Rental Yields in the UK 2025

For both seasoned and new investors, property yield is one of the most critical metrics to evaluate. By measuring annual rental income against the property’s overall value, rental yield becomes crucial for estimating your investment returns. A strong understanding of how to calculate property yield and interpret property yields data empowers you to strategically build a potentially lucrative portfolio by targeting locations with the best rental yields in the UK.

Property investment offers two primary income streams: capital growth and rental income. While capital growth can deliver a significant ‘lump sum’ upon property sale, rental income provides a more consistent and reliable revenue stream. This consistency underscores the importance of understanding rental yields for investors focused on cash flow and long-term financial stability.

Fundamentally, the property yield calculation is based on the annual rental income generated by a property, compared to its purchase price. This simple yet powerful calculation helps investors quickly assess and compare potential investment opportunities.

Capital growth, conversely, is a longer-term metric reflecting profit from property appreciation over time, influenced by market cycles and natural price increases. While important, it is often less predictable in the short term than rental income.

The average rental yield in the UK currently stands at approximately 5.37% as of late 2024. This is calculated based on an average rent of £1,271 and an average house price of £284,000. Therefore, a rental yield exceeding 5.37% can generally be considered a high rental yield in the current market.

However, it’s worth noting that other sources estimate the average rental yield to be closer to 4.75%. Despite these variations, most data indicates a positive trend. With rental prices across the UK experiencing substantial increases due to heightened demand in the past year, it’s unsurprising that rental yields have also shown significant growth. 

Generally, the highest average UK rental yields are observed in areas characterized by robust demand for residential property coupled with relatively higher rental prices compared to property values.

For investors seeking optimal returns, the strategy involves identifying affordable locations that possess the amenities and economic drivers to support strong tenant demand and higher rents. These areas have the potential to deliver significantly higher average rental yields.

This principle explains why cities like Manchester, Derby, and Birmingham have emerged as recognised high yield property investment hotspots. These cities offer more accessible property prices than locations like London, while still maintaining attractive rental income levels, resulting in compelling property yields. 

Savvy investors leverage UK market forecasts to pinpoint affordable areas demonstrating promising capital growth potential, ongoing regeneration initiatives, and strong tenant demand. This strategic approach aims to secure investments that not only deliver superior rental yields but also appreciate over the long term.

These pockets of potential high yield property investment are distributed throughout the UK, often manifesting as smaller ‘regeneration hotspots’ rather than solely within major metropolitan areas. While prime locations such as central London may command premium rents, exceedingly high property prices can dilute yield performance.

Each new year brings fresh investment opportunities and shifts in the geographical distribution of the best rental yields in the UK. Understanding these evolving dynamics is crucial for investors targeting optimal returns in 2025.

Current market conditions, characterised by persistent high tenant demand and constrained rental property supply, coupled with successive increases in the Bank of England base rate, are significantly shaping the rental yield landscape. This combination has reduced rental stock while simultaneously increasing buy-to-let mortgage costs. Consequently, rents have risen, driving rental yields upwards. A recent report from Zoopla indicated a stark supply-demand imbalance, with 21 tenants competing for a single rental property, highlighting the pressures impacting rents and yields across the UK. 

As tenant demand intensifies across many major UK cities, new locations are emerging as frontrunners in offering the best rental yields in the UK.

For investors prioritising rental income and best ROI property UK, understanding regional yield variations is key. Based on a combination of data from Rightmove and HomeLet, the following regions currently exhibit the best rental yields in the UK:

Updated for October 2024

As previously noted, London continues to experience below-average rental yields, primarily due to the city’s exceptionally high property prices relative to achievable rents.

The ‘London exodus’, driven by tenants seeking affordability and lifestyle changes, has significantly contributed to the city’s yield underperformance. Many are relocating from the capital to smaller cities and suburban areas. The ongoing development of HS2 is expected to further accelerate this trend in the coming years, as improved high-speed commuter routes make living outside London while working there increasingly viable.

