Where are the best places to invest in the UK property market?

The highest yielding areas for buy-to-let property in the UK

Considering becoming a landlord? One strategy for investment is to focus on higher yielding markets. Here are the top investor hotspots in the UK.

• If you’re looking for a buy-to-let property, rental yield can help you decide if the cost of the property is worth the potential rental income

• Gross rental yields have increased in the last year as rents have risen at a faster rate than house prices

• The highest yielding cities in the UK are Sunderland, Aberdeen and Burnley, which offer average gross yields of 8%+

• The North East is the best region for investors looking for strong yields, offering an average of 7.65%

• We reveal the three highest yielding areas in every region of the UK

• Take other factors into account before you invest, like tenant demand and the potential for future house price growth

Ready to become a landlord and want the biggest return on your investment?

It’s worth getting to grips with rental yield if you’re purchasing a buy-to-let property.

Gross rental yield is the annual rental income expressed as a percentage of the property price. Net rental yield also factors in the cost of maintaining and renting out the rental property. Both can help you decide if a property is a good investment.

The average gross rental yield in the UK is currently 5.60%. This is based on the average buy-to-let property costing £261,897 and the UK’s average rent being £1,223, according to our latest data.

Gross yields have improved across all regions in the last year as house prices have started to fall or remained the same while rents have continued to rise.

Keep in mind that tenant demand and the potential for house price growth – among other factors – should also be considered with property investment.

Top cities for rental yields in the UK

Sunderland, Aberdeen and Burnley top the chart for the highest rental yields in the UK, with average gross yields over 8%.

The top 17 cities for rental yields in the UK are all in the North of England and Scotland. In contrast, southern cities tend to have much higher house prices, bringing the gross yield down for buy-to-let properties.

Here’s how every city in the UK compares for gross rental yield.

Top regions for rental yields in the UK

Rents in the North East are cheaper than anywhere else in the country (£695) – and so are buy-to-let properties, at £109,072 on average. This gives the region the highest average yield in the UK of 7.65%.

It’s followed by Scotland (7.48%), the North West (6.66%), Wales (6.43%) and Yorkshire and the Humber (6.38%). Gross yields in these regions have risen over the last 3 months as rents have risen faster than house prices.

London offers the lowest gross yields in the UK of 4.93% on average, only 0.1 percentage point higher than 3 months ago. With higher mortgage rates, new regulations and low house price growth in recent years, rents appear to have reached an affordability ceiling and tenant demand is starting to moderate.

The East of England and South East also offer lower gross yields of 5.28% and 5.34% respectively. However, their rental yield has improved on last year as they are the two regions where house prices have fallen the most.

The highest yielding areas in each part of the UK

Looking for a buy-to-let property near where you live can be useful. You know the area, understand local influences on the market and can work closely with a nearby letting agent.

So it helps to know which parts of your region offer the greatest rental yield. Here are the top 3 local authorities for average yields in each UK region.

