The highest yielding areas for buy-to-let property in the UK
Thinking of buying a rental property? One strategy for investment is to focus on higher yielding markets. Here are the top investor hotspots in the UK.
Ready to become a landlord and want the biggest return on your investment?
It’s worth getting to grips with rental yield if you’re purchasing a buy-to-let property.
Gross rental yield is the amount of money you make from a rental property each year, after you take away the cost of buying it. Net rental yield also factors in the cost of maintaining the rental property.
Both are usually expressed as a percentage and can help you decide if a property is a good investment.
But it’s not just yield that you need to think about with a buy-to-let property. A high-yielding market might not deliver much house price growth or tenant demand, which can be a key consideration as to whether you’ll get a return down the line.
The highest-yielding rental regions in the UK
The average rental yield in the UK is currently 5.03%, as the average buy-to-let property costs £263,000 and the average rental rate is £1,163.
Yields are running higher than this time last year, when the average gross yield was 4.8%. The average investment property cost the same but average rents were lower at £1,053.
The region with the highest rental yields is currently the North East, where the average gross yield is 7.2%.
Locations with cheaper house prices tend to offer the greatest yields, even though rent is also usually cheaper.
The average buy-to-let property costs only £109,000 in the North East, so an average rent of £649 offers a greater return in comparison to the cost of the property.
The North East’s yield appeal is largely thanks to the investment triangle of Sunderland, Middlesbrough and Hartlepool, where gross yields sit between 8.01% and 8.39%.
On the other hand, London has the lowest gross yield in the UK as it’s so expensive to buy a rental property there - despite average rents reaching £2,053 this month. However, this is higher than the average gross yield in London this time last year of 4.16%.
| Region | Average gross yield | Average monthly rent | Average price of a buy-to-let property |
|---|---|---|---|
| North East | 7.2% | £649 | £109,000 |
| Scotland | 7.1% | £748 | £127,000 |
| North West | 6.3% | £795 | £151,000 |
| Northern Ireland | 6.2% | £744 | £143,500 |
| Yorkshire and the Humber | 6.1% | £758 | £150,000 |
| Wales | 6.0% | £814 | £163,500 |
| West Midlands | 5.6% | £852 | £182,500 |
| East Midlands | 5.5% | £816 | £178,000 |
| South West | 5.0% | £1,016 | £242,500 |
| East of England | 5.0% | £1,111 | £266,500 |
| South East | 5.0% | £1,254 | £301,000 |
| London | 4.7% | £2,053 | £522,000 |
Rental Market Report for September 2023 (data to July 2023)
The 10 highest yielding rental cities in the UK
When it comes to cities, you’re generally better off focusing your search in the North of England if you’re after a high yield.
In Sunderland, the average rental property costs a little over £80,000, meaning a high 8.39% gross yield with a £582 rental rate.
Burnley, Liverpool and Blackburn are top investor cities in the North East while Dundee and Glasgow are buy-to-let hotspots in Scotland.
| City | Average gross yield yield | Average monthly rent | Average price of a buy-to-let property |
|---|---|---|---|
| Sunderland | 8.39% | £582 | £83,000 |
| Dundee | 7.85% | £768 | £117,500 |
| Burnley | 7.73% | £530 | £82,000 |
| Glasgow | 7.73% | £898 | £139,500 |
| Middlesbrough | 7.53% | £578 | £92,000 |
| Liverpool | 7.21% | £764 | £127,000 |
| Blackburn | 7.12% | £622 | £105,000 |
| Hull | 7.03% | £578 | £98,500 |
| Grimsby | 6.92% | £579 | £100,500 |
| Newcastle | 6.89% | £763 | £133,000 |
Rental Market Report, September 2023 (data to July 2023)
The highest yielding areas in each region of the UK
Looking for a buy-to-let property near where you live? It can be useful as you know the local area and can work closely with a local letting agent.
So you might want to consider which parts of your region offer the greatest rental yield. Here are the top 3 local authorities for yields in each UK region.