Consequently, regional city cores are taking the lead in delivering some of the best rental yields in the UK. Fueled by substantial regeneration projects and expanding employment bases, these cities are mirroring the investment success seen in areas like Birmingham property investments.

For investors aiming to identify high yield property investment opportunities, understanding rental growth forecasts is essential. Pinpointing locations with strong projected rental growth is crucial for strategic investment planning.

As previously discussed, London’s dominance for both investors and tenants is diminishing, as opportunities become more geographically dispersed across the UK. Establishing successful businesses is no longer confined to the capital, and ambitious professionals are no longer compelled to relocate to London to advance their careers. The rise of MediaCity in Manchester is establishing the North as a hub for digital media, and Birmingham’s new BBC hub in Digbeth is positioning the second city as a major centre for media and arts employment. London is evolving from the place to be, into one of many attractive locations.

Growth areas are particularly evident in the East Midlands. Leicester and Derby remain key locations to watch, driven by their relatively affordable property prices and ongoing regeneration initiatives that are attracting tenants from across the UK. Savills projects a significant 2.4% rental price growth for the broader East Midlands region per annum. 

Major cities like Birmingham and Manchester are projected to maintain their positions as highly lucrative locations for buy to let property investment. Certain areas within Manchester are already achieving impressive rental yields of up to 10.1%, and these figures are expected to improve further as the city undergoes extensive redevelopment. Large-scale schemes like NOMA and MediaCity will create thousands of jobs, generate substantial economic activity, and further increase demand for city living. JLL forecasts cumulative rental growth of 21.7% for Manchester between 2024 and 2028, solidifying its status as a leading best yield property UK investment destination. 

Birmingham mirrors this positive outlook. Its population is projected to reach 1,240,000 by 2030, as new opportunities attract individuals from across the globe. JLL predicts cumulative rental price growth of 22.2% for Birmingham between 2024 and 2028, highlighting the strength and resilience of the city’s rental market. With an estimated annual need for 4,000 new homes to meet demand, but only 1,000 currently being built, Birmingham faces a significant supply-demand imbalance. This imbalance has been a key driver of rising rents and house prices for years, contributing to stable and attractive property yields, and establishing Birmingham as a reliable location for property investment.

If you’re asking “what is a good rental yield?”, understanding its calculation is crucial. You now appreciate the importance of this metric for evaluating property investments, but how do you calculate property yield accurately?

Rental yields are broadly categorised into gross yields and net yields. Both are essential for comprehensive financial planning, but provide different perspectives on profitability.

Gross yield represents your returns before accounting for any property-related expenses. Net yield, considered a more precise metric, reflects your actual returns after deducting all relevant costs.

The formulas for calculating these yields are straightforward:

Gross Yield = (Annual Rental Income ÷ Property Value) x 100

Net Yield = (Annual Rental Income – Property Costs) ÷ Property Value x 100

You can also use a buy-to-let calculator yield tool online to quickly estimate these figures.

While gross yield provides a quick overview, net yield offers a more realistic picture of your investment returns. To accurately calculate net yield, you need to comprehensively understand the potential costs associated with property investment. These costs will vary based on whether you adopt an active or passive investment approach, but certain mandatory expenses will invariably impact your net yield.

Mortgage payments are a primary consideration, particularly for investors financing their buy-to-let property purchase with a mortgage. While often covered by rental income, mortgage costs represent a significant expense.

Other essential costs to factor in include service charges and ongoing maintenance expenses. These should be carefully estimated and accounted for in your financial projections before investing.

Your role as an active or passive investor will determine additional financial commitments. For instance, passive investors typically need to incorporate agent fees and property management costs from the outset. These fees can significantly affect long-term returns.

Active investors who self-manage their properties avoid these agent fees, potentially enhancing their net yields over time. However, overseas investors or those preferring a hands-off approach may find the passive investment model, with associated costs, more suitable.