Buy to Let in the North East: A Comprehensive Guide to Costs, Profits, and ROI
The North East of England is currently one of the most attractive regions for buy-to-let (BTL) investors, offering a combination of low entry costs, strong rental demand, and robust yield potential. Unlike the overheated markets of London and the South East, where property prices are high and yields have tightened, the North East provides an opportunity for investors to secure properties at a fraction of the cost while still achieving rental returns of 6–8% — some of the highest in the UK.
The region is home to a diverse tenant base, including students, young professionals, and families, all drawn by its growing economic hubs, reputable universities, and vibrant cities such as Newcastle, Sunderland, Middlesbrough and Durham. Major infrastructure projects and regeneration initiatives — from the Tees Valley Freeport to Newcastle’s £100 million Quayside redevelopment — are also fuelling both tenant demand and long-term capital appreciation.
For investors seeking a balance of immediate cash flow and steady property value growth, the North East is an appealing alternative to more expensive southern markets. In addition to its affordability, the area benefits from a relatively stable property market, lower void rates in key urban areas, and increasing interest from both domestic and international landlords.
In this guide, we’ll take a detailed look at the financial arrangements required to start a buy-to-let venture, the costs you should expect, the profit streams you can generate, and how the North East compares regionally in terms of performance and return on investment.
Financial Arrangements: Buy-to-Let Mortgages in the North East
Most buy-to-let investors finance their property purchases with a dedicated BTL mortgage. These differ significantly from standard residential mortgages, particularly in terms of affordability criteria and deposit requirements. The lower property prices in the North East mean that investors need smaller deposits and can achieve better rental coverage ratios compared to southern regions.
Key features of North East Buy to Let Mortgages include
- Lower entry costs
A 2–3 bedroom house in Sunderland or Middlesbrough may cost around £120,000, compared to £350,000+ for a similar property in London.
- Higher rental coverage
With average rents between £600–£750 per month, it’s easier to meet lenders’ stress tests, which typically require rental income to cover 125–145% of mortgage interest payments.
- Interest-only options
Many landlords choose interest-only mortgages to maximise cash flow and rely on capital growth for long-term profit.
Example Scenario
- Property price: £120,000
- Deposit (25%): £30,000
- Mortgage (75% at 5% interest): £90,000
- Monthly interest-only payment: ~£375
- Required rent (at 125% coverage): £470 per month (In reality, market rents are often £650–£700 for such properties, leaving a healthy cash flow buffer.)
Upfront Costs of Buy-to-Let Investment
Investors often underestimate the total cash outlay required beyond the deposit. Here is a breakdown of the typical upfront costs for a £120,000 property in the North East:
Cost Type | Estimated Cost |
Deposit (25%) | £30,000 |
Stamp Duty (BTL surcharge) | £3,600 |
Legal & conveyancing fees | £800–£1,000 |
Mortgage arrangement & valuation fees | £1,000–£1,500 |
Survey | £300–£600 |
Initial refurbishment & compliance upgrades | £5,000–£10,000 |
Total upfront investment: Approximately £40,000–£45,000.
Ongoing Costs
Investors often underestimate the total cash outlay required beyond the deposit. Here is a breakdown of the typical upfront costs for a £120,000 property in the North East:
Cost Type | Estimated Cost |
Mortgage interest | £4,500 (based on £90,000 mortgage at 5%) |
Landlord insurance | £150–£250 |
Maintenance and repairs | Budget 1% of property value (£1,200/year). |
Letting agent fees | 10–12% of rent (~£780/year on £650 rent) |
Compliance checks | Gas safety, EICR, and EPC checks (£200–£300/year) |
Void periods | One month of lost rent (£650) as a contingency |
Total annual running costs can average £6,800, meaning that rental income must be carefully managed to produce a positive net return.
Profit Streams: Rental Income and Capital Growth
Rental Income (Yield)
While the North East has historically lagged behind London in price growth, recent regeneration and infrastructure projects have led to steady appreciation of 3–5% annually in some hotspots. This example is based on 4% growth
- Year 5: £120,000 → £146,000 (+£26,000)
- Year 10: £120,000 → £177,000 (+£57,000)
Capital Growth
Gross rental yield measures annual rent as a percentage of purchase price.
- Property price: £120,000
- Monthly rent: £650
- Annual rent: £7,800
- Gross yield: 6.5%
Net yield (after costs of £6,800)
- £1,000 net profit per year (0.8% net yield).
- With higher rents (£700/month) or lower expenses (self-management), net profit can increase to £1,600–£2,000/year.
Return on Investment
A combination of rental income and capital growth provides total return on investment (ROI) based on a 5 year snapshot
- Initial investment: £40,000
- Cumulative rental profit (5 years): ~£5,600 (assuming rent grows by 2% annually)
- Capital appreciation (4% annually): ~£26,000
Total ROI: ~77% over 5 years, or around 15% per year when combining rental and equity gains.
Regional Analysis: Where Are the Best Yields?
Area | Average Price | Average Rent (pcm) | Gross Yield | Key Drivers |
Newcastle | £150,000 | £800 | 6.4% | Student & professional demand, city growth |
Sunderland | £120,000 | £650 | 6.5% | Affordable, stable rents |
Durham | £180,000 | £900 | 6.0% | High student demand (Durham University) |
Middlesbrough | £115,000 | £650 | 6.8% | Tees Valley regeneration |
Hartlepool | £105,000 | £575 | 6.6% | Low entry cost, good rental yields |
5 Year Forecast
Year | Annual Rent (£) | Net Profit (£) | Property Value (£) | Capital Gain £) | Cumulative ROI (£) | ROI (%) |
1 | 7800 | 1000 | 124800 | 4800 | 5800 | 17.26 |
2 | 7956 | 1156 | 129792 | 9792 | 12104 | 36.02 |
3 | 8115.12 | 1315.12 | 134983.68 | 14983.68 | 18929.04 | 56.34 |
4 | 8277.42 | 1477.42 | 140383.03 | 20383.03 | 26292.72 | 78.25 |
5 | 8442.97 | 1642.97 | 145998.35 | 25998.35 | 34213.2 | 101.83 |
Tax Considerations
- Income Tax: Rental profits are taxed at your personal rate (20%, 40%, or 45%).
- Mortgage Interest Relief: Limited to a 20% tax credit for individual landlords (full relief available for limited companies).
- Capital Gains Tax (CGT): Payable when you sell (18% or 24%, depending on your tax band).
- Stamp Duty: Additional 3% surcharge applies to BTL purchases.
Risk Factors
- Regulatory changes: Future EPC requirements (EPC C by 2030) may necessitate retrofits.
- Interest rate volatility: A 1% rise in rates can cut net profits significantly.
- Tenant issues: Rent arrears or damage can erode returns.
- Market fluctuations: While less volatile than the South, the North East isn’t immune to economic downturns.
And Finally
The North East offers high-yield opportunities and low entry costs, making it an ideal market for new and experienced investors alike. With careful property selection — focusing on cities like Newcastle, Sunderland, and Middlesbrough — landlords can secure 6–8% yields and benefit from steady capital growth over time.
