Buy-to-let investors, could you get more for your money in the north?

Published: November 2, 2023 by Jennifer Armstrong

A woman looking at a property listing online.

Data suggests that buy-to-let investors could get greater returns on their investment by purchasing property in the north. As soaring interest rates mean landlords are paying far more in mortgage payments, finding properties with a great rental yield could ease the pressure, but so could securing a mortgage that suits your needs.

According to a MoneyWeek report, the north of England is outperforming the south both in terms of capital appreciation and rental yields.

The annual capital appreciation in the north was 2.7%, compared to 0.8% in the south

The research compared house prices over 12 months to May 2023. In the north, over the year assessed, the average house price increased by 2.7% to £211,392.

In the south, the growth was a more modest 0.8% and the average house price was significantly higher at £388,917.

The value of your property may make little difference to your plans in the short term if it’s let out. However, it could provide you with more freedom when you decide to sell the property and might even mean you could access a more competitive mortgage interest rate if you move into a lower loan-to-value (LTV) band.

The difference in rental yield between the north and south was 0.5%

The gap between the north and the south when it comes to rental yield is smaller, but it’s still the north that’s stronger. The average rental yield in the north is around 4.7% compared to 4.2% in the south.

However, there are significant differences across both the north and south. Perhaps unsurprisingly, London boasted the strongest rental growth over the year at 12.5%, putting it well ahead of second place West Midlands, which saw growth of 10.8%.

As the rental yield will have a direct effect on your income, it’s a valuable way to monitor the value of your property portfolio and whether you’re getting the most out of your investment.

Keeping track of your rental income and profit is a useful task for landlords at any time. However, as your outgoings are likely to have increased recently, it could be more important than ever.

Landlords are paying 40% more in mortgage interest compared to 2022

The Bank of England has increased interest rates over the last two years, and it’s likely to have affected your buy-to-let payments.

In fact, according to estate agents Hamptons, landlords across the UK were paying 40% more mortgage interest in August 2023 when compared to just a year earlier. That’s the equivalent of an extra £4.2 billion a year even though the number of outstanding buy-to-let mortgages has been falling as some landlords opt to sell their properties.

The average buy-to-let investor handed over 37% of their rental income to cover mortgage costs, up from 28% a year earlier.

The increase was attributed to:

New investor purchases at higher interest rates
Existing tracker- or variable-rate mortgages increasing
Fixed-term mortgage deals expiring.

Even a seemingly small increase in the interest rate could have a large effect on your outgoings.

In August 2023, the average interest rate was 3.4% and landlords were collectively paying £15 billion in interest a year. If the rate increased to just 4%, the amount paid would rise to almost £18 billion.

So, balancing rental yield and mortgage payments could be more important than ever.

There are steps you can take to improve your rental yield, including assessing if you’re investing in the right property or area. You might also choose to increase the rent of your properties if the market in the area is strong.

However, you shouldn’t overlook the value that reviewing your mortgage could add either.

Reviewing your mortgage could help you cut costs and make the most out of your investment

While reducing the cost of your mortgage won’t improve your rental yield, it means you’ll keep more of the profit.

There are lots of mortgage providers in the market, so it may be worth reviewing how competitive your interest rate is, especially if your existing deal will be ending soon. You could benefit from a lower rate or you may want to opt for a fixed-rate deal to ease concerns that your payments could increase again without warning.

Contact us to talk about your buy-to-let mortgage

Whether you’re researching if buy-to-let could be right for you or if you already have an established portfolio, working with a mortgage broker could help you secure a mortgage that suits you.

We’ll take the time to understand your needs and find a lender that could be right for you, and then offer guidance throughout the application process. As a mortgage broker, we could make searching for a new mortgage less stressful and potentially cut your outgoings by securing a more competitive interest rate.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your property may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Some buy-to-let mortgages are not regulated by the Financial Conduct Authority.

Medical & General Financial Solutions Ltd