Buy-to-let hotspots revealed: where landlords are still buying – and why

Landlords are increasingly avoiding London and other southern English towns and cities to invest in the midlands and the north of England.

Property owners with four or more properties flocked to cities such as Manchester, Birmingham and Nottingham last year, according to analysis by buy-to-let mortgage provider Paragon Bank.

It revealed the top 10 most popular buy-to-let postcodes of 2023, only one of which was in the southern region of England.

Richard Rowntree, managing director at Paragon Bank, said: ‘Our data shows that portfolio landlords have a strategy to target major cities in England and Wales, from Brighton and Hove on the south coast, through the Midlands and Wales to Newcastle. .

‘Something that links many of these diverse areas together is their proximity to universities or major employers such as the NHS or manufacturing and distribution centres.’

Which locations are portfolio landlords targeting?

According to Paragon Bank, Manchester’s M14 postcode was the most popular location for landlords to invest in.

The M14 postcode covers the Fallowfield, Ladybarn and Rusholme districts of south Manchester and lies between the University of Manchester and Manchester Metropolitan University.

Landlords are attracted to the area by its high student population, in addition to the abundance of restaurants and entertainment options, including Rusholme’s famous Curry Mile, according to Paragon.

The postcode also has a number of green areas and is connected by a metro system in addition to road and rail infrastructure.

Those investing in this area can achieve gross rental yields of up to 7.5 percent, Paragon said.

The gross rental yield is the percentage return that an investor can expect to earn back annually on the purchase price, excluding taxes and other costs.

For example, a 5 percent gross return on a £200,000 property would equate to £10,000 per year in rental income.

Jason Watkin, managing director of Manchester-based estate agents Lomond, said: ‘The M14 postcode has historically been popular for buy-to-let investment, due to the fact that it is perfectly positioned between two of the city’s main universities and is increasingly popular. are a strong area of ​​focus for today’s investors.

‘Like most university towns, Manchester simply does not have enough purpose-built student accommodation to accommodate its growing student population and so many students remain heavily reliant on buy-to-let properties.

‘This high level of demand, combined with low vacancy periods and the high returns on offer, offers a very attractive proposition for today’s investors.’

Lisa Stephenson, regional director at property and letting agents Entwistle Green added: ‘The buy to let market in Manchester is as strong as it has ever been. Rents are at an all-time high and tenant demand has risen to record levels.

‘Following a downturn in the sales market due to high interest rates, this has provided potential investors with a unique opportunity to maximize rental yields and build a strong income from their property portfolio, and we have seen a marked increase in the number of landlords here. invests. the past months.’

‘Post-covid, more and more tenants are moving to the city from all parts of the world.

‘A mix of British and international students coming to study at the city’s various university locations, combined with workers from Europe coming to work in the city’s thriving bar and restaurant scene, as well as the growing presence of major companies moving to Manchester has resulted in a surplus of tenants and a shift in supply and demand that is strongly to the advantage of every potential landlord.’

Birmingham’s B29 postcode was the second most popular area for portfolio landlords last year.

The B29 postcode mainly covers the Selly Oak district and extends to Edgbaston in the east of the city and Shenley Fields in the west.

Again, this area is home to a significant student population due to its location near the University of Birmingham.

Close by, in neighboring Edgbaston, is the Queen Elizabeth Hospital, a notable local employer as one of the largest hospitals in Britain.

Properties in the postcode are the most expensive on the list, with an average purchase price of £573,116.

While some parts of the postcode and surrounding areas may be considered affluent, it is also likely that the significant proportion of large houses, which are well suited to communal living, contributes to these higher than average property values.

According to Paragon, returns of up to 6.9 percent can be achieved in postal code B29.

Richard Crathorne, CEO of Birmingham lettings and property agents John Shepherd says: ‘While the University of Birmingham and strong demand for student rentals is one factor drawing Birmingham’s buy-to-let investors towards the B29 postcode, it is not the only reason why the area is popular.

‘The proximity to the Queen Elizabeth Hospital also means that there is a significant need for professional tenant housing, as the hospital is not only one of the largest in Britain, but is also a major local employer.

‘As a result, landlords not only benefit from very strong returns when they invest within the zip code, but they also have the luxury of being able to choose which tenant segment they want to rent to.’

Nathan Nock, lettings director at Connells in the Midlands, added: ‘As always, Birmingham’s buy-to-let market remains busy, with demand continuing to outstrip supply.

‘That said, the number of applicants has fallen from the post-pandemic peak and landlords need to ensure their properties are priced correctly and presented in the best way.

‘Rents have risen considerably over the past two years and now that there is more certainty about mortgage rates, landlords are buying again, attracted by the impressive returns available.’

The third most popular buy-to-let hotspot for investors last year was DH1 in Durham, where properties can deliver returns of up to 7.3 per cent.

Although it differs from Manchester’s M14 and Birmingham’s B29 due to its postcode covering both suburban and rural areas, DH1 continues the theme of thriving student markets.

Durham University’s membership of the Russell Group of leading research-intensive UK universities and its consistent ranking in the top 10 nationwide contribute to the postcode’s popularity among students.

James Needham, director at Alesco Property Investments, said: ‘It’s a common market trend at the moment. Money is moving out of capital in search of better returns.

‘This also corresponds with huge increases in rental prices in the UK, where there is a significant lack of available rental properties.’