The landscape of buy-to-let has changed dramatically in recent years, with various Government interventions arguably making it more difficult for landlords to make a profit – and causing some to look at other ways of operating (as we'll discuss more below). Yet those seeking real returns from their property portfolios may still be able to find them, but for many, it all comes down to one important factor – location.
That's according to the latest Landbay Rental Index, which revealed that although the average rent for a UK property grew by 0.96% in the year to April, far better rental growth could be achieved in certain locations, particularly by looking beyond the former hotspot of London and going north instead.
The data shows that the average rent paid for a property in the UK now stands at £1,218, but although this is greatly skewed by the London market – the average rent excluding London stands at £773 – rents in the capital only grew by 0.66% year-on-year, which weighed down on the resilient rental growth across the rest of the UK (1.11%).
This shows that it could pay to look elsewhere to achieve higher rental growth; Scotland, for example, recorded annual rental growth of 1.78%, and within that, Edinburgh had the highest rental growth of any city in the UK, rising by 5.44% year-on-year. Wales has the second-highest growth on a country basis (1.26%), but staying in England could still enable landlords to reap the rewards: rents may only have risen by 0.91% overall (1.05% when excluding London), but certain regions can easily surpass this.
Nottingham, for example, saw annual rental growth of 3.84% in April, while Rutland and Leicester saw growth of 2.56% and 2.33% respectively, which helped push rental growth in the East Midlands as a whole to 1.98% – the highest on a regional basis. Meanwhile, Yorkshire and the Humberside saw rents rise by 1.34% year-on-year and those in the South West rose by 1.24%, driven by North Somerset (2.39%) and South Gloucestershire (2.25%).
"Landlords can rest assured that there is decent rental growth to be found across the UK, particularly if they look north of London," said John Goodall, CEO and co-founder of Landbay. "On the face of it, landlords have had a tough time in the past few years, from increased regulatory pressure to a significant increase in stamp duty costs, yet they have managed to shoulder many of these costs without passing them onto tenants."
Of course, choosing your next buy-to-let purchase based purely on location may not be that simple – if you're in the south, chances are you don't want to manage a rental property in Scotland – so another option that many landlords are looking at to boost their portfolio is buying through a limited company instead.
This is a method that's growing in popularity, with research from Foundation Home Loans revealing that of those landlords who are planning to add to their portfolios in the next year, half are likely to do so within a limited company vehicle. Those with four or more buy-to-let properties – so-called portfolio landlords – are even more likely to purchase via a limited company, while almost 70% of those with 11 properties or more intend to do the same.
"What we are clearly seeing is far more portfolio landlords active in the sector… [who] are showing serious ambitions for the future," said Jeff Knight, director of Marketing at Foundation Home Loans. "When it comes to both anticipated purchase and remortgage activity, many landlords intend to do either or both within the next 12 months, and for purchasing especially this is now far more likely to be within a limited company structure."
But why are so many landlords opting to buy in this way? Well, the various tax changes and red tape to hit the buy-to-let market in recent years means it's becoming increasingly difficult for landlords to maintain profitability, whereas if they operate under a limited company structure, they won't be faced with the same difficulties. You can find out more about the tax changes and limited company creation here, or go here to learn more about the portfolio landlord rules.
So, are you thinking of changing location to boost rental growth, or perhaps you're considering operating as a limited company to avoid some of the more restrictive measures to hit the market recently? Either way, one sure-fire way of improving your profitability is to secure a lower buy-to-let mortgage rate, as the lower the rate, the lower your repayments – and the more rental income can go into your own pocket. Find the best buy-to-let mortgage rates right here and see if you can get more from your portfolio.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.