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  • Writer's pictureThe Cedar Crest Team

Deciphering the UK’s rental yields

A key figure to profitable property investment


 

rental yields

 

Diving into the world of property investment, you quickly encounter terms such as gross and net rental yield. These figures represent the annual rental income as a percentage of the property’s purchase price.


Rental yield is essentially the annual return you obtain from a rental property, measured against the costs of buying and maintaining it. This figure, always expressed as a percentage, forms the backbone of your property investment strategy.


While gross rental yield gives you a basic overview, net rental yield also considers the costs of maintaining and renting out the property. Both of these metrics are essential when determining whether a property is a good investment. However, it’s equally important to consider factors like tenant demand and the potential for house price growth.


 

STATE OF UK RENTAL YIELDS


According to a December 2023 Rental Market Report, the average gross rental yield in the UK currently stands at 5.49%. With the average buy- to-let property priced at £262,288 and the average rent at £1,201, it’s clear that yields have improved across all regions last year. This improvement has come as house prices have begun to fall and rents have continued to rise.


 

TOP CITIES FOR RENTAL YIELDS IN THE UK


Regarding cities with the highest rental yields, Sunderland, Dundee and Burnley take the lead in the UK, offering average gross yields close to or exceeding 8%. Generally, cities in the North of England and Scotland provide better yields than those in the South of England and London. This is largely due to the disproportionately higher house prices than rents in southern locations.


 

NORTHERN CHARMS OF GLASGOW AND LIVERPOOL


Glasgow and Liverpool also deserve mentioning, providing gross yields of 7.90% and 7.43% respectively. These cities present enticing opportunities for property investors thanks to their relatively low average house prices, promising employment prospects and large student populations.


 

TOP REGIONS FOR RENTAL YIELDS IN THE UK


Regarding regions, northern areas dominate the chart for top rental yields. Despite having the cheapest rents in the country (£671), the North East also has the most affordable buy-to-let properties, with an average price of £109,715. This results in the highest average yield in the UK of 7.34%. Scotland, the North West, Northern Ireland and Wales follow closely behind.


 

LONDON IS A CHALLENGING MARKET


On the other hand, London offers the lowest gross yields in the UK, averaging at 4.92%. Higher mortgage rates, new regulations and sluggish house price growth in recent years have limited landlord investment in the city. The city’s investment appeal has been dampened with rents nearing an affordability ceiling and tenant demand moderating.


 

THE CHANGING LANDSCAPE OF THE SOUTH EAST AND EAST OF ENGLAND


The South East and East of England, which have experienced the greatest fall in house prices, also offer lower gross yields at 5.17%. However, this decline in property prices has improved their rental yield from between 4.50% and 5.0% a year ago.


 

A REGIONAL RUNDOWN UNVEILING THE UK’S HIGHEST-YIELDING AREAS


While seeking a buy-to-let property in your local area can be beneficial, as you’re familiar with the surroundings, comprehend market dynamics and have the advantage of liaising with a trusted letting agent, it’s worth noting the regions that provide the most attractive rental yields. Let’s tour the UK, spotlighting each region’s top three yield-generating local authorities.


 

THE NORTHERN STANDOUTS


North East’s gems are Middlesbrough, Sunderland and Hartlepool, delivering gross rental yields of 8.52%, 8.50% and 8.31%, respectively.


Venturing up to Scotland, East Ayrshire steals the show with a staggering 9.57% yield. West Dunbartonshire and Renfrewshire follow closely, with yields of 9.15% and 9.13%.


 

POWER PLAYERS OF THE NORTH WEST AND WALES


In the North West, Burnley leads with an 8.41% yield, trailed by Liverpool and Hyndburn at 7.57% and 7.47%. Over in Wales, Blaenau Gwent stands tall with a 7.38% yield, while Neath Port Talbot and Merthyr Tydfil offer competitive returns at 7.23% and 7.22%.


 

YORKSHIRE AND MIDLANDS’ FINEST


Yorkshire and the Humber present Hull as their front-runner, with a robust 7.30% yield. North East Lincolnshire and Barnsley follow suit, boasting 7.07% and 7.02% respectively. West Midlands features Stoke-on-Trent at the top with a 7.09% yield. Newcastle-under-Lyme and Coventry trail behind, offering 6.52% and 6.46%.


 

THE EASTERN AND SOUTHERN TITANS


  • East Midlands offers Nottingham, Mansfield and Boston as top contenders, with yields of 7.06%, 6.40% and 6.39%.

  • Down in the South West, Plymouth, Gloucester and Swindon offer attractive yields at 6.32%, 6.20% and 6.06%.

  • In the East of England, Great Yarmouth, Fenland and Peterborough shine with yields of 6.13%, 6.05% and 6.04%.

  • In the South East, Southampton, Gosport and Portsmouth take centre stage, offering yields of 6.42%, 6.10% and 6.09%.

  • London sees Barking and Dagenham, Newham and Bexley leading with yields of 6.24%, 5.78% and 5.62%.


 

GAZING INTO THE BUY-TO-LET CRYSTAL BALL


With tenant demand currently a third higher than the five-year average and supply restrained by low new investment, we foresee rents climbing between 5% and 8% next year across most of the country. An anticipated further fall in house prices and rising rents suggests that gross yields will continue to improve.


Signs of weakening rental demand are already evident, driven by factors such as the dissipation of pandemic after-effects, slower job and wage growth, and decreasing mortgage rates. Annual UK rental growth is predicted to decelerate to 5%-8% during 2024.


 

>> LOOKING TO SECURE YOUR FIRST INVESTMENT PROPERTY, MANAGE YOUR PORTFOLIO OR REFINANCE TO A BETTER DEAL? <<


Get in touch with one of our mortgage advisers today to learn more about your mortgage options.



Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017,

HK T: +852 6645 4462 – email info@cedar-crest.co.uk 


Your home may be repossessed if you do not keep up with repayments.

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