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Understanding Average Rental Yields in the UK: A Guide for Property Investors
November xx, 2024 • Author: Richard Bradstock
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Rental yields are a critical metric for property investors as they indicate the return on investment (ROI) in rental properties. A buy to let rental yield in the UK is typically expressed as a percentage and is calculated by dividing the annual rental income by the property's purchase price, then multiplying it by 100. The higher the rental yield, the better the return an investor can expect from their property. This is how to make money from UK property.
In the UK, rental yields can vary significantly depending on location, demand, property type, and market trends. In this article we’ll explore the national average rental yield, followed by a closer examination of three key cities: London, Manchester, and Birmingham.
Average Rental Yields in the UK
As of recent market data, the average rental yield across the UK hovers around 3.5% to 5%. However, this average can mask substantial regional differences. For example, properties in the North of England typically offer higher yields due to lower property prices and higher demand for rental accommodation, while London, with its high property values, often delivers lower yields despite strong rental demand.
Here’s a more detailed breakdown:
Northern Regions (Yorkshire and the Humber, North East, North West)
Average rental yields tend to range between 5% to 8% in these areas. Cities like Liverpool, Sheffield, and Newcastle often offer particularly strong returns due to their lower property prices and steady rental demand from young professionals and students.
Midlands (Birmingham, Nottingham)
In the Midlands, rental yields typically fall within 4% to 6% with pockets of higher yields in areas of regeneration and redevelopment.
Southern Regions (London, South East, South West)
The South generally sees lower yields, around 3% to 4.5% due to higher property prices. While rental income is still strong, the large capital investment required to purchase property can eat into overall returns.
It’s important to remember that the rental yield is not the only factor that matters. Property investors should also consider capital growth, the likelihood of property price appreciation over time, which can significantly enhance long-term returns. This is particularly relevant in cities undergoing regeneration or infrastructure improvements, such as Manchester and Birmingham.
Rental Yields in London
London, as the capital and financial hub of the UK, is often the most desirable location for property investors, but it’s also one of the most challenging markets due to high property prices.
London Rental Yield Overview
Average London Rental Yield
Typically, London’s rental yields range from 2.5% to 4.5% depending on the area. Central London areas like Kensington, Chelsea, and Westminster tend to have the lowest yields around 2% to 3% due to the high property values, while outer boroughs may offer yields closer to 4% to 5%. Investors in prime London areas tend to focus more on long-term capital growth than immediate rental income.
Outer London Yields
The outer zones of London generally provide better rental yields due to more affordable property prices combined with high rental demand. Boroughs like Barnet which has seen the steepest rental increases across the capital and Ealing have benefitted from regeneration and transport links such as Crossrail, often see yields in the region of 4% to 5% and above.
Despite lower yields in central areas, London remains attractive due to its strong rental demand, low vacancy rates, and long-term capital appreciation potential. Investors willing to hold onto their properties may see significant long-term gains, even if the immediate rental yield appears modest.
Rental Yields in Manchester
Manchester has rapidly become one of the UK’s most popular property investment locations, boasting a strong economy, a young population, and a thriving rental market driven by both professionals and students.
Manchester Rental Yield Overview
Average Manchester Rental Yield
Investors can expect rental yields between 5% and 7% in Manchester, with some areas delivering yields as high as 8%.
City Centre
The city centre itself, including areas like Victoria and the Northern Quarter, can deliver yields of around 5% to 6%. These areas are popular among young professionals and students, ensuring high rental demand. While property prices have been increasing in recent years, they still offer better value compared to London.
Outlying Areas
Suburbs such as Salford, Old Trafford, and Wythenshawe tend to offer even higher yields, ranging from 6% to 8%. These areas are often more affordable in terms of property prices but still benefit from Manchester’s strong economy and job market. Moreover, Salford, home to MediaCityUK, has seen significant investment in recent years, boosting rental demand.
Regeneration Areas
Certain regeneration zones have seen both property values and rental demand rise. These areas often attract investors looking for future capital growth alongside attractive yields.
Overall, Manchester offers one of the best combinations of rental yields and long-term capital growth potential, making it a prime choice for property investors.
Rental Yields in Birmingham
Birmingham, the UK's second-largest city by population, is also a hotbed for property investment. Like Manchester, it has undergone significant regeneration and infrastructure improvements, including the development of HS2, which promises to reduce travel time to London significantly.
Birmingham Rental Yield Overview
Average Birmingham Rental Yield
Investors can expect rental yields of between 4% and 6%, with some areas reaching up to 7% or higher.
City Centre
Birmingham’s city centre, particularly areas like Digbeth, the Jewellery Quarter, and Edgbaston, typically delivers yields of around 4% to 5%. The city centre has seen extensive regeneration, making it a desirable location for young professionals, students, and international tenants.
Suburban Yields
In the suburbs, such as Erdington, Aston, and Perry Barr, yields can be as high as 6% to 7% but may not offer the same long term capital appreciation returns of city centre properties. These areas benefit from lower property prices and strong rental demand from families and young professionals seeking more space but still wanting to be within commuting distance of the city centre.
Curzon Street HS2 Station (Image: Handout)
Regeneration Areas
Birmingham has the added appeal of being a city with game-changing transport infrastructure. In 2030 HS2 will connect it to London with a journey time of only 40 mins. The potential for long-term capital growth is considerable, making it a very appealing option for property investors looking for a balance of rental yield and future appreciation.
Long-Term Growth Potential
Birmingham has the added appeal of being a city with game-changing transport infrastructure. In 2030 HS2 will connect it to London with a journey time of only 40 mins. The potential for long-term capital growth is considerable, making it a very appealing option for property investors looking for a balance of rental yield and future appreciation.
conclusion
When considering property investment in the UK, understanding rental yields is crucial to gauging the potential ROI. Nationally, yields average around 3.5% to 5%, but there are substantial variations depending on location. London offers lower yields (around 2.5% to 4.5%), particularly in central areas, but compensates with strong long-term capital growth. Manchester provides excellent rental yields, often between 5% and 7%, making it an attractive option for investors looking for immediate returns and long-term appreciation. -Birmingham presents similar yields to Manchester (around 4% to 6%), with the added benefit of ongoing regeneration and infrastructure development.
UK Rental Yield Comparison
Ultimately, rental yield is only one part of the investment equation. Investors must consider factors like tenant demand, capital growth potential, and the broader economic climate when selecting a property to invest in. With the right strategy, investors can enjoy both stable rental income and significant long-term appreciation in cities across the UK. If you buy with RPA, supplying accurate rental appraisals is part of our service ensuring you have the full picture for your property investment.
We’ve been advising a global client base on UK property acquisitions for over 20 years. Dedicated agents, dealing exclusively with overseas property investors, it’s our mission to source the best London and UK property investment opportunities. We’ve helped hundreds of clients to build high-performing UK property portfolios. Our services include expert advice on property investment, mortgages & finance and Lettings & Management to give our clients the full suite of services they need to build an effective and profitable London property portfolio.
Get in touch today to see how we can help you to begin building your UK property portfolio.
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About the author
Founder & Managing Director
richard bradstock
RPA’s founder, Richard has worked in residential development investment for 20 years and oversees the general running of the business ensuring the RPA Group retains true to its founding principles. Over his career Richard has built an incredible network of international property investors and like-minded industry professionals.
