Explore the pros, cons, and top UK cities for Buy-to-Let investments in 2024. Is it still worth it for landlords?
08/04/2025By Pauzible Team · Editorial Team
The Buy-to-Let (BTL) market has long been a popular investment option, attracting both seasoned investors and newcomers. However, with fluctuating market conditions, evolving regulations and financial challenges, many landlords are asking if BTL is still a viable investment proposition today.
Understanding BTL
BTL involves purchasing a property with the intention of renting it out rather than living in it. The goal is to generate rental income while also benefiting from property value appreciation over time. This investment strategy gained momentum during the 1990s and early 2000s, fuelled by rising property prices and attractive mortgage deals.
Current State of the Property Market
House prices have shown modest annual average growth of 1.6% over the last year and we may be looking at about 2% average annual growth by the end of 2024, with regions like the North East and North West experiencing the highest increases. London, despite its high property values, has also seen some modest growth, continuing the trend of post-pandemic recovery [1]. Buyer confidence is improving, with more homes going under offer and a significant increase in mortgage approvals compared to last year.
Financial Considerations
Investing in BTL properties involves consideration of several financial factors. These include the costs of purchasing the property, maintenance and mortgage payments. Recent trends show a softening in mortgage lending and a decline in mortgage approvals, influenced by higher mortgage interest rates, which have hovered around 5.5-6% [2]. Despite these challenges, the rental market remains robust due to high demand and limited supply, leading to rising rental yields.
BTL Mortgages
Higher Interest Rates:
BTL mortgages generally have higher interest rates compared to residential mortgages, reflecting the greater risk associated with rental properties. It is important to compare different mortgage offers to find the best deal.
Larger Deposits:
When applying for a BTL mortgage, lenders typically require a larger deposit compared to a standard residential mortgage. While a standard residential mortgage might only need a 5-10% deposit, BTL mortgages often require a 25-40% deposit. Although this represents a substantial upfront cost, it also lowers the loan-to-value ratio, which can result in more favourable mortgage rates.
Rental Income Consideration:
Lenders consider the potential rental income of the property when determining the amount to lend. Usually, they require the rental income to be 125-145% of the mortgage payments. This is to ensure that the rental income can cover the mortgage if interest rates rise.
Types of BTL Mortgage
Interest-Only Mortgages:
Many BTL investors choose interest-only mortgages. This means you pay only the interest each month, keeping monthly payments relatively low. The principal amount is repaid only at the end of the mortgage term, sometimes through the sale of the property. Whilst an interest-only mortgage can help maximize monthly cash flow, it is important to have a solid plan to repay the principal at the end of the term.
Repayment Mortgages:
With repayment mortgages, you pay both the interest and part of the capital each month. This means you will have higher monthly payments, but this ensures that the loan is fully paid off at the end of the term. This option can be financially more secure in the long term, as you continue to reduce the principal amount that is owed over time.
Market Dynamics
The rental market remains robust due to a lack of rental properties and high demand from young renters and families. This demand is especially noticeable in well-connected suburban areas and city centres, with energy-efficient homes are increasingly favoured. Government initiatives to boost housing supply have not yet substantially eased the supply shortage.
Top Locations to Invest In as of 2024
When it comes to BTL investments, choosing the right location is crucial for maximising rental yields and capital growth. Here are some of the top locations that are currently offering promising returns for landlords:
Manchester
Manchester has recently been one of the best cities for BTL investments. It offers strong rental yields due to a high demand for rental properties that is being driven by a large student population and young professionals. According to recent data, average rental yields in Manchester are around 5.3 %, making it an attractive option for BTL investors [2].
Birmingham
Birmingham is another top location for BTL investments. The city's growing economy, ongoing regeneration projects and strong student population contribute to high rental demand. Rental yields in Birmingham are reported to be around 5.3%, with some localities seeing even higher yields. The city’s good transport links also add to its attractiveness [2].
Liverpool
Liverpool offers some of the highest rental yields, with certain areas achieving yields of up to 8%. The city’s affordable property prices combined with high rental demand from students and young professionals make it a good location for BTL investments. Liverpool's ongoing regeneration projects and economic growth further enhance its investment potential [3].
Leeds
Leeds is known for its strong rental market, particularly in areas close to university and business districts. The city’s economy and growing population contribute to high rental demand, with average yields ranging from 6-8%. Leeds' ongoing infrastructure improvements and development projects also make it a promising investment location [4].
Edinburgh
Edinburgh offers attractive rental yields and capital growth potential. The city's strong economy drive demand for rental properties, with average yields around 6%. It’s consistent property value appreciation adds to its appeal for long-term investors [3].
