Buy-to-let hotspots revealed: Where you can still get returns of up to 10% - and areas you'd be mad to invest in
Is there any point any more trying to boost your income with a little money from a buy-to-let property? Our analysis shows there is still money to be made – but in an ever-shrinking number of areas.
Beleaguered landlords face yet another attack on their profits after the Chancellor revealed in her Budget that income from property will incur an extra 2 percentage-point tax from April 2027.
After years of diminishing returns, 35pc of struggling property investors have tried to sell up in the last year – and it's expected that number will swell as profits become even more squeezed.
For determined investors, there is still a smattering of star areas that can generate yields of more than 10pc, with one area bringing in more than 11pc a year. That should be more than enough to turn a reasonable profit – even after the tax hike.
The key to this stellar return? Avoid trendy spots in the capital and leafy suburbs in posh neighbourhoods. Instead look to South Wales and northern inner-city spots.
Estate agent Hamptons has crunched the numbers for the local authorities across England and Wales you should be considering for your new investments – and experts reveal the winning formula to boost your returns.
Check the map below to find the best buy-to-let yields
How to find the winning formula for buy-to-let
While the hiked tax burden is yet another attack on landlords, it may open up opportunities for those willing to stay invested.
Landlords have in the past year been clobbered with hiked stamp duty charges and from May will be wrapped up in red tape introduced in the Renters' Rights Bill.
For example, landlords will no longer be able to evict tenants unless they are in arrears, have anti-social behaviour or they want to sell the property or live in it themselves. Landlords will also only be able to refuse pets in their property under certain conditions.
Many will pass increased costs on to tenants as their tax burden grows, and some casual landlords will decide the hassle is too much and will be forced to sell up.
It means we could see a deluge of buy-to-let housing stock flooding the property market in the coming months and years – a golden opportunity for landlords looking to expand their investments – not least portfolio landlords, who hold their buy-to-let properties in a limited company.
That is because they pay corporation tax, which is just 19pc, instead of income tax on their profits.
Corporation tax is not subject to a tax rise, unlike income tax on buy-to-let, which is rising by two percentage points in April 2027 to 22pc for basic rate taxpayers, 42pc for higher rate taxpayers and 47pc for additional rate taxpayers.
But choosing where to buy is no mean feat. Gone are the days when buying a house in an upmarket area in the South would guarantee a solid return and a surge in house price growth.
Now landlords must instead search in overlooked spots in Wales and the north of England for robust long-term investments.
Chris Norris, of the National Landlords Residents Association, says: 'In London and the south of England, the cost of buying a property is so much higher now.
'So landlords must instead prioritise day-to-day rental income when they choose their areas.'
This return – known to investors as yield – is calculated by dividing the annual rental income by the house price and multiplying it by 100. For example, if you buy a house for £200,000 and collect £10,000 in rent every year then the yield is 5pc.
The yield isn't the final amount in your pocket, however, as you need to consider tax, insurance, maintenance costs and mortgage payments. But it is a good gauge of how well your investment will perform.
Michael Dent, director of analytics firm PropertyData, says: 'I recommend investors look at rental yield first and foremost when choosing an area, as it largely determines the annual profitability of an investment.
'Although yield is the most important, other data such as tenant demand and turnover in the rental market should be considered as well.'
Getting a good yield will become even more important in the next two or three years. That is because you'll need a reasonable income from your property before tax and other costs to still make a profit once the tax rate rises in 2027.
Furthermore, landlords are unlikely to benefit from the level of house price growth seen in recent decades. The Office for Budget Responsibility says prices will rise 3pc this year before falling to an average annual 2.5pc growth from 2026 to 2030. However, this will vary across the UK with some areas seeing robust growth while price tags in other locations will wilt.
Investors should look to properties in the north of England to avoid the worst damage from the Budget
David Fell, lead analyst at Hamptons, says you'd typically need a yield of at least 6pc to make a buy-to-let investment profitable.
