse Project. It’s safe to say Manchester is a worthy contender when searching for the best buy-to-let locations in the UK, with its high rental yields and job opportunities, and strong economy. The same can certainly be said for Glasgow, whose average house price in its West End area has risen by 27% since 2019 – great news for property investors. Glasgow is Scotland’s economic powerhouse, generating £19.3 billion GVA per annum.
According to Rightmove, Aberdeen is the third cheapest city for first-time buyers, so if you’re new to the buy-to-let world, you could benefit financially from your investment. Local estate agents in Aberdeen have predicted that house prices will rise by 1-2% in 2024, so you could make a significant profit on your investment should you choose to invest in Aberdeen’s housing market. The city is home to an array of green spaces, beaches and beautiful views, offering an excellent quality of life. Named one of the most affordable cities to own a home, Aberdeen is certainly worth considering, with the average cost of a mortgage, utilities and council tax being only 37% of the median monthly salary.
