Investment Spotlight: Gross Yield Trends in the UK
If you’re thinking about investing in property in the UK, understanding gross yield trends for different UK regions, cities and postcodes is essential. It can help you to pinpoint potential investment areas and safeguard your investment for years to come!
What is gross yield and why is it important?
When people refer to the yield of a rental property, they generally mean the gross rental yield. It’s calculated by dividing the gross annual rental income by the property purchase price and multiplying by 100 to get a percentage figure.
For example, if you purchased a property for £180,000 that rents for £750 per calendar month it will generate a gross rental income of £9,000 in a year. Divide the £9,000 by the £180,000 to get 0.05 and multiply this by 100 to calculate the gross yield: 5%.
Gross yield is great for helping to narrow down specific areas to invest in because you can easily see how one region, city or postcode compares to another. However, you shouldn’t purchase an investment property based on gross yield alone; there are other things to consider!
Property investment metrics beyond gross yield
While gross yield is a useful metric for comparing regions, cities and postcodes more generally, it’s quite simplistic and shouldn’t be the sole factor in your investment decision. This is because rental properties also have operational costs which must be considered for a more accurate assessment of ROI.
For example, if you compare two leasehold apartments that both generate £750 pcm and were both purchased for £180,000, their gross yield is the same. However, since these properties are leasehold, they both have yearly ground rent charges. If the ground rent for one apartment is £25 pcm and the other is £125 pcm, the net yield is 4.17% for one and 4.83% for the other – and this only takes into account one operational cost!
That’s why you should always consider gross yield alongside all of the property’s operational and up front costs.
- Stamp duty
- Service charges
- Ground rent
- Insurance premiums
- Agent fees
- Void periods
- Refurbishment costs
- Maintenance costs
You can use gross yield to pinpoint investment areas that suit your budget and goals, but should apply increasingly more detailed due diligence as you narrow down your search. Gross yield should become net yield, and then ROI, and finally ROCI (return on cash investment). ROCI is a far better metric for analysing a deal because it takes the annual net profit (pre tax) and divides it by the actual cash invested in a deal (multiplied by 100) to give you a percentage.
The importance of capital growth
Usually, areas with a lower gross yield, like London, are low simply because of how expensive the property is to buy. In places like London though, the value that can be added with development of a property is huge and whilst this would not improve the rental yield, the increase in value is also profit for you! That’s why metrics like ROI are better for large scale projects.
For example, investing in an area where property prices are higher could be beneficial if there is an opportunity to develop or extend the property. An added bedroom in a London property, for example, is going to add significantly more value than the same work on a property in the North East, but the cost of doing the work wouldn’t be vastly different. Ultimately, it all depends on your goals and budget.
Now, let’s take a look at gross yield across different regions, cities and postcodes in the UK and get your investment journey started!
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UK regions by gross yield
(Source: Track Capital)
| UK region | Average property price | 5-year price change | Average monthly rent | Average gross rental yield |
|---|---|---|---|---|
| Scotland | £215,454 | 18% | £1,022 | 6.18% |
| North East | £235,251 | 14% | £903 | 5.18% |
| Wales | £272,896 | 29% | £990 | 4.88% |
| North West | £249,514 | 20% | £945 | 4.83% |
| West Midlands | £301,246 | 21% | £1,043 | 4.57% |
| East Midlands | £252,569 | 19% | £884 | 4.46% |
| Greater London | £599,652 | 11% | £2,097 | 4.40% |
| South West | £377,046 | 24% | £1,280 | 4.34% |
| South East | £451,457 | 17% | £1,502 | 4.26% |
| East of England | £400,807 | 17% | £1,298 | 4.15% |
This table shows the comparative performance of different regions in the UK in terms of gross rental yield and three other factors: the average price of properties for each region, the percentage change in property prices over 5 years for each region, and the average monthly rent in each region.
The average gross rental yield is calculated by dividing the annual rental income by the average property price and multiplying by 100.
Remember: Higher rental yields can indicate potentially better investment opportunities for landlords, whereas regions with lower yields usually require a larger upfront investment but could offer more potential for capital growth.
Key takeaways:
- Scotland has the highest average gross rental yield at 6.18%, followed closely by the North East at 5.18%. This suggests that landlords in these regions may receive a higher ROI when considering rental income alone.
- Greater London has the highest average property price (£599,652), significantly higher than other regions. This indicates that property investment in London requires a larger initial investment compared to other regions.
- Wales has experienced the highest 5-year price change at 29%, indicating significant property price appreciation over the past five years. On the other hand, Greater London has the lowest 5-year price change at 11%, suggesting a relatively slower rate of appreciation.