Below this and the margins start to close. A buy-to-let property with a 5.5pc yield has become almost unprofitable post-Budget for higher-rate taxpayers who hold properties in their own name, he says.
For example, take a landlord who receives the average £16,478 in rental income for a property they bought for £300,000 with a 25pc deposit. That means they receive a 5.5pc yield. If their buy-to-let mortgage has a 5.25pc interest rate then their mortgage payments would come to £7,875, Mr Fell says.
After maintenance costs which total a third of the rental income and the hiked tax rate is levied, a basic rate taxpayer would receive just £2,569 in profit.
But for higher-rate taxpayers, this plummets to a dismal £295. It's why it's vital to choose a spot with a double-digit yield and hold properties in a limited company if you can.
Jonathan Handford, of estate agency Fine And Country, says the winning formula for a strong yield is finding spots where house prices are low but demand from tenants is very high. This criteria means leafy southern suburbs are now out of fashion for buy-to-let investors.
He also says you need to spread risk when you are choosing a place to invest – don't simply pick a place that is only popular with young families, for example. Instead, you should find a spot where there is thriving industry as this will bring in professional tenants but also make sure it has another tenant demographic too, such as university students.
This means neighbourhoods in Wales and northern towns come up trumps.
In Blaenau Gwent, a local authority in south-east Wales, yields are an exceptional 11.3pc, according to Hamptons' analysis
Wales wins for property investors
Wales is the real winner for investors looking to pull in a strong yield as it heralds five of the top ten spots, with four of these in the south.
House prices in South Wales are on average far below the national average, which means would-be investors can grab a bargain.
In Blaenau Gwent, a local authority in south-east Wales, yields are an exceptional 11.3pc, according to Hamptons' analysis. That's a far healthier return than the 7pc average across England and Wales.
Plus, it will attract professionals as commuters can get to Cardiff in around 50 minutes by car and around 40 minutes on a train. To Newport it is a 40-minute drive while it is a little over an hour to Bristol.
Homes can be snapped up for just £141,000 on average, according to September's figures from the Office for National Statistics, which means it is an easy entry point for those dipping their toe into property investing.
John Woodyatt, letting negotiator for Louvain Properties in Tredegar, Blaenau Gwent, is not surprised his region offers the highest yields in Britain. He believes that early 20th century two or three-bedroom properties that can be snapped up for £100,000 are behind the buy-to-let boom – with landlords typically spending from £20,000 to renovate the properties and then rent them out for around £800 a month.
Mr Woodyatt says: 'You can get incredible value for money. Number one priority for these properties is to put in a smart new kitchen and bathroom catering to modern demands, with a power shower as well as bath. But be wary as the bills can soon mount if you must rip out the old electrics and re-plumb for central heating to £60,000 or more.'
He adds: 'Much of the demand comes from young people wanting to get on to the property ladder but who are still saving up for a deposit. Although yields can be good the tenants are getting good value for money – with many commuting to Cardiff, just over half an hour away by train.'
In nearby Rhondda Cynon Taff, yields are a very healthy 10.6pc while in Neath Port Talbot, which is on the south coast, returns are 10.2pc.
The properties are likely to attract families and young professionals who want to be immersed in semi-rural Wales while also being close to bustling cities.
Of course, you will need to make sure you can get to the properties easily to sort any maintenance issues. If you are not based close to Wales you will need a management team based locally.
House prices in areas such as Greater Manchester are much lower than those in the South
Northern areas also rule the roost for buy-to-let
The remaining top spots for yield are in the north of England, mainly due to low house prices.
Mr Norris says: 'There are a lot of areas in the north that haven't seen a complete recovery since the house price crash in 2008.'
There are bargains to be snapped up in areas with strong tenant demand, which often translates into a high yield.
Burnley, Lancashire, takes the bronze spot with a 10.4pc yield, according to the Hamptons analysis.
Renters may be drawn to the area because of students attending the University of Lancashire or its transport links to major northern cities such as Manchester and Leeds.
