It is a tough time to be a landlord amid rising costs and more regulations, while rental growth is also slowing.
Property investors now face higher stamp duty rates when purchasing additional properties and new legislation going through parliament will ban no-fault evictions, all adding to the complexity of running a buy-to-let portfolio.
Additionally, data from Zoopla this week showed rental growth is at a three and a half year low of three per cent. That is down from 7.4 per cent this time last year.
The property website blamed the slowdown on rental affordability as tenants can no longer afford the double digit increases of the past.
Despite these challenges, landlords can still secure inflation-beating returns from buy-to-let even with a small deposit. Here is where to invest in the UK with just a £25,000 deposit.
Where to invest your £25,000 buy-to-let deposit
With house prices at record highs, it can be hard to find a suitable buy-to-let property with just a £25,000 deposit in popular areas such as the south east and London.
But many tenants are already priced out of the major cities and are looking to more affordable areas, particularly in the north of the country.
This could provide a boost for landlords.
Louisa Sedgwick, managing director of mortgages at Paragon Bank, which recently revealed research showing rental yields have hit a 13-year high of 7.12 per cent across the UK, said: “Although the strongest returns on buy-to-let investments are often generated through Houses in Multiple Occupation, owing to their ability to house multiple tenancies, these large properties typically command higher purchase prices.
“To make the sums work, an investor with a £25,000 deposit would likely need to target a more affordable property. An example could be a smaller terrace or home in an area where property is more affordable, such as some of the areas in the north of England.”
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Research by Hamptons, for Independent Money shows investors can expect double-digit gross yields in five out of the 12 local authorities in the north of England and Wales where the average buy-to-let property can be purchased with a £25,000 deposit.
For example, £25,000 would be more than enough for a 25 per cent deposit and stamp duty to cover the purchase of the average flat in the Welsh town of Blaenau Gwent near Cardiff. The average property price for a flat is £72,780 and you would need upfront costs of just £21,839. With a monthly rent of £671, you could get a gross annual yield of 11.1 per cent.
Similarly, in County Durham, Hamptons data shows the average flat is currently priced at £79,750. A landlord would need just £23,928 to cover a 25 per cent mortgage deposit and stamp duty. The average rent in this area is £689 per month, giving a gross yield of 10.4 per cent.
Aneisha Beveridge, head of research for Hamptons, said: “With interest rates remaining relatively high, investors with less cash are increasingly having to focus on yield. Generally, lower-priced properties yield the best returns and have lower barriers to entry too.
“In fact, even with higher mortgage rates, opportunities still exist for those looking to enter the market or expand their portfolio, despite the challenges that remain in the sector.
“With interest rates on cash savings set to decline further this year, this could make buy-to-let returns look a little more attractive, which is why we anticipate a modest uptick in buy-to-let investment in 2025, albeit from a low base.”
There are of course other costs to consider such as ongoing maintenance, finding an agent to manage the property if you don’t live nearby, tax and how easy it will be to find tenants and property in the highest-yielding areas.
Marc von Grundherr, director of estate agent Benham and Reeves, added: “Of course, bricks and mortar investment isn’t quite that black and white and investors need to drill down into far more localised market metrics in order to identify the best segments of the market to invest in.”
The possibilities of buying property with a starting deposit of £25,000 are there though – and the options certainly increase if a higher starting figure can be found.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
