The highest yielding areas for buy-to-let property

Selecting the right location is vital for buy-to-let investments, as this can make a significant difference to your return. To do this, it is important to consider factors such as local tenant demand, rental yields and property price appreciation prospects. Other factors, such as mortgage interest rates, service charges and maintenance costs will also play a role, of course, regardless of location. This article focuses on rental yields. In 2024, certain regions and cities  stand out for offering high rental yields. These locations are generally characterized by strong tenant demand, relatively limited supply and good economic prospects. 

Factors to Consider in High-Yielding Locations:

Rental Yield: Formally “gross rental yield”, rental yield is calculated as a property’s annual rental income divided by its current market value, with the result expressed as a percentage. Rental yield is a crucial component of the overall return on investment. All other things being equal, a higher rental yield means higher profitability. Nevertheless, it is also important to consider other factors, including property price appreciation prospects, and mortgage interest rates, service charges, maintenance and other costs.

Rental Demand: A high demand for rental properties is important to ensure a steady income. Areas with thriving job markets, growing communities and universities tend to have more people looking to rent.

Capital Appreciation Potential: In addition to a high rental yield, investing in a property with potential for value growth over time is also a smart move for your finances. It will increase your long term return by providing capital gains when you decide to sell the property.

Infrastructure and Amenities: When choosing a location, prospective tenants' needs and desires must be considered. Access to reliable transportation, quality schools, healthcare facilities and other amenities can significantly affect their quality of life. Ultimately, this can increase demand and rental yields, while bringing additional comfort and convenience to those who call a locality and a community their home.

Local Economy and Employment Opportunities: A thriving local economy with diverse employment opportunities can support long term growth potential and stable rental demand, and increase the probability of a sound investment.

Affordability: Lower property prices relative to rental income can result in higher rental yields, making certain areas more attractive for buy-to-let investments. However, it is still important to consider other factors such as property price appreciation prospects, and mortgage interest rates and other costs.

Top 5 High Rental areas for 2024

Based on a market analysis conducted by various sources, the average rental yield in the UK is currently 5.49%. This figure is based on the average cost of a buy-to-let property of £262,288 and an average monthly rent across the UK of £1,201.

Top rental yield hotspots

1. With an impressive average rental yield of 8.50%, Sunderland offers excellent value due to its low property prices, high rental demand, growing economy and proximity to major cities like Newcastle and Durham.

2. With its vibrant student population, thriving technology sector, and ongoing regeneration project, Dundee offers an average rental yield of 8.07% and is an attractive option for investors.

3. Liverpool and Glasgow offer high yields of around 7.43% and 7.90%, respectively, due to their substantial student populations, strong local economies, and increasing investment in infrastructure and amenities.

4. Located in the North West region, Burnley is an attractive option for property investment due to its affordable prices and healthy rental market. The rental yields in Burnley are high, exceeding 7.96%, making it a compelling choice for investors. Its proximity to major cities like Manchester and Leeds adds to its appeal.

5. Newcastle is a high-growth region with solid potential for early investors seeking high returns. It boasts one of the top average rental yields in the UK, making it an attractive investment destination. The city's vibrant cultural scene, ongoing urban regeneration projects and robust job market add to its appeal as a prime investment location.

Top Regions for Rental Yields in the UK:

According to the latest data released by the Office of National Statistics (ONS), the rental market in England has reached a new milestone, with the median monthly rent hitting a record high of £850 between October 2022 and September 2023.

The ONS report highlights the stark regional disparities in rental levels nationwide. London stands out as the most expensive region, with a median monthly rent of £1,625, significantly higher than the national median for England. This figure underscores the significant premium associated with living in the capital city.

By contrast, the North East region emerges as the most affordable area for renters, with a median monthly rent of £550, substantially lower than the national average.

Furthermore, the ONS data reveal a substantial gap of £2,146 between the median monthly rental prices in England's most and least expensive local authorities, highlighting the wide variations in rental costs across different regions and localities.

These findings shed light on the ongoing challenges renters face, particularly in high-cost areas like London, where affordability remains a pressing concern. At the same time, the report underscores the potential opportunities for buy-to-let investors in regions with lower rental prices but the potential for higher yields.

Northern UK regions, including the North East, Scotland and the North West, show the best potential for high rental yields in 2024. Cities like Sunderland, Dundee, Liverpool, Glasgow and Burnley are notable for their potentially lucrative investment opportunities, driven by affordability, strong rental demand and promising growth prospects.

Despite its global appeal, London ranks lower in gross rental yields due to higher property prices and an affordability ceiling affecting rental yield. However, the capital still offers opportunities for capital appreciation in the long term, particularly in emerging hotspots and regeneration areas.

The M14 postcode in Manchester has emerged as a highly desirable location for property investment. This postcode is undoubtedly one of the top-performing areas in the country when it comes to property investment. With an average asking price of £194,733 and an average monthly rent of £1,636, you can expect a remarkable yield of 10.1%. This high yield is due to several factors, including the area's growing popularity among young professionals and students, and its proximity to the city centre. In addition, the M14 postcode boasts a range of local amenities, including shops, restaurants and green spaces, making it an attractive place to live for a wide range of residents. Overall, the M14 postcode is an excellent option for those looking to invest in the UK property market, offering a solid yield and a range of benefits for residents and investors alike.

The UK's rental market continues to evolve, with some areas offering higher yields and growth potential. Investors should consider these emerging buy-to-let hotspots for their next investment, balancing the potential for high rental yields with the stability of demand, the prospect of capital appreciation and the region's overall economic outlook.

While these locations present attractive opportunities, thorough due diligence and a long-term investment strategy are essential. Local market dynamics, property management considerations and potential legislative changes should be carefully evaluated to ensure a sustainable and profitable buy-to-let investment.

FAQs:

Q. What other factors should I consider besides rental yield when choosing a buy-to-let property?

A: When choosing a buy-to-let property, besides rental yield, consider factors such as property price appreciation prospects, mortgage interest rates, service charges, maintenance and other costs. Transport links and proximity to amenities, schools and employment hubs are also important for sustaining long term tenant demand. Of course, individual property characteristics also matter.

Q. How can I stay updated on property market trends and rental demand in different locations? 

A: To stay updated on property market trends and rental demand, subscribe to industry reports and data from reliable sources such as property portals, real estate agencies and buy-to-let landlord associations. Research online platforms that provide in-depth local property data and rental analytics and also consult local property professionals who have on-the-ground insights into specific areas.

Q. Is investing in a high-yield location the only way to succeed in buy-to-let? 

A: While investing in high yield locations is advantageous, it is not the only key to buy-to-let success. Other crucial factors include price appreciation prospects, mortgage interest rates, service charges, maintenance and other costs.

References: 

1. The highest yielding areas for buy-to-let property in the UK | Zoopla | Released on December 12, 2023

2. Private rental market summary statistics in England: October 2022 to September 2023 | ONS | Released on December 20, 2023

3. Highest Yielding Areas for Buy-to-Let Property in the UK in 2024 | RWInvest  

4. The Manchester postcodes which are the most lucrative for buy-to-let landlords | Manchester Evening News | Released on August 18, 2018