Best Areas to Buy in London According to Rental Yields
London Property Investment has long been considered a top spot for investors. Historically, the capital has a reputation for hefty rents, good potential for capital appreciation, and prestigious areas that are highly sought after.
However, some of London’s shine has rubbed off in the eyes of investors over recent years. Acquiring a property in the capital has become prohibitively expensive for many investors, and growth is currently subdued.
That being said, it’s still possible to make significant returns, provided ample research is conducted to find the best areas for buy-to-let in London. Calculating the rental yield is one way to judge an area’s profitability.
Read on for more information on the latest housing market figures and London’s Top 5 Buy-to-Let Rental Yield Areas.
Why Calculate the Rental Yield?
A rental yield is calculated by dividing the annual rental income by the property’s value and multiplying it by 100 to get a final percentage.
It’s important to remember that the gross rental yield doesn’t consider any initial or ongoing costs when undertaking a property investment, including taxes when buying the property and the upkeep of the property itself. Learn more about the taxes involved with buy-to-let in this guide.
What Is the Average Rental Yield in London?
London has a reputation for having the worst rental yields in the UK.
According to Zoopla, London sees the lowest gross yield in the UK, with an average of 4.7%.
In fact, some areas of London are notorious for having meagre yields, such as Kensington and Chelsea, and Westminster.
London’s sky-high house prices (£534,000 on average, according to the UK House Price Index) tend to keep rental yields low.
Due to this, when looking within London, any rental yield over 5% is considered very good.
Despite seemingly inhospitable conditions for buy-to-let investors, there are some promising areas.
Based on our research, here are the postcodes with the highest rental yields in London:
|Average Property Price
|Average Monthly Rent
|Average Gross Rental Yield
(Estimated rental yield calculated using average property prices from Rightmove and average rents from housesforsaletorent.co.uk)
E15 - Newham, Waltham Forest, Hackney, Tower Hamlets
- Average House Price – £448,004
- Average Monthly Rent – £1,891
- Gross Average Rental Yield – 5.07%
E15’s local authority areas are Newham, Waltham Forest, Hackney, and Tower Hamlets. In particular, Newham is known as a buy-to-let hotspot with comparatively affordable property.
SE8 - Lewisham, Greenwich, Southwark
- Average House Price – £464,472
- Average Monthly Rent – – £1,970
- Gross Average Rental Yield – 5.09%
This area covers the Deptford district of London, which is on the south bank of the River Thames and is considered a fast-developing area. The Lewisham local council have been putting efforts into regenerating Deptford, which is good news for property investors who can benefit from increasing capital value and higher rents as the area becomes more popular.
E16 - Newham
- Average House Price – £443,435
- Average Monthly Rent – £1,898
- Gross Average Rental Yield – 5.14%
As mentioned, Newham is considered one of the best real estate investments in London. According to the BBC, Newham had the country’s most extensive annual rent increase this year, showing substantial rental demand for this district.
SE28 - Greenwich, Bexley
- Average House Price – £330,470
- Average Monthly Rent – £1,626
- Gross Average Rental Yield – 5.90%
This postcode is covered by the local authority areas of Greenwich and Bexley. Bexley is another popular hotspot for buy-to-let property investment in London. SE28 is the Thamesmead district, a residential area created in the 1960s. The Thamesmead waterfront is undergoing redevelopment in a considerable regeneration scheme expected to be completed after 2040.
DA8 - Bexley
- Average House Price – £359,859
- Average Monthly Rent – £1,807
- Gross Average Rental Yield – 6.03%
Bexley is known as a cheaper area of London, but the value of property has rapidly increased as high-earners are priced out of the central London zones and pushed into the outer areas. But at this point, the average property price is still much lower than the London average. According to our rental yield calculations, the DA8 postcode comes in first for London, making it our top pick for buy-to-let in London.
For more on London property investment, take a look at our recent London Property Market Forecast.