Best Rental Yields UK
Rental yields help investors decide whether a property is profitable. It is calculated as a percentage and is determined by the cost of the property against the annual rental income. The higher the rental yield, the higher the return on investment.
What does a good rental yield look like and where can the best rental yields be found in the UK? This guide reveals all.
What is a Good Rental Yield?
As rental income should cover the cost of any maintenance or additional costs your property may need, you want to ensure you are in profit to avoid any potential loss. Anything above 5% is considered a good rental yield in the UK.
Currently, the national average is 5.03% while the rental yields in London sit at 4.8%.
What is the Difference Between Gross Yield and NET Yield?
A gross rental yield is what is calculated before expenses. A NET rental yield is what is the return on investment (ROI) after expenses.
How to Calculate Rental Yield
The formula to calculate the rental yield of a property is:
Annual Rental Income ÷ Property Value × 100.
(Or you could use a rental yield calculator!)
The Current Property Market
The current house price growth has widened the North-South divide. This was due to the increase of the UK’s mortgage rates from the summer, all to combat inflation. Despite this, the market appetite remains strong.
Compared to last year (2022), rental yields have increased from an average of 4.8% to 5.03%. average rental costs were lower, sitting at ￡1,053 compared to the current ￡1,163. Alongside these rises from the previous year, property prices have remained at a similar level. Due to this, the UK offers high rental yields.
Some regions in the UK with the best and highest rental yields are the North East, North West, and Yorkshire. The North East in particular is at the top of the charts, seeing an average gross rental yield of 7.2%.
There is currently a 2.2% divide between the North and South in rental yields. Even with average monthly rent as high as ￡2,053, the gross rental yield in London is the lowest in the UK, sitting at 4.7%. This is even below the national average. Due to this main factor, some of the best places to buy BTL property in 2023 are in the North.
Best Places to Invest in UK Property in 2023
For investors looking to build or grow their property portfolios, the North is home to some of the best rental yields in the UK. The Northern Powerhouse offers great alternatives to London due to far lower prices, migrating businesses, and ever-improving connections.
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Hull
Hull is a dark horse for property investment. Due to regeneration projects improving the public realm, the city’s image is changing and reigniting residents’ pride. Hull is home to an inexpensive property market, with average prices being some of the lowest in the UK. Due to this, the city is a magnet for both investors and residents. What sets Hull apart from the rest, though, is its lead in the green revolution. Its investment in the future, in green and sustainable technology, creates a growing sector for skilled professionals. This, alongside the city’s improving perception, heightens desire and demand. As demand grows, so do rental costs. For this reason, Hull is an emerging investment hotspot and offers some of the best and highest rental yields in the UK.
Liverpool
Many invest in Liverpool for its large student population, far lower-than-average property prices, and strong talent pool. Demand is high in Liverpool. This is due to ongoing improvements across the entire city, increasing desire and investment opportunities in both the city centre and the suburbs. With such low property prices coupled with a fast-growing market, investors in this city greatly benefit from high rental yields. Since the impact of hosting Eurovision 2023, too, Liverpool’s economy is expected to generate ￡250 million over just 3 years.
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Bradford
Thanks to its key connections, thriving property market, and ongoing regeneration plans, Bradford is recognised as an up-and-coming area for significant economic growth. With one of the fastest growing and youngest populations in the country, too, the city was named the Best City in the UK for Investors back in 2022. Is there any wonder why property investors look to Bradford? From its historic Little Germany to its growing business sector, this “modern cosmopolitan city with a thousand stories to tell” cements its deserved title of the UK’s City of Culture 2025. With this alongside its affordability and residents’ pride, Bradford is known as the best city for first-time home buyers.
What Else Should Property Investors Consider?
Looking for areas in the UK with the best rental yields greatly benefits property investors. However, other factors can make an investment generate higher returns, especially if combined.
Aside from understanding house price trends, investors should investigate different types of property investments and locations where they yield the best returns. For example, in parts of the UK that experience higher tourism, property investors will benefit greatly from short-term lets. As for regular investment hotspots or areas in the UK where competition and such high rental yields lie, investors should consider the likes of off-plan developments and BMV properties. These offer high returns from below-market-value prices and instant equity.
To determine the best places to buy property, look to cities with many regeneration projects. The Northern Powerhouse has many regeneration schemes underway. Such projects include new homes and business sectors, as well as improving sustainability, connections, and the public realm. This is why tenant demand and overall desirability for these cities are ever-rising.