North East: 7.65% average gross yield

• County Durham: 7.81% gross rental yield

• Darlington: 7.52% gross rental yield

• Gateshead: 7.75% gross rental yield

Scotland: 7.48% average gross yield

• Renfrewshire: 9.56% gross rental yield

• East Ayrshire: 9.50% gross rental yield

• West Dunbartonshire: 9.09% gross rental yield

North West: 6.66% average gross yield

• Burnley: 8.40% gross rental yield

• Blackpool: 7.80% gross rental yield

• Preston: 7.55% gross rental yield

Wales: 6.43% average gross yield

• Blaenau Gwent: 7.58% gross rental yield

• Neath Port Talbot: 7.44% gross rental yield

• Merthyr Tydfil: 7.40% gross rental yield

Yorkshire and the Humber: 6.38% average gross yield

• Hull: 7.45% gross rental yield

• North East Lincolnshire: 7.16% gross rental yield

• Barnsley: 7.15% gross rental yield

West Midlands: 5.95% average gross yield

• Stoke-on-Trent: 7.72% gross rental yield

• Coventry: 6.66% gross rental yield

• Newcastle-under-Lyme: 6.65% gross rental yield

East Midlands: 5.84% average gross yield

• Nottingham: 7.27% gross rental yield

• Mansfield: 6.57% gross rental yield

• Boston: 6.50% gross rental yield

South West: 5.37% average gross yield

• Plymouth: 6.39% gross rental yield

• Gloucester: 6.28% gross rental yield

• Swindon: 6.03% gross rental yield

South East: 5.34% average gross yield

• Southampton: 6.62% gross rental yield

• Gosport: 6.46% gross rental yield

• Portsmouth: 6.45% gross rental yield

East of England: 5.28% average gross yield

• Great Yarmouth: 6.42% gross rental yield

• Peterborough: 6.24% gross rental yield

• Fenland: 6.17% gross rental yield

London: 4.93% average gross yield

• Barking and Dagenham: 6.22% gross rental yield

• Newham: 5.89% gross rental yield

• Bexley: 5.68% gross rental yield

What’s the outlook for buy-to-let property investment in the UK?

The heat is coming out of UK rent rises. Annual growth is now at the lowest rate for two years, down to +7.8% from +11% a year ago as demand has dropped by a fifth in that time.

However, there are still more than 15 enquiries for every home to rent – double the rate of before the pandemic. And new investment from private landlords remains low, with the average letting agent currently listing 12 homes for rent. This is a fifth higher than last year but 28% below the pre-pandemic average (16 homes).

While the supply and demand imbalance has started to narrow, it is far from closed, so we project that UK rental inflation will be around +5% over 2024.

The outlook for buy-to-let investment also hinges on house prices, which we expect to remain broadly the same this year. With rents generally rising faster than house prices, we can expect gross rental yields to increase in 2024.

What is rental yield?

Rental yield is the amount of money you make from a rental property each year against the cost of purchasing and running it. It’s always expressed as a percentage.

The gross yield only takes the cost of the property and the rental income into account.

The net rental yield, on the other hand, considers the extra costs of running the property, like maintenance and property management.

To figure out the best investment property for you, it’s worth looking at both of these yields as well as other factors.

Why is rental yield important?

Before you jump into buying a property to rent out, you’ve got to figure out if it’s a worthwhile venture.

If your rental income doesn’t cover your costs, or you’re just breaking even, unexpected expenses like fixing a broken boiler or a leaky roof can impact your finances.

So looking at the potential rental yield will help you do the maths and make sure it’s a good investment.

What else to think about with a buy-to-let property

There’s more to choosing a good buy-to-let property than just the rental yield.

You could buy a property with a strong yield, but if house prices aren’t rising or you can’t find tenants, it might not be the best investment.

House price trends

Get a feel for house price growth to see if the property is likely to rise in value. Look at historic sale prices for individual properties as well as value increases for the postcode and local area.

The cost of a buy-to-let mortgage

At the same time, you need to think about the costs of taking out a buy-to-let mortgage and all the other associated costs of running a rental property.

Tenant demand

It also helps to understand what tenant demand is like in the area and what sort of properties they’re looking for.

Speak to a letting agent to find out what’s happening in the local rental market. They’ll be able to share what tenants are looking for and which properties could be a strong buy-to-let investment.

How to work out your gross rental yield

Let’s say you want to buy a property worth £200,000. You plan to charge £1,000 per month in rent, which works out to £12,000 per year. Divide 12,000 by 200,000, then multiply by 100. That equals a gross yield of 6%.

(Annual rent / property value) x 100 = gross rental yield

How to work out your net rental yield

To work out your net rental yield, you need to take your extra costs off your annual rental income.

So add up the amount of money you think you’ll spend over the year. This will include paying the mortgage, agency fees, property maintenance, and any costs you might incur to keep up with regulations.

Then deduct these costs from your annual rental income, and do the same sum from there.

[(Annual rent – annual costs) / property value] x 100 = net rental yield

Let’s say you’re buying the same £200,000 property and charging the same £12,000 per year in rent.

But you’re spending £300 on maintenance and agency fees, which comes to £3,600 over the year.

That means your net rental yield for this property is 4.2%.