Menu

Call Us0333 0146 683
Knowledge centre

Where can landlords get the best rental yields (and what does that mean)?

2-minute read

Where can landlords get the best rental yields (and what does that mean)?
Mollie Millman

Mollie Millman

31 July 2019

Working out the return on a potential property purchase is essential if you want to make sure you’re going to make money from your investment.

One of the ways to do this is to look at the rental yield and compare it to the yields landlords can expect on other properties around the country.

The average yield currently stands at 4.5 per cent, according to new research by Kent Reliance.

What is rental yield?

To put it simply, rental yield means the return you make on your investment. It’s the difference between what you paid for the property and what you make back in rent.

For example, if the rent on two separate properties you own is the same, your rental yield will be higher on the one that cost the least.

How to calculate a rental yield

To calculate a rental yield, begin by subtracting the annual expenses from the annual rent.

Then divide the result by the total cost of the property.

You get the basic rental yield percentage when you multiply this number by 100.

( annual rental income / value of property ) X 100 = rental yield

Yields and higher loans

There are big regional differences in yields – something that landlords can use to their advantage.

This is because yields are not only important to work out the income that a property generates for a landlord – a decent yield can also make it easier for landlords to access larger mortgages, following strict affordability criteria introduced by the authorities.

The Prudential Regulation Authority introduced strict stress-testing to ensure that landlords could afford their loans.

By demonstrating that a higher income is achievable, landlords may be able to access higher loans.

Regional differences

There are regional differences when it comes to yields, as prices and rents vary around the country.

Kent Reliance said rents have outpaced house prices and risen at their fastest annual rate since 2017, up 1.3 per cent to £896 a month on average.

Given the new affordability criteria on loans, the regional differences in yields could explain why many investors are diversifying their investments, either in terms of location or property type, Kent Reliance suggested in its report.

Where are the highest rental yields?

Its research found that the highest yields are found in the North West, at an impressive 6.2 per cent. The average national yield is 4.7 per cent – here's a breakdown of the results by region:

AreaRental yield
North West6.2%
Yorkshire and the Humber5.9%
East Midlands5.4%
Scotland5.3%
West Midlands5.1%
North East5.1%
South West4.4%
Wales4.2%
East of England4.1%
London4.1%
South East4.0%

Are there any other subjects related to being a landlord that you’d like us to cover in an article? Let us know in the comments below.

Get set with tailored landlord cover

Over 200,000 UK landlord policies, a 9/10 customer rating and claims handled by an award-winning team. Looking to switch or start a new policy? Run a quick landlord insurance quote today.

Start your quote

Find this article useful? Spread the word.

Share
Tweet
Post

Keep up to date with Simply Business. Subscribe to our monthly newsletter and follow us on social media.

Subscribe to our newsletter

© Copyright 2020 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.