East Midlands
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Nottingham - 6.8% gross rental yield
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Boston - 6.34% gross rental yield
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Mansfield - 6.36% gross rental yield
East of England
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Great Yarmouth - 5.93% gross rental yield
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Peterborough - 5.93% gross rental yield
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Fenland - 5.92% gross rental yield
London
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Barking and Dagenham - 5.81% gross rental yield
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Newham - 5.56% gross rental yield
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Bexley - 5.38% gross rental yield
North East
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Sunderland - 8.39% gross rental yield
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Middlesbrough - 8.16% gross rental yield
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Hartlepool - 8.01% gross rental yield
North West
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Burnley - 8.11% gross rental yield
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Barrow-in-Furness - 7.43% gross rental yield
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Liverpool - 7.32% gross rental yield
Scotland
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West Dunbartonshire - 9.05% gross rental yield
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Renfrewshire - 8.96% gross rental yield
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East Ayrshire - 8.58% gross rental yield
South East
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Southampton - 6.16% gross rental yield
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Portsmouth - 6.05% gross rental yield
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Gosport - 5.93% gross rental yield
South West
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Gloucester - 6.01% gross rental yield
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Plymouth - 5.98% gross rental yield
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Swindon - 5.80% gross rental yield
Wales
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Blaenau Gwent - 7.25% gross rental yield
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Merthyr Tydfil - 6.94% gross rental yield
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Neath Port Talbot - 6.89% gross rental yield
West Midlands
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Stoke-on-Trent - 6.90% gross rental yield
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Coventry - 6.28% gross rental yield
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Newcastle-under-Lyme - 6.22% gross rental yield
Yorkshire and the Humber
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Hull - 7.03% gross rental yield
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North East Lincolnshire - 6.92% gross rental yield
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Bradford - 6.86% gross rental yield
What is rental yield?
Rental yield is the amount of money you make from a rental property each year against the cost of purchasing and running it. It’s always expressed as a percentage.
The gross yield only takes the cost of the property and the rental income into account.
The net rental yield, on the other hand, considers the extra costs of running the property, like maintenance and property management.
To figure out the best investment property for you, it’s worth looking at both of these yields as well as other factors.
Why is rental yield important?
Before you jump into buying a property to rent out, you've got to figure out if it’s a worthwhile venture.
If your rental income doesn't cover your costs, or you're just breaking even, unexpected expenses like fixing a broken boiler or a leaky roof can impact your finances.
So looking at the potential rental yield will help you do the maths and make sure it’s a good investment.
What else to think about with a buy-to-let property
There’s more to choosing a good buy-to-let property than just the rental yield.
You could buy a property with a strong yield, but if house prices aren’t rising or you can’t find tenants, it might not be the best investment.
House price trends
Get a feel for house price growth to see if the property is likely to rise in value. Look at historic sale prices for individual properties as well as value increases for the postcode and local area.
The cost of a buy-to-let mortgage
At the same time, you need to think about the costs of taking out a buy-to-let mortgage and all the other associated costs of running a rental property.
Tenant demand
It also helps to understand what tenant demand is like in the area and what sort of properties they’re looking for.
Speak to a letting agent to find out what’s happening in the local rental market. They’ll be able to share what tenants are looking for and which properties could be a strong buy-to-let investment.
How to work out your gross rental yield
Let’s say you want to buy a property worth £200,000. You plan to charge £1,000 per month in rent, which works out to £12,000 per year. Divide 12,000 by 200,000, then multiply by 100. That equals a gross yield of 6%.
(Annual rent / property value) x 100 = gross rental yield
How to work out your net rental yield
To work out your net rental yield, you need to take your extra costs off your annual rental income.
So add up the amount of money you think you’ll spend over the year. This will include paying the mortgage, agency fees, property maintenance, and any costs you might incur to keep up with regulations.
Then deduct these costs from your annual rental income, and do the same sum from there.
[(Annual rent - annual costs) / property value] x 100 = net rental yield
Let’s say you’re buying the same £200,000 property and charging the same £12,000 per year in rent.
But you’re spending £300 on maintenance and agency fees, which comes to £3,600 over the year.
That means your net rental yield for this property is 4.2%.
Key takeaways
- If you’re looking for a buy-to-let property, rental yield can help you decide if the cost of the property is worth the potential rental income
- Take other factors into account, like the potential for house price growth and tenant demand in the area
- The North East is top of the yield charts right now – investors here make an average gross yield of 7.2%
- The highest yielding cities in the UK are Sunderland, Dundee and Burnley, which offer a gross yield of between 7.7% and 8.4%
- We reveal the three highest yielding areas in every region of the UK
The cheapest places to rent a home in 2023
Looking for a rental home that doesn’t cost an arm and a leg? Here’s your complete guide to the cheapest places to rent in the UK.
Rents for new lets have risen by an average of £1,320 over the last year. It’s driven by rental demand sitting 51% above the five-year average, while the availability of rental homes is down 30% compared to normal for this time of year.
This supply and demand mismatch has pushed rents 10.5% higher over the last 12 months - although this is a little slower than the 12.1% growth we saw a year ago.
With rents still rising and the cost-of-living squeeze pushing all our purses to the limit, you might be looking for a cheaper home to rent.
The good news is there are some places where it’s much cheaper to rent a home than others.
