Yield of Dreams: research reveals the highest buy to let returns

A new analysis of rental yields across all of the UK’s local authorities has revealed exactly where the best places are for potential investors - and where are the worst.

Unsurprisingly, given high capital values and stagnating appreciation in much of southern England, the big winners are up north.

Properties in Burnley in Lancashire offer the best returns for landlords with an annualised rental yield of 7.1 per cent. With average house price values in the town at £76,300 and annual rents of £5,388, landlords in the area are able to leverage from a better return on their property investment than other parts of the UK.

Glasgow comes in second with 6.9 per cent followed by Belfast on 6.4 per cent.

Meanwhile, rental markets in London, the south east and the east of England offer the poorest yields on properties largely due to the high cost of purchasing a property in these locations.

Rental yields in London, where the average house price exceeded £480,000 in 2017, stand at just 4.4 per cent despite the average annual rents costing more than £20,000. 

Likewise, yields in the south east, where properties cost an average of £322,000, are relatively low at 3.7 per cent, while in the east of England (where the average property price is £289,000) the annualised yield stands at 3.5 per cent, the lowest in the UK.

The range of yield on a regional basis can be explained by the broad variation in house prices across the UK and the smaller disparity in rent. 

While average house prices range from just £76,000 in Burnley to £1.25 million in Kensington and Chelsea, a multiple of 16 times, rents are more uniform. 

The highest average rent in the UK is in Kensington and Chelsea (£42,528 per year), nine times the cost of the lowest rent, which can be found in Blaenau Gwent, Wales (£4,803 per year).

Christina Dimitrov, business manager at Direct Line for Business - which commissioned the research - says: “While the UK’s homeowners can look back at strong gains in the period between 2014 and 2017 where average property price was 17 per cent, it’s a different story for the rental market where average rents across the country rose by 4.7 per cent during this period, which remains below the average salary increase of 5.3 per cent.”

She adds: “As the number of renters across the UK increases, so too has the number of private landlords, with more than five million privately-let properties currently in the UK. With this increased competition, it is more important than ever that landlords are able to offer their tenants well maintained and fully insured properties that will provide best return on their investment in the future.”

Across the UK, house price inflation has significantly outstripped increases in rental values. 

The average annual rent has risen by 4.7 per cent over the last three years, growing from £7,392 in 2015 to £7,739 in 2017, an increase of £116 per year or £10 per month. 

Over the same period, average house prices have risen by nearly £32,000, increasing from £191,855 in 2014 to £223,807 in 2017 – an increase of 17 per cent.