Landlords pay a premium for high rental demand areas

Landlords pay a premium for high rental demand areas

Landlords who want to reduce void periods between tenancies can expect to pay 6.2 per cent more for a property in an area of high rental demand, a recent market analysis has shown.

The figures from Revolution Brokers revealed that buying a property in an area that has high rental demand will cost a landlord an additional £23,000 on average on their additional investment.

Revolution Brokers founding director, Almas Uddin said that when investing in buy-to-let, the initial investment is one of the most important decisions, but paying a higher price for a property that will be empty less often is worth the additional up front cost.

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“Minimising void periods is an incredibly important part of maximising your investment as you can have the best yield in the world, but if you can’t fill the property with a paying tenant it doesn’t count for much,” Uddin said.

“So when looking to invest, landlords should always do so with a long-term view of a property, not just how much it costs, but what they can expect as a return and how easily can they rent it in the first place,” he added.

The analysis showed that investing in a high rental demand area will cost £396,349 on average across England. 

While the average premium for a property in a high rental area was 6.2 per cent across England, this jumped to 7.7 per cent for properties in the south west of the country.

Premiums were also high for properties in areas of high rental demand in the east of England and in the north west, both 7.3 per cent higher than the average property in an area of lower demand in the same region.

In the south east, the premium sat at 6.2 per cent, while in London it was 5.8 per cent.

Yorkshire and the Humber had the lowest premium, with 3.5 per cent, offering landlords higher security of income for a lower investment relative to other areas.

“In high demand rental areas, not only will you be able to justify a higher rate of rent, but you will also benefit from a far lower level of void periods,” Uddin said.

"Paying a premium to secure a home in a high rental demand area may come at an initially higher cost, but it can pay dividends further down the line."

Research has previously shown that buy-to-let investments in the north east have the highest yield in the UK at 4.5 per cent.

Yorkshire and the Humber, the regions with the smallest premium, offer the second best value for money with an average yield of 4.4 per cent.

Model Financial Solutions director, Hannah Bashford said she has seen a shift in where her clients are investing in property because of rising mortgage rates and stress tests.

"Clients looking at buy-to-let investments in the summer are holding off and looking in different areas because they are not going to get the returns needed to make it viable," she said.