There are multiple factors to take into account to assess the profitability of an investment, but honing in on a location with top rental yields can ensure a strong regular income.
Property investment in the UK remains one of the most popular and lucrative long-term asset classes for investors, with high housing demand and a strong rental market ensuring continued growth for strategic investments.
Rental yields are one of the primary sources of income for landlords, and new research released by Paragon Bank has revealed that UK yields have hit their highest level in 13 years, at an average of 6.93%. The last time they exceeded this level was in February 2011, when the average was 7.12%.
The figure, which is for the final quarter of last year, is up by 30bps compared with Q4 2023. This presents a strong indication of health in the UK rental market, with many investors achieving yields above this level in certain pockets of the country, and for different property types.
For property investors considering their next move, this data can help to influence both the location and the type of investment they choose, if prioritising high yields is part of their investment strategy; while pinpointing places that are experiencing the strongest house price rises can ensure a profit through capital appreciation in the years to come.
Rental yields by location
According to Paragon Bank’s research, the location where landlords can achieve the highest rental yields in the UK is Wales. Here, the average rental return is a huge 8.09%.
The second top spot for yields is just over the border in the North West of England, where buy-to-let properties can achieve average yields of 7.84%. In separate research, the North West has been marked as one of the top-performing locations in the UK for house price growth, earmarking the region as one of the most lucrative places to invest at the moment.
The South West generates the third-highest yields in the country, with average returns of 7.75%.
Meanwhile, while London is likely to always be a property investment hotspot due to its national and international status, along with its strong rental market, it is the location with the lowest rental yields in the country, at just 5.48%. Across the city, areas pipped for regeneration and transport improvements are likely to see better returns, while prime areas often lag behind when it comes to yields.
Top-performing investment types
Location is a major aspect when it comes to successful property investment, with many investors seeking to buy in up-and-coming places to maximise their potential growth on both the sales side and in terms of rental demand.
However, property type can also be a key factor, and this can also be area-specific, due to the fact that particular tenant types are drawn to some locations more than others. For example, city centres tend to attract higher numbers of young professionals, who may be looking for one- or two-bedroom flats close to amenities and transport options.
Paragon Bank’s research also found that houses in multiple occupation (HMOs) were the highest-yielding property type, generating average returns of 8.4%. This was followed by freehold blocks, which can bring in average rental yields of 7.28%.
Average rental yields for flats across the UK are 6.09%, while for terraced houses they are 6.05%. Again, the actual return will be based on additional factors like location and the quality of the property.
Invest strategically for strong returns
Paragon Bank Mortgages Commercial Director Russell Anderson said: “A 13-year high in average rental yields is evidence of the market being in much better health than some would have you believe. Where landlords invest strategically, purchasing in areas where homes are relatively affordable and targeting more complex property types, buy-to-let delivers strong returns.
“A key component of this is demand, something that has outstripped the supply of privately rented homes for some time. This has caused market rents to rise which, in turn, has helped to sustain strong yields despite house price inflation.”
He added: “While yields are a good indicator of the regular income that landlords will typically see, to get a complete picture of the returns an investment property can generate, we must also take into account aspects such as how they are financed, capital gains, landlord deposit and any improvements that have been made.”
Get in touch with BuyAssociation today to learn more about our highest-yielding property investment opportunities across the UK, or browse a selection of our current projects here.