Let’s take a look at the regions, cities and local areas with the cheapest rents in the UK.
The cheapest places to rent in the UK - regions
For the cheapest rents in the country, set your sights on the North East - tenants spend an average of £649 per month on rent here.
Northern Ireland, Scotland, Yorkshire and the Humber, and the North West all sit at the cheaper end of the scale too, with rents averaging less than £800 per month.
Rents in the South of England are much more expensive than anywhere else in the country.
London is by far the most expensive region to rent in the UK (£2,053 per month), followed by the South East (£1,254), East of England (£1,111) and South West (£1,016).
| Region | Average rent | Annual % change |
|---|---|---|
| North East | £649 | +9.5% |
| Northern Ireland | £744 | +4.2% |
| Scotland | £748 | +12.7% |
| Yorkshire and the Humber | £758 | +8.4% |
| North West | £795 | +11.0% |
| Wales | £814 | +9.9% |
| East Midlands | £816 | +9.5% |
| West Midlands | £852 | +10.0% |
| South West | £1,016 | +7.8% |
| East of England | £1,111 | +9.8% |
| South East | £1,254 | +9.5% |
| London | £2,053 | +12.4% |
Rental Market Report, September 2023 (data to July 2023)
The cheapest UK cities to rent a home in 2023
Just because you want cheaper rent, it doesn’t mean you have to move out to the sticks.
The cost of rent varies a huge amount across UK cities, with Belfast, Liverpool and Sheffield offering the cheapest average rents.
In Belfast, rents are currently averaging £759 per month - plus it has affordable living costs compared to mainland Britain.
Renters in Liverpool are paying £764 per month to live in the UK’s friendliest city, where rents have risen 8.7% in the last year.
The only other major city where rents are below £800 per month is Sheffield, the vibrant Yorkshire city that’s home to a lively student scene.
Cities in the Midlands tend to be fairly cheap to rent, with Birmingham and Nottingham both posting average rents of below £900 per month.
When it comes to Scotland, you’ll find a dynamic city lifestyle and cheap rents in Glasgow, where rents average £898 per month. Edinburgh is much pricier with an average rent of £1,199 per month.
In southern cities, you can expect to pay higher rent than anywhere else in the country. London and Bristol have the highest monthly rents of any UK city, with Southampton also posting an expensive average rate of £1,057.
| City | Average monthly rent | Annual % change |
|---|---|---|
| Belfast | £759 | +4.7% |
| Liverpool | £764 | +8.7% |
| Sheffield | £772 | +7.9% |
| Birmingham | £880 | +10.6% |
| Nottingham | £896 | +10.1% |
| Glasgow | £898 | +13.7% |
| Leeds | £908 | +8.6% |
| Manchester | £994 | +13.1% |
| Cardiff | £1,011 | +10.7% |
| Southampton | £1,057 | +10.6% |
| Edinburgh | £1,199 | +15.6% |
| Bristol | £1,315 | +9.1% |
| London | £2,053 | +12.4% |
Rental Market Report, September 2023 (data to July 2023)
The cheapest places to rent in every region
Getting cheaper rent doesn’t mean you have to move to a whole new part of the country, either.
Here’s a breakdown of the cheapest districts to rent in each UK region. It might be that you could get a cheaper rent just by moving a few miles.
| Region | Cheapest local authority to rent | Average monthly rent |
|---|---|---|
| East Midlands | East Lindsey | £626 |
| East of England | Waveny | £724 |
| London | Bexley | £1,455 |
| North East | Hartlepool | £497 |
| North West | Burnley | £521 |
| Scotland | East Ayrshire | £502 |
| South East | Isle of Wight | £862 |
| South West | North Devon | £753 |
| Wales | Powys | £594 |
| West Midlands | Stoke-on-Trent | £632 |
| Yorkshire and the Humber | Hull | £578 |
Rental Market Report, September 2023 (data to July 2023)
Key takeaways
- UK rents have risen by 10.5% in the last year, bringing the average monthly rent to £1,163
- The North East is the cheapest region to rent a home in the UK with an average rent of £649 per month
- The cheapest major cities to rent are Belfast, Liverpool, Sheffield and Birmingham, where average rents are below £900 per month
- London rents have hit £2,053, making it twice as expensive to rent a home in London than in the South West (£1,016)
Why is the cost of renting so expensive right now?
A supply and demand problem in the rental market is pushing rents to sky high levels. When will renting prices come down?
The number of homes currently available for rent is nearly a third below the five year average.
This, coupled with demand for rental properties running at 51% above the five year average, is creating a major housing supply problem for renters - and has been doing so for quite some time.
However, a silver lining is beginning to emerge: demand for new rental properties is starting to come down - and is now 20% lower than this time last year.
