London's rental market has long been popular with investors, however recent research shows that in the search for yield, the English capital isn't always the best option for investors. Indeed, no areas of London are in the top 20 regions that produce the strongest yields, a list which is dominated by northern postcodes.
Of course, high yields aren't guaranteed to last long-term and can change quickly where property values decline. It's also true that London rentals properties are typically in high demand while other areas of the country aren’t always so popular. But, for those investors for whom short-to-medium term yields are the target, or London property prices are out of reach, then its welcoming to discover that a good level of yield is available to support a profitable buy-to-let (BTL) investment portfolio in other parts of the UK.
Double-digit yields still possible
According to the research from Mojo Mortgages who analysed data from HM Land Registry, Zoopla, OnTheMarket and property data portal PropertyData, there are two regions in England where it’s possible to achieve a rental yield of 10%:
- Liverpool (L7) 10.1% yield
- Bradford (BD1) 10% yield
While that’s a pretty impressive yield, another impressive detail from the research is that the lowest average rental yield in the top 20 is 7% - in Glasgow and Aberdeen - which is still an excellent level for BTL investors.
Looking outside the top 20, Mojo’s research shows that the ‘best of the worst’ yields in London is in Hampstead Heath, north London, where the average achievable yield is 2.2%. However, in swanky west London where property prices are at around the £2.3 million mark, investors can expect to secure an annual rental yield of just 1.2% on property with a W1 post code.
London’s rental market gathers pace
While its interesting to compare the types of yields available in some northern England regions with London, it’s also important to note that even though London’s achievable annual yields may be lower than many other UK areas, a smaller percentage of a larger investment can equal the same or even more than a larger percentage of a smaller investment. That’s just one reason among many why London remains a BTL hotspot.
With that in mind, the latest research from Knight Frank shows that activity in London’s residential lettings market has rebounded as:
- The number of valuations of properties to let in the week ended June 6th was the highest on record and also 19% higher than the five-year-average.
- Demand from prospective tenants surged to 40% above the five-year-average and the second highest level in 2020 to-date.
- Tenant viewings were also 1% above the five-year-average, far outpacing activity in the property sales sector where viewings were still 26% below the average.
The upmarket estate agency added, however, that despite the sharp increase in lettings market activity, it still remains below the average levels seen in the second half of 2019.
“We expect demand to get even stronger when there is more certainty around how universities will be teaching their courses next year,” said Jon Reynolds, head of lettings at Knight Frank for the City, east and Riverside region in London. “Those announcements will make a huge difference and demand will be bolstered further as companies reactivate relocation plans that are currently on hold.”