- Greater London also has the highest average monthly rent (£2,097), reflecting the higher cost of living and rental demand in the capital city. Other regions such as the North East and the North West have much lower average monthly rents in comparison.
Overall, these results suggest that while regions like Scotland and the North East offer relatively higher rental yields, areas like Wales and the South East have experienced substantial price appreciation over the past five years. Investors should consider these factors alongside their investment goals, risk tolerance, and market conditions when making investment decisions.
Top UK cities by gross yield
(Source: Track Capital)
| UK city | Average property price | 5-year price change | Average monthly rent | Average gross rental yield |
|---|---|---|---|---|
| Newcastle | £201,958 | 13.33% | £1,197 | 7.33% |
| Middlesbrough | £151,370 | 8.17% | £618 | 7.33% |
| Nottingham | £228,497 | 24.86% | £1,311 | 7.30% |
| Glasgow | £171,030 | 23.07% | £1,017 | 7.25% |
| Dundee | £181,496 | 14.60% | £917 | 6.80% |
| Manchester | £253,982 | 27.12% | £1,386 | 6.73% |
| Aberdeen | £218,883 | -15.80% | £819 | 6.48% |
| Bristol | £361,096 | 23.87% | £1,997 | 6.44% |
| Gateshead | £190,435 | 4.73% | £783 | 6.43% |
| Gloucester | £356,080 | 27.42% | £1,404 | 6.30% |
These results show the top UK cities ranked by gross rental yield.
Key takeaways:
- Newcastle and Middlesbrough share the top spot with the highest average gross rental yield of 7.33% each. This indicates that landlords in these cities may potentially receive a higher ROI when considering rental income alone.
- Middlesbrough has the lowest average property price (£151,370) among the listed cities, making it relatively affordable for property investment compared to other cities.
- Nottingham and Manchester stand out with significant 5-year price changes of 24.86% and 27.12% respectively. This suggests substantial property price appreciation in these cities over the past five years.
- Bristol has the highest average monthly rent (£1,997), followed closely by Nottingham and Manchester. Higher rents can contribute to higher rental yields for landlords.
Overall, these results highlight cities like Newcastle, Middlesbrough, Nottingham and Manchester as potential hotspots for property investors seeking higher rental yields or significant price appreciation. However, factors such as local market dynamics, economic conditions, and future growth prospects should also be considered when making investment decisions.
Top UK postcodes by gross yield
(Source: Track Capital)
| Postcode | Area | Average property price | 5-year price change | Average monthly rent | Average gross rental yield |
|---|---|---|---|---|---|
| M14 | Manchester | £230,285 | 41% | £2,427 | 12.00% |
| BD1 | Bradford | £63,522 | 35% | £679 | 12.00% |
| NG7 | Nottingham | £194,361 | 33% | £2,037 | 12.00% |
| NG1 | Nottingham | £161,948 | 7% | £1,620 | 12.00% |
| SR1 | Sunderland | £68,221 | 65% | £611 | 10.80% |
| NE4 | Newcastle | £143,414 | 18% | £1,221 | 10.20% |
| G52 | Glasgow | £108,633 | 29% | £886 | 9.80% |
| GL1 | Gloucester | £209,203 | 18% | £1,670 | 9.60% |
| LS4 | Leeds | £219,955 | 30% | £1,749 | 9.50% |
| NE6 | Newcastle | £164,223 | 19% | £1,299 | 9.50% |
These results show the top UK postcodes ranked by gross rental yield.
Key takeaways:
- M14 in Manchester, BD1 in Bradford, and NG7 and NG1 in Nottingham share the top spot for the highest average gross rental yield of 12% each.
- There’s significant diversity in average property prices across the listed postcodes. For instance, M14 in Manchester has an average property price of £230,285, while BD1 in Bradford has a much lower average property price of £63,522. This indicates that investors have options across different price points while still achieving the same yield.
- Several postcodes have experienced significant 5-year price changes, such as SR1 in Sunderland with a 65% increase and M14 in Manchester with a 41% increase. This suggests strong capital appreciation potential in these areas, adding to the attractiveness of investment.
- The average monthly rents vary across postcodes, with M14 in Manchester having the highest (£2,427) and SR1 in Sunderland having the lowest (£611).
Overall, these results indicate specific postcodes in Manchester, Bradford, Nottingham, and other cities as lucrative property investment opportunities, offering a balance of high gross rental yields, potential for price appreciation, and varying property price points to suit different investment strategies and budgets.
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