There's a wide range of rental stock available from Houses in Multiple Occupation (HMOs) to modern apartments so it can cater for different tenants.
Plus, Burnley is an easier entry point into buy-to-let properties for first-time investors. They would need to build a deposit of just £32,250 – 25pc of the £129,000 price tag to secure one of these properties.
North East Lincolnshire and Country Durham make the list with yields of 10.3pc and 10.1pc, respectively.
House prices are still modest at £148,000 and £138,000, respectively – and demand is robust due to families who want to rent and the student population at Durham University.
Plus, Mr Norris says: 'The North East and Yorkshire are very strong. There are a lot of employers there.'
Major employers including Nissan, Sage, Greggs, Barbour and GlaxoSmithKline all have a strong presence in the North East
Mr Norris says: 'There are a lot of areas in the north that haven't seen a complete recovery since the house price crash in 2008.'
Mr Handford adds: 'Yields are only worth chasing if the demand is there for tenants. In all of these locations, there is strong rental demand. There are universities, hospital employment and professional work.'
Manchester is typically very strong for rental demand but it is one northern area that landlords should think twice about, Mr Norris says.
The area has benefited from a surge in house prices as huge swathes of the city have undergone development. It means yields are waning.
He instead suggests towns in the north-west outside of Greater Manchester.
Aside from Burnley, Hyndburn in Lancashire is a winner with a 10.1pc return, says Hamptons.
House prices are low at an average of £131,000 and its rental demand comes from its proximity to three major cities – Manchester, Blackpool and Leeds – making it the perfect spot for a professional couple who commute to different cities for work, or a family hunting for a quieter location that is close to thriving urban centres.
Elsewhere in the 20 most lucrative hotspots are Sunderland (9.8pc), South Tyneside (9.5pc) and Middlesborough (9.4pc).
Areas with higher property prices, such as Saffron Walden, Essex, tend to result in lower yields
Posh areas that don't deliver for property investing
Well-to-do suburbs in the south and exclusive London neighbourhoods are the buy-to-let losers, according to the Hamptons analysis.
Nearly all of the bottom ten postcodes for yields are below the Midlands.
Many landlords would be proud to own a property in a desirable location, such as Westminster, in the heart of the busy capital. But they may also wrongly assume the glamorous neighbourhood will be a lucrative investment.
The area is the worst local authority across England and Wales for rental yield. It has already seen a surge in property price tags to £900,000, according to the ONS, making it less attractive to investors who are searching for affordability and capital growth.
It means annual rental yield in the area around the Houses of Parliament is only 4.5pc – which almost mirrors the 4pc you can snap up in a top-paying savings account, without the hassle and costs.
Hamptons 'Aneisha Beveridge, says her rule of thumb is the more expensive the area, the lower the yield.
'This is because rents in these more expensive areas don't rise in proportion to property values. Ultimately, it comes down to what tenants are willing and able to pay.
'In prime markets, affordability constraints mean renters can't absorb the higher costs that would deliver stronger yields, so returns are naturally compressed compared to more affordable regions.'
The City of London yields 4.7pc while stylish Kensington and Chelsea gives an average annual return of 5pc.
Southern spots are traditionally chosen by investors who favour capital growth over annual returns.
However, property price tags are already sky-high in these areas as they have benefited from years of soaring property prices. This means the entry level for landlords looking to invest is simply out of reach. On a £600,000 house, a deposit of around £125,000 is needed.
Plus, house price growth is now slowing in London and the south-east due to an imbalance of supply and demand, and an exodus of foreign buyers.
Other lowly ranking areas on our list include Cambridge, with a yield of 5pc, and Castle Point in Essex with 5.1pc. In September, an average house in Cambridge would have set investors back some £498,000 which means yields would be squeezed.
On a typical annual Cambridge rent of around £24,500, this makes it too difficult to get an attractive return on your investment.
Additional reporting by Toby Walne
