Buy-to-let landlords who sold up or refinanced last year made substantial gains on their investments. But where can landlords expect to make the biggest profits in the UK?
Over the course of 2019, buy-to-let landlords achieved an average of £78,100 in capital gains through their properties. This is a gross gain of an impressive 42% on those landlords’ initial investments, according to Hamptons International.
The study by the estate agency also found that 84% of landlords who sold up made pre-tax profits. It estimates that approximately 150,000 properties were sold by landlords over the course of 2019. On average, landlords had owned their properties for around 9.1 years, demonstrating the longevity of the UK property market.
There were huge regional variations in capital gains made by landlords across England and Wales. Those in London, for example, made average gross gains of a huge £253,850 from their properties. The highest gains were seen in Kensington & Chelsea, where investors achieved an average £924,010 more than they’d paid for them. At the other end of the scale, buy-to-let landlords selling up or refinancing in the north-east saw average gross gains of £11,710.
Actual profits were also higher in the capital, Hamptons found. Almost all (97%) of London landlords sold up for more than they had originally paid. However, in the north-east this figure fell to 45% of those landlords who divested assets last year.
Comparing rents across the country
Monthly rental yields play an important role in landlord profits, too. The Hamptons study also looked at rental trends and growth between May 2019 and May 2020.
While London was the big winner in terms of money made through sales, rents were quite different. Greater London had by far the lowest rental growth when looking at renewed tenancies over the time period, of -4.7%. This figure brought down the average for Great Britain to -1.6%.
However, looking at Great Britain excluding London, average rental gains were 0.9% over the year. In England, the greatest increase was seen in the north, where buy-to-let rents rose by an impressive 2.3% between May 2019 and 2020. This was followed by the east of England (1.2%), the south-west (1%) and the Midlands (0.8%).
Commenting on the report, Aneisha Beveridge, head of research at Hamptons, said: “Landlords in the south, where house prices are higher and historic price growth has been stronger, saw the greatest capital gains last year. In fact, the average London landlord gain was over 20 times that of a seller in the north-east where landlords are more reliant on rental income.
“But with house price growth expected to stay lower than in the past, more landlords are having to switch their focus to maximise rental income, rather than rely on capital growth. Despite the rise in demand from tenants looking to move home as the housing market reopened last month, income pressures continued to weigh on rental growth.”
Turning a profit as a landlord
From professional property investors to small-time, accidental landlords, turning a profit is normally the main end-goal. During the lifespan of a buy-to-let, returns come through both monthly rental yields and the ultimate sale of the property.
A number of factors then play a part in how much investors and landlords make. For rental properties, location has a big influence, as well as the original price paid. Length of time in ownership also plays a part, as property generally performs best as a long-term asset. Choosing the right time to buy, and sell, as well as the right financing options, are also influential.
As the Hamptons study shows, there are benefits to buying in London, and likewise benefits to sticking to the regions. For investors looking for the best monthly rental returns, focusing on areas away from the capital can be a good strategy. Yields are high in many parts of the north and the Midlands, with certain pockets proving especially profitable.
Pricing is obviously another important factor. London house prices are famously high, which will be restrictive for many landlords and investors. For those who are keen to diversify away from the capital, house prices are now growing at a faster rate in many of the up-and-coming regions of the country.
London will always be an attractive prospect to investors, though. It’s one of the major financial and business capitals of the world, with universities and employment prospects ahead of many parts of the UK and Europe. For foreign investors in particular, London is still the predominant ‘safe haven‘ of the country.
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