Research undertaken by HSBC shows that rental yields in the coastal city of Southampton increased from 7.82% in 2013 to 8.73% this year and now offers the best returns to landlords in the country.
Rental yields in Reading and Brighton provided the biggest jump in potential returns for landlords with yields increasing by 13% this year buoyed by an influx of young professionals from London.
Perhaps unsurprisingly, London and the Southeast where house prices have increased the most nationally saw a drop in rental yields leading HSBC to recommend that landlords do their research before taking on properties to find the best yields in other parts of the country.
Commuter towns capitalise on London workers looking to relocate.
The two commuter towns experiencing the biggest increase in rental yields - Reading and Brighton - are proving popular with young professionals looking to relocate outside of London to make savings on their rentals.
Yields hit 6.17% in Brighton and Hove, up from 5.68%. The average price of homes in the popular Sussex seaside city is £242,535 with typical monthly rent at £1,248.
Reading's rental yields increased the third highest in the country having risen to 5.48% from 4.86% last year. House prices in the Berkshire town average at £207,934 with typical rent at £950 per month.
Other areas of the UK to see the fastest buy-to-let yield growth in the last year include Cheltenham, Bristol, Bournemouth, Manchester and Oxford.
According to HSBC those working in London often have the dilemma of high rents but low commuting costs if they choose to live in the capital, or low rents but higher commuting costs outside.
Annual season tickets from Reading and Brighton to London start from £4,088 and £3,972 respectively, with travel times of roughly half an hour from Reading and just under an hour from Brighton.
Head of Mortgages at HSBC, Peter Dockar said: "Landlords are reaping the benefit as young professionals say goodbye to capital living in favour of more affordable commuter towns. Despite the inevitable increase in commuter costs associated with moving further out, many still feel the move is worthwhile in order to save towards property deposits."
"House prices in these locations - while still out of reach among many first time buyers - are relatively affordable for landlords investing in property and the demand from young professionals has pushed up rents and driven up the returns."
University cities see exceptional growth in the rental market.
While Reading and Brighton offer the fastest growing yields, Southampton continues to be the top buy-to-let hotspot for investors. The city's landlords benefit from the relatively inexpensive house prices as well as strong rental demand driven by its position on the coast for seasonal workers and holidaymakers, together with students attending the university.
Other university cities such as Manchester, Nottingham and Hull were in the top five locations with the best rental yields. Manchester climbed to second place from fourth last year while Nottingham rose from fifth to third as both benefit from relatively low property prices with strong demand for rental accommodation coming from large student populations.
In summary of the HSBC research Peter Dockar added that "London is often seen as the haven of property investment with many believing the streets are paved with gold. However, while the highest rents in the country are an attractive draw for landlords, high house prices in the capital squeeze yields and limit the returns available."
"As a result, returns can often be far more attractive in other areas so it certainly pays for landlords to do their research."
- Wednesday 28 May 2014