BTL Disaster Zones: Property Investors Beware

New research from Home.co.uk reveals that investment in the wrong location can lead to low or even negative returns.

Investing in property can appear to be a very attractive option. Given the current economic backdrop, there are few investment sectors that offer both 'safe haven' status and inflation beating yields. However, new research from the property website Home.co.uk shows that the old adage 'location, location, location' could not be more relevant when sinking capital into bricks and mortar. Looking beyond gross rental yields, their analysts have calculated real yield for the most popular rental locations across the UK.

The latest study from Home.co.uk assesses the impact of changing capital values to produce a more realistic view of rental yields and the real investment potential.

The analysis is based on typical 2 bedroom properties (median asking prices and rents) and combines changes in the capital values and gross rental yields. The current top 10 areas attracting the highest real yields are all in London, but the study can now reveal that the worst locations are to be found throughout the UK. All of the worst performing areas attract negative real yields and will prove very interesting reading for potential buy-to-let investors.

Worst 10 Property Investment Locations - based on Real Rental Yields for 2-bed properties (February 2013)

Location % change in average sales price vs. Feb’12 Gross rental yield REAL YIELD1
Hanley -8.5% 6.8% -1.7%
Hastings -7.1% 5.3% -1.8%
Slough -9.2% 6.5% -2.7%
Stirling -9.6% 6.3% -3.2%
Guildford -9.1% 5.8% -3.3%
Broadstairs -9.3% 4.9% -4.4%
Ramsgate -10.0% 5.3% -4.7%
East Kilbride -12.5% 7.4% -5.0%
Belfast -14.1% 6.6% -7.5%
Margate -14.8% 5.1% -9.8%

Doug Shephard, director at Home.co.uk, commented;

"The average gross rental yield of these areas is currently running at a very healthy 6%, but landlords must consider the rise and fall of capital values when assessing a buy-to-let investment. This study shows that if investors in these worst affected areas are simply taking a short-sighted view, based on rental income, then they could be in for a nasty surprise."

"Given our new research on yields, these are areas of the UK where landlords are losing money just by owning the property and that is even before tackling the potential issue of void periods."

"Whilst there are many reports of a North-South divide in the property market, 6 of the 10 worst performing areas are located in the South of England, including the relatively affluent area of Guildford. Interestingly, the East Kent seaside towns of Ramsgate, Broadstairs and Margate all report dreadful real yields. In terms of rental income, these three areas can offer landlords gross yields of over 5% yet the underlying property values are falling through lack of demand. For example, in January 2007 the average 2-bed property spent just 56 days on the market in Ramsgate. Now in 2013, the average time on market has risen to 134 days. "

It may be some time before property values stabilise in these locations and until they do BTL investment could seriously damage your wealth.

Source: Home.co.uk Home Asking Price Index.

1.'Real yield' is defined as rent + capital appreciation of the underlying asset. Typical (median) figures for two bedroom properties were used in the calculations. To ensure that the results are statistically significant, all locations had at least 100 properties currently for sale and for rent.

Notes for Editors

Over the last 28 years, Home.co.uk has become established as a dynamic, innovative and ethical service. By providing the UK's most comprehensive Property Search and Estate Agents directory coupled with detailed House Price analysis, Home.co.uk delivers the real power of the Internet to inform and empower estate agents, homebuyers, renters, landlords and sellers in across the UK.

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