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Research by estate and letting agent, Benham and Reeves, has looked at where across the UK offers the best buy-to-let investments when it comes to rental return and the speed at which annual rent will repay the original average house price and Stamp Duty.
The research used the average house prices of boroughs, towns and cities across England, Wales, Scotland and Northern Ireland and then calculated the appropriate Stamp Duty charge to reach a total initial investment figure. The average annual rent for each location was then used to calculate how many years it would take to recoup this investment.
Looking at the results across the UK, Scotland offers the quickest return on investment, with the annual rent returning the original asking price in 17.7 years. Northern Ireland was the second quickest at 18.9 years, followed by England (25 years) and finally Wales at 26.4 years.
Glasgow is the fastest city across the UK to pay back the total investment at 13.3 years, followed by Belfast at 15.8 years. Interestingly, the total cost of investment in Glasgow and Belfast is broadly similar; £134,954 and £132,305 respectively (with a greater difference in Stamp Duty charges) but the time it takes to repay the total initial investment for an average property in Belfast is considerably longer than Glasgow by 2.5 years. One factor could be the softer rental market in Northern Ireland, with lower average rents of £8,364 per year, whereas Glasgow commands an average of £10,140 per year.
Focussing on London boroughs specifically, Tower Hamlets has the fastest return on its total buy-to-let investment, with an average initial investment of £452,821 against an average annual rental income of £21,144 thereby taking 21.4 years to recoup the total investment. Tower Hamlets repays the initial cost quicker than other London boroughs as its average total investment cost is lower than the average across all boroughs (£548,983.07) while the average rental income sits higher than the overall average of £19,202.90. The only other two London boroughs with below-average total investment costs and higher than average rentals were Southwark and Lambeth.
In England, Nottingham most quickly recoups the buy-to-let investment at 18.4 years, followed by Newcastle at 18.5 years.
The worst-performing areas included the City of London at 35 years and Cambridge at 31.4 years to pay back the initial costs.
“Buy-to-let investment is a complicated business, even more so given the changes to the sector of late, however, the primary indicator of a good investment is always going to be the rental yield available,” said director of Benham and Reeves, Marc von Grundherr.
Michelle Monck, personal finance expert at Moneyfacts.co.uk, agrees with Marc that buy-to-let is complicated: “Buy-to-let is a long-term and complex investment, that comes with significant risks. Whether you are a professional, a first-time landlord, or a limited company; getting professional independent financial and mortgage advice is essential.”
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