Average rental yields for landlords in England and Wales have surged to 7.4%, with almost every region experiencing growth in the final quarter of 2024.
Rental yields are one of the most important ways of measuring the potential overall value of a property investment. It is calculated by looking at the ratio between the purchase price of a property and its annual rental income – but this method doesn’t take into account any expenditure involved in the investment, such as insurance or mortgage costs.
It is often factored in by landlords alongside the potential capital appreciation of a property, which can be based on wider investment and regeneration, house price trends in the area over recent years, and any improvements made that boost the property’s value.
Certain property types tend to generate higher rental yields than others. For example, houses in multiple occupation (HMOs) and student lets can often achieve higher than average rental returns, whereas semi-detached houses have previously been listed as producing the lowest yields.
In the current market, it is particularly crucial for property investors to hone in on high-yielding areas and property types, as this can help to offset higher mortgage costs and other outgoings when affordability is stretched.
Head here for the highest rental yields
According to the latest Rental Barometer from Fleet Mortgages, the average rental yield in England and Wales increased to 7.4% in the final quarter of 2024, up from 6.8% in Q4 2024. Compared with the previous quarter, yields were up by 0.3%.
The strongest yields in Fleet’s research can be found in the North East of England, with an average annual rental return of 9.3% for buy-to-let landlords there. The region saw a 1.3% annual rise, making it the fastest-rising area too.
Yorkshire and the Humber is the next best place to achieve top rental yields for landlords, with an 8.6% average in the final quarter of 2024, which was a 1% rise on the previous year.
In third position, and also in the north of England, the North West recorded average rental yields of 8.3% in the latest results.
This north-south divide has been an ongoing trend in the UK housing market in recent years. While London was once the go-to destination for its property investment prospects, it has not only seen the lowest house price rises for a number of years, but is also a weaker location when it comes to rental yields.
In Fleet’s barometer, London ranks at the bottom of the yield list, with an average of 5.8% – putting it below the national average. On the same theme, East Anglia (6.3%) and the South East (6.4%) make up the rest of the bottom three.
Of course, there are numerous factors to consider when deciding on an investment location as a landlord. These include proximity to a landlord’s own location (although many investors use management companies, enabling them to invest in property anywhere in the country); price points and budget; rental demand; property type and tenant preferences; and capital appreciation potential.
Does higher rent lead to higher yields?
Rental prices in the UK are at an all-time high. The latest data from Zoopla reported that the average UK rent is now £1,270 per month, which is £270 per month more expensive than pre-pandemic.
At the same time, house prices also surged in the wake of Covid, as housing activity significantly ramped up and the market saw unprecedented demand. While this house price acceleration has now fallen back to more normal levels, it impacts the house price to rental income ratio.
However, as Fleet’s rental barometer shows, high rents tend to be found in locations with the highest property prices, reducing rental yields overall. For example, the average monthly rent in Greater London, according to the lender’s data, was £2,056; yet this is the lowest-yielding area overall.
Meanwhile, the average buy-to-let property in the North East only brings in monthly rent of £706, but because of house prices being significantly more affordable in the region, rental yields are the highest.
Optimism around buy-to-let
Steve Cox, Chief Commercial Officer at Fleet Mortgages, commented: “There is certainly a greater degree of positivity around the buy-to-let market now than at this time last year, even with the Budget decision to increase stamp duty surcharges for landlord purchasers.
“Our Rental Barometer reflects that optimism over the last quarter of 2024, with average rental yields – on the whole – continuing to improve, albeit at a slightly slower rate, but also in terms of Fleet’s figures for average monthly rents, average rates, average loan sizes, rental cover, and application numbers for property purchases.
“Certainly, many landlords were waiting for the Budget before making decisions, but even with the stamp duty increase, at least they now have certainty about the future, can plan accordingly, and as mentioned, the financial position is positive which will allow more landlords to act and to add to portfolios where appropriate.
“In our view, all of this points to a more positive market for buy-to-let in 2025, especially if we see rates fall steadily, as anticipated, while at the same time, tenant demand remains strong, while the supply of properties in the private rental sector is still not enough to meet this demand.
“Our views are clearly shared by others in the marketplace, most notably IMLA. Its recent review of 2024 and preview of 2025 paints an encouraging picture for buy-to-let with an estimate of £33.2 billion of gross lending in 2024, which would be 10% up on 2023.
“Its outlook for the future is also positive, predicting £38bn of buy-to-let gross lending this year and up again to £42bn in 2026, arguing this improvement will come from greater landlord activity fuelled by lower rates, improved affordability, and a continuation in strong rental yields.
“Overall as we begin 2025, our expectation is for a strong year of lending activity and business, with a higher degree of demand, both from established landlords and – encouragingly – from first-time borrowers.
“We are here to work with advisers and their landlord clients to ensure they get the most competitive products and criteria to allow them to take advantage of increasingly positive market conditions.”