Equally, the number of homes now available for rent is 20% higher than this time last year.
When will the cost of renting come down?
The cost of renting has been rising at such a rate that it’s outpaced the rate at which wages are rising for the last 22 months - and rents have now hit their worst affordability level in over a decade.
Rental inflation has been running in double digits for 18 months, meaning the average rent has increased by £110 per month over the last year – an annual increase of £1,320.
Over the last 3 years, rents for new lets are up by an average of £2,772 per year, compounding the cost of living for renters.
However, again, there is a glimmer of hope on the horizon, as rental inflation is now starting to come down.
This time last year, rental inflation was running at just over 12%. Today, it is running at 10% and by the end of the year, we believe it will begin to track at 9%.
In 2024, we expect rental inflation to slow to 5-6%.
What’s happening with rents across the UK?
What’s going on with rents in Scotland?
In Scotland, where a rent cap was introduced to prevent landlords from raising rents by more than 3% for tenants in situ, rents are rising fast.
A system designed to be fairer for tenants is creating issues when the property becomes vacant.
Landlords, unsure of how long a new tenancy might last, are charging the full market price for new lets, meaning rents in Scotland are now rising faster than the rest of the UK.
Our Executive Director - Research, Richard Donnell, says: ‘The introduction of rent controls in September 2022 is a key factor here.
‘Landlords are seeking to maximise the rent for new tenancies to cover increased costs and allow for the fact that future rent increases will be capped over the life of the tenancy.’
This means Scotland has now overtaken London in terms of rental inflation.
In Edinburgh and Dundee, rents are up 15.6%, while in Glasgow they are up 13.7%. In London, rents are up 12.4%.
What’s going on with rents across the UK?
Across the UK as a whole, the rental market is stuck in a state of low supply and high demand.
While growing the supply of rented homes available is a clear solution, higher borrowing costs are causing the number of new investments from landlords to fall - alongside the level of new homes being built.
'New investment from corporate landlords via 'build to rent' is a bright spot, boosting supply in many city centres,' says Donnell.
'However, rental levels set by corporate landlords are above-average and not at a scale to impact the wider market.'
Renters in existing tenancies are also reluctant to move in a rising costs market, meaning fewer rental properties are becoming available.
This has led to the average letting agent now having just 10 rental properties on their books, compared to 16-17 before the pandemic.
Why is rental demand so high right now?
Rental demand is rising for three main reasons:
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Higher mortgage rates, preventing would-be first-time buyers from entering the housing market
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The strength of the labour market and job creation
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Record levels of immigration, particularly apparent a year ago as international borders re-opened with an influx of overseas students returning to study in the UK.
When mortgage rates hit 5.5%, repayments for a first-time buyer become more expensive than rental costs.
Unfortunately, the supply/demand imbalance doesn’t look set to ease in 2024. But the cost of renting cannot keep rising beyond what renters can afford - and it is this that will have the greatest impact on rental costs going forward.
‘Increasingly unaffordable rental costs should temper demand and lead to a reduction in the rate of growth, says Donnell.
‘However, the scale of the mis-match between supply and demand means that rental growth will reduce more slowly than might be expected.
‘If supply remains low then a weaker labour market, lower immigration and falling mortgage rates would all be needed to reduce demand to a level that would reduce rental growth back towards 5% per annum.’
How can I spend less on my rent each month?
To help cope with the increased cost of renting, renters are:
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Renting smaller properties
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Sharing homes
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Moving to more affordable areas
'More renters sharing does reduce the cost per renter, but this comes at the personal expense of less private space,’ says Donnell.
'It also supports headline rental values. Data from the Resolution Foundation found private renters have experienced a 16% reduction in floor space per person over the last 20 years.
'In our view, sharing is supporting high rents in inner London where the reduction in floorspace per renter has been greatest.’
In fact, increased levels of sharing could be a key factor in rents continuing to rise above earnings across regional cities in the next 12-24 months.
Elsewhere, the rates at which rents are rising varies across the UK - and renters are now choosing more affordable areas to live in.
In London particularly, renters are heading to the suburbs to seek better value for money, causing rental prices in inner London to slow.
Will the cost of renting come down in 2024?
Rents for new lettings are expected to keep rising ahead of earnings growth in 2024.
Wages are projected to rise by 3.6% next year, while we expect rents to increase by 5-6%, due to the lack of supply and sustained higher mortgage rates.
Regional cities across the UK are likely to see the highest rental increases, apart from inner London, where affordability constraints are likely to slow rental inflation.
This inner London slowdown is significant, as it will act as a drag on UK rental inflation as a whole and may potentially halve it to more sustainable levels.