Where are the best rental yields in London?

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rental trends in London

If you are looking for rental trends in the UK and specifically London, this article goes over what rental yields are and why the are important and where the best yields are in London at the moment according to data.

What is rental yield?

Rental yield is a crucial concept for anyone looking to invest in property in the UK. It’s essentially a measure of how much rental income you can expect to receive from an investment property, expressed as a percentage of its value.

To put it simply, rental yield tells you how much return you’re likely to get on your investment in rental property. Here’s a breakdown:

Rental Yield = (Annual Rental Income ÷ Property Value) × 100

Why is rental yield important?

Understanding rental yield is essential for landlords in the UK because it helps them assess the financial performance of their investment properties. In simple terms, rental yield tells landlords how much return they are getting from their property investment in relation to its value.

A man assessing his rental yield

Financial Performance Evaluation: Rental yield provides a clear picture of how effectively a property is generating income. It helps landlords determine if their investment is profitable or if adjustments need to be made to improve returns.

Comparative Analysis: Landlords can use rental yield to compare different investment properties and choose the ones that offer the best return on investment. This allows them to make informed decisions about where to allocate their resources.

Setting Competitive Rents: Understanding rental yield helps landlords set competitive rental rates. By knowing the average rental yield for properties in their area, landlords can ensure their rents are in line with market expectations while still maintaining profitability.

Looking to adjust rent?

Cozee property managers adjust rent with ease and are able to achieve above market rents 40% of the time!

Budgeting and Financial Planning: Rental yield provides landlords with valuable information for budgeting and financial planning. It allows them to forecast rental income accurately and plan for expenses such as maintenance, repairs, and mortgage payments.

Maximising Returns: Armed with knowledge of rental yield, landlords can identify opportunities to maximise returns on their investment properties. This may involve strategies such as increasing rent, reducing expenses, or investing in improvements to boost rental income.

Rental yield vs capital appreciation, which one to focus on?

When it comes to property investment in the UK, understanding both rental yield and capital appreciation is crucial. Each offers distinct benefits, and the preference between them often depends on your investment goals and financial strategy.

Most investors aim to benefit from both rental yield and capital appreciation. However, your primary focus will dictate where and what type of property you invest in.

For those prioritising short-term income, areas with higher rental yields are more appealing. For high rental yields, consider areas with lower property prices and steady rental demand, such as rural regions, certain cities in the North, and commuter towns.

Get a good idea of where to benefit from the best rental yields from our rental trends analysis of 2024

Conversely, investors with a long-term outlook may favour locations with strong potential for capital appreciation, even if rental yields are comparatively lower. For significant capital appreciation potential, look towards thriving urban centres and areas undergoing regeneration.

How to increase the rental yield on your property

From adjusting rent rates to reducing costs and even considering property modifications, we’ll cover actionable steps you can take to enhance your rental yield.

Adjust rent

One of the most straightforward ways to increase the rental yield on your property is to adjust the rent you charge. Periodically reviewing market rates and making necessary adjustments can help optimise your rental income. However, it’s essential to strike a balance between maximising revenue and maintaining a competitive rate that attracts and retains quality tenants.

Reduce costs

Minimising expenses associated with your rental property can significantly impact your overall rental yield. Consider the following strategies:

  • Negotiate better deals with service providers (e.g., utilities, maintenance, and repairs)
  • Implement energy-efficient measures to reduce utility costs
  • Perform regular maintenance to prevent costly repairs
  • Manage the property yourself or seek cost-effective property management solutions

Looking to increase rental yields?

Cozee can help you achieve your investment goals and will manage your property for just 8%!

Cozee can increase rent and reduce costs with excellent property management

Cozee, a leading property management company in London, can help you achieve both goals. Their experienced team can conduct market research to ensure you charge competitive rent rates.

Additionally, Cozee’s efficient property management services can streamline operations, reducing costs associated with maintenance, repairs, and tenant turnover.

Increase the number of bedrooms in your property

Increasing the number of bedrooms in your property can significantly boost its rental value, leading to higher rental yields.

Create extension

Adding an extension to your property can provide extra living space, allowing you to create additional bedrooms. However, this option requires careful planning, permissions, and significant investment.

Convert your property into a HMO property

Converting your property into a House in Multiple Occupation (HMO) can be a lucrative option, especially in areas with high demand for affordable housing, such as London.

A HMO is a property rented out by at least three tenants who are not from the same household, sharing facilities like the bathroom and kitchen. To operate an HMO legally, you’ll need to obtain the necessary HMO licence from your local council.

It’s important to note that while increasing the number of bedrooms can boost rental yields, it may also increase costs and responsibilities associated with managing a larger property or an HMO. Careful consideration of the potential risks, legal requirements, and additional expenses is crucial before pursuing these options.

Where to buy property for the best rental yields in London?

Currently, in the UK generally expect lower rental yields in London. This is especially true in the inner regions of London where such high property prices make the rental yields in these areas lower.

For an in-depth understanding of the London property market, check out our area guide where you can search for the area of London you are most information to find information on the services in the area as well as what it looks like from an investment.

What is a good rental yield for london?

A good rental yield in London can be around 3%. However, this is strongly effected by the Bank of Englad Base Rate which effects mortgages. To see how yields differ throughout the UK, see the below image.

Property data in London
Rental yield data throughout the UK in 2022

How cozee properties achieve above average yields even in London

Rental yields in London tend to be lower compared to other regions due to high property prices relative to rental income.

However, investing in London property remains attractive for those that work with Cozee as our expert management allows us to rent at least 40% of our properties above asking price and we have 20% of our tenants paying 12 months of rent up front, locking in higher rents for up to a year.

Looking for your next investment property?

there are a range of higher yield and appreciating properties on the Cozee database!

What tax do you pay on rental yield?

Understanding the tax implications of rental yield is crucial for buy-to-let property investors in the UK. From Stamp Duty Land Tax (SDLT) to Income Tax and Capital Gains Tax (CGT), each aspect of rental income and property ownership carries its tax obligations.

Stamp Duty and Land Tax (SDLT)

When purchasing a buy-to-let property in the UK, you’ll be liable for Stamp Duty Land Tax (SDLT). The rates for SDLT on additional properties, including buy-to-lets, range from 3% to 14%, depending on the property value.

Income tax

Rental income from your buy-to-let property is subject to Income Tax. You’ll need to declare this income on your Self-Assessment tax return and pay tax at your applicable rate, which could be 20%, 40%, or 45%, depending on your total taxable income.

Income tax

Capital gains tax

If you sell your buy-to-let property for a profit, you may need to pay Capital Gains Tax (CGT) on the gain. The CGT rate for residential properties is 18% for basic-rate taxpayers and 28% for higher-rate taxpayers.

Inheritance tax

If the value of your buy-to-let property, combined with your other assets, exceeds the Inheritance Tax threshold (currently £325,000), it may be subject to Inheritance Tax at 40% upon your death.

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