Sheffield
Sheffield has been gaining attention as a BTL investment destination due to its affordable property prices and strong rental demand. The city’s growing student population and young professional demographic contribute to average rental yields of around 6.38%. Sheffield's ongoing development projects and economic growth further support its investment potential [3].
Glasgow
Glasgow offers high rental yields, particularly in areas with a large student population. The city’s affordable property prices and strong rental demand from both students and young professionals result in yields of around 7.95% [3].
By focusing on such locations, BTL investors can maximise their rental income and benefit from potential capital appreciation. Each of these cities offers unique opportunities and challenges, so it is essential to conduct thorough research and consider local market conditions before making an investment.
Pros and Cons of BTL
Pros:
Potentially High Rental Yields: Strong rental demand and limited supply can result in higher rental yields.
Potential Capital Appreciation: Property values in certain regions continue to grow, providing potential for capital gains.
Diversification: Property investment can diversify an investment portfolio.
Cons:
Costs: The costs of purchasing and maintaining a BTL property can be significant.
Regulatory Compliance: Navigating the legal requirements and staying compliant with changing regulations can be challenging.
Market Volatility: Property values and rental demand can fluctuate based on economic conditions and policy changes.
Future Outlook
The outlook for the BTL market remains cautiously optimistic. Economic pressures such as rising interest rates and living costs pose challenges, but the fundamental demand for rental properties is expected to remain strong. This is particularly true in areas undergoing regeneration and those well-connected to major cities.
Practical Advice for Investors
Research Locations
Focus on areas with strong rental demand and potential for capital growth. Well-connected suburban areas and city centres with good transport links and amenities are particularly attractive.
Stay Informed on Regulations
Keep up-to-date with legislative changes affecting landlords. This includes understanding new energy efficiency standards and tenant protection laws to ensure compliance and avoid penalties.
Consider Financing Options
Explore different mortgage products and consider the impact of interest rate changes on your cashflows and investment returns.
Evaluate Property Condition
Invest in properties that meet high energy efficiency standards and require minimal maintenance. This can help attract quality tenants and reduce long-term costs.
Conclusion
Is BTL worth it? The answer depends on various factors, including local rental and property market conditions, and the interest rate environment. By staying informed and adaptable, BTL investors can find success. With the right approach, BTL investments can ultimately provide a steady rental income and capital appreciation, making them a viable option for diversifying your investment portfolio.
FAQs:
Q. What is a BTL mortgage?
A: A BTL mortgage is a type of mortgage specifically designed for properties that will be rented out rather than occupied by the owner. BTL mortgages typically require larger deposits and have higher interest rates than residential mortgages.
Q. How much deposit do I need for a BTL mortgage?
A: The deposit required for a BTL mortgage is usually between 25-40% of the property’s value. This is higher than the deposit needed for a standard residential mortgage, which can be as low as 5-10%.
Q. What are the potential returns on BTL investments?
A: Returns on BTL investments come from rental income and potential capital appreciation. Rental yields can vary significantly by location, but typically range from 4-8% in cities like Manchester, Birmingham and Liverpool. Capital appreciation also depends on local market conditions and can provide additional long-term returns.
Q. What are the tax implications of BTL properties?
A: BTL investors need to consider several taxes, including stamp duty land tax on the purchase price, income tax on rental income, and capital gains tax on the sale of the property. Recent changes have restricted mortgage interest tax relief against rental income to just 20% of interest costs.
Q. How do I choose the best location for a BTL investment?
A: The best locations for BTL investments are those with strong rental demand, good transport links and potential for property value growth. Cities like Manchester, Birmingham, Liverpool and Leeds are currently popular due to their healthy local economies, large student populations and ongoing regeneration projects.
Q. What are the risks associated with BTL investments?
A: Risks include fluctuations in property values, changes in rental demand, regulatory changes, and mortgage interest rate and maintenance costs increases. It is important for investors to conduct thorough research and mitigate these risks as much as possible.
Q. Can I live in my BTL property?
A: If you have a BTL mortgage, the terms of your mortgage will prohibit you or your family members from living in your BTL property. However, if you do not have such a mortgage, you can choose to live in your property yourself instead of renting it out.
The Pauzible Team consists of finance professionals and property market specialists dedicated to reinventing home ownership and BTL financing. With deep expertise across UK real estate and innovative financial products like Equity Partnership Agreements, we provide landlords and homeowners with the insights they need to unlock equity, navigate market volatility, and build sustainable wealth through property. Our mission is to make complex property finance simpler, quicker, and more accessible for everyone.
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