Key Highlights

There are a lot of things to consider when choosing your first, or even next, investment property. Everything from location to property type, from mortgage lenders to property investment companies, there is a lot to consider. One of the most important aspects of all is choosing a property with strong rental yields.

Property investment in the UK is booming, particularly in cosmopolitan cities. While it might seem like there aren’t many areas with notably high rental yields to capitalise on, pockets of potential and untapped investment opportunities still exist.

Why Are High Rental Yields Important?

High rental yields tend to attract more interest from property investors for a number of reasons. A property’s rental yield is the potential and predicted return the property can make while it is being tenanted. It’s calculated as a percentage, using the predicted annual rental income and the actual value of the property. Investors tend to use rental yields as a benchmark for how profitable a property could be, as well as use them to monitor their investments’ value.

Reasons why rental yields in the UK are so important include:

• Increased Cash Flow: High rental yields mean that the rent collected each more will be a significant percentage of the property’s value, meaning that there will be more cash left over after the mortgage and other fees are deducted. This means more income relative to the initial cost of the investment, meaning steady income for the investor.
• Financial Stability: More income naturally means more financial stability for the investor. This means that rental income can be used to cover the mortgage and any maintenance costs. It can also cover management fees from a property investment agency if used and any other expenses. Saved funds from rental yields can also be used in the event of otherwise costly void periods, where the property is not being tenanted.
• Stronger Return on Investment (ROI): Investors can recover their initial investment more quickly with higher rental yields, enhancing the overall profitability of the investment.
• Protects Against Economic Uncertainty: During periods of economic instability, high rental yields can provide more security as they ensure a steady income even when property values might stagnate or decline.
• Lower Risk: High rental yields can lower the investment’s potential for risk by ensuring that income remains high even if the property’s market value fluctuates.
• Mortgage Leverage: Investors who use a mortgage or other type of funding can benefit from high yields as the rental income can cover the loan repayments and still generate profit.

High rental yields tend to attract investors looking for short-term cash and consistent monthly cash flow, such as those looking to rent out for a short or long period such as buy to let properties, rather than purchasing to sell at a profit. Strong rental yields have a lot to offer, including financial stability, flexibility, and strong returns, making them a good indicator as to whether your next investment property is going to be financially viable.

Highest Rental Yields UK

The North West

The north west is currently boasting some of the best rental yields in the UK. While Manchester may offer strong rental yields and looks promising for investors as more people move to the city, there are still pockets of untapped potential in the rest of the north west area. Namely, areas such as Liverpool and Burnley are currently offering the strongest rental yields in the UK.

Manchester

While property prices have been creeping up in Manchester and rental yields have stabilised, there are still areas that can net impressive rental yields in a city that is frequently referred to as the UK’s “second city”, taking the moniker from Birmingham. Certain postcodes in Manchester, such as M14, have hit dizzying rental yield heights of 12% – almost unheard of in London and the south east. The city’s average yield is 6.53%.

Liverpool

Liverpool notably has a higher average rental yield, standing at an incredible 8.18%. Rental yields for the city centre are – in 2023 – 12.27% for studio residences, 6.60% for one-bed flats, and 7.20% for two-bedroom flats. For the Liverpool metropolitan area, studios can provide rental yields of 13.91%. One-bed flats and two-bed flats can offer rental yields of 6.49% and 6.95%, respectively.

The North East

Newcastle

Newcastle is a coastal city that is famous for its nightlife, maritime industry, and nautical colleges. It is also a university city, popular with students who are drawn in by the range of activities and nightlife the city has to offer. Rental yields in the city can reach 7.45%, with the average buy to let property selling for £134,245 and the average rental asking price standing at £833.

Leeds

Leeds is an Eastern England city in Yorkshire that draws a large number of working professionals and students to its streets each year. Home to two world-class universities and a burgeoning finance and tech scene, the city has postcodes that can achieve a rental yield of up to 9.50%. The average property price is £219,955 and the average rent is £1,749.

Hull

Rental yields for Hull, a quiet northern city with charm and character, is an average of 7.45%. The average property is £98,617 and can be let out for an average of £612 per month to tenants.

Sunderland

With the best average rental yield for the city, Sunderland wins at an incredible average of 8.96% across the city, with some postcode areas even reaching to 10%.

South East

Norwich

Not far from London is the city of Norwich, which boasts an average rental yield of 5.83%. Monthly rental costs see an average of £1,065 and the average property price could set you back £219,141

London

While it might seem like London has nothing more to give to property investors, the city continues to surprise. The capital city is vast and there are still pockets of opportunity to capitalise on.

Barking and Dagenham

The area of Barking and Dagenham still remains one of the cheaper places in the city, with relatively low property prices and rental prices. It also offers investors some of the highest rental yields in the city. The London borough is situated in East London and is only 9 miles from central London. It is easily connected to the city centre, via tube, overground, and bus services. It is particularly popular with families and commuting working professionals.

Currently, the area boasts an average rental yield of 6.20%, which is notable and remarkable for London, which usually has quite weak yields.

Greenwich

Greenwich is another London borough with high rental yields relative to the rest of the city. It is situated on the banks of the River Thames, boasting waterside views. It is home to the O2 Arena, Greenwich Park, and the Royal Observatory. Rental yields for the area are 6.20% on average.

Harrow

Harrow is a prestigious London borough nestled in the north west. It is home to the renowned Harrow School, an independent boarding school for boys. Rental yields for the area can reach 5%.

Canary Wharf

Despite what you may think, Canary Wharf has a strong rental yield for London, hitting an incredible 6%. To hear more, check out our Canary Wharf residence here to find out more.

Summary

North Property Group is a property investment agency and end-to-end lettings agency, specialising in UK new build and UK off plan property across a number of cosmopolitan cities in the UK. We discover the best deals in London, Manchester, Liverpool, and more with first-class property development agencies to deliver the best UK property development deals to investors.

We’re client centric and data-driven, letting the results speak for themselves. Alongside our expert ability to discover the best property market deals, we also provide a full lettings management service, taking care of the property’s tenancies and lifecycle. Book a free consultation with us today to start your UK real estate investment journey and tap into the UK’s premium off plan property opportunities.