Some of the areas with the highest rental yields in London are found in Purfleet (7.3%), Barking (6.8%) and Dagenham (6.7%). However, there are many factors that could impact rental yield.
Here we discuss different rental yields across London and where it might be best to buy if you’re looking for an investment property.
What is Rental Yield?
Rental yield is a metric used in real estate to show the potential return on investment for a rental property. It tells us the annual rental income of a property as a percentage of its overall market value.
A higher rental yield means that the investment is more profitable.
Why is Rental Yield Important For Property Investors?
Before investing, knowing the potential rental yield gives investors an idea of how profitable their investment could be as a rental property. The higher the yield, the better the return on investment.
To work it out is relatively simple.
Rental yield is calculated with the following formula: (Annual Rental Income / Property Value) * 100.
For example, if a property is £250,000 and has a monthly rental income of £1,200 per month in rent, the annual rental income is £14,400 (£1,200*12). So, the rental yield would be (14,400/250,000)*100 = 5.76%.
What Factors Affect Rental Yield in London?
There are various factors impacting potential rental yield in London including:
Location
While London is known as having high rent prices in general, there is a great deal of variation between different areas. Areas with higher property prices, such as more central locations, may have a lower rental yield. Although you can charge more for rent, the higher initial investment means a lower rental yield. Cheaper properties located in more affordable areas, tend to have strong demand with renters – especially for the areas with good transport links. Investing in a property in a more affordable area could yield higher returns – a lower initial investment and a lower monthly rental income.
Property Type
some property types have higher yields than others. For example, flats in London with more than one bedroom may have a higher yield than a house as they can be rented out to multiple tenants at the same time. This could mean a higher monthly income.
Property Condition
Properties in better condition, such as newer or with better facilities, can attract higher rents and boost rental yields. For properties in worse shape – such as poor condition or older buildings – the monthly rent may not be as high and thus the rental yield would be lower.
Economic Factors
What’s happening in the market (such as inflation, employment trends, and interest rates) can all play a role in influencing rental yields. For example, higher interest rates means a higher mortgage cost and potentially a lower return on investment. Strong employment trends, on the other hand, could mean more stable rental income and higher demands, supporting a potentially higher rental yield.
Which Areas Have the Highest Rental Yield in London?
Rental yield varies widely across London. East London offers some of the highest rental yields (7.3% in Purfleet and 6.8% in Barking) whereas West London properties generally have lower yields despite some of London’s highest weekly rents. The highest rental yield in West London is 5.1% in Hayes, yet West London is also home to South Kensington where there’s a weekly rental price of £1,237.
Both South London and North London have a mix of high-yield areas and strong weekly rents. High yield areas for South London are Greenhithe (6.3%) and Thamesmead (6.1%). For North London, the highest rental yield areas are Enfield (5.8%), Tottenham and Edmonton (both 5.6%).
Rental Yields in Popular London Rental Locations
Rental Yields for Up and Coming London Rental Locations
| Area | Rental Yield |
| Abbey Wood | 5.8% |
| Forest Gate | 3.56% |
| Crystal Palace | 3.46% |
| Plaistow | 3.72% |
| Tottenham | 3.90% |
| Woolwich | 4.28% |
| Colindale | 3.9% |
| Ealing Broadway | 2.5% |
| Leytonstone | 3.14% |
| Catford | 3.35% |
Rental Yields for Most Searched for Areas in London
| Area | Rental Yield |
| Clapham | 3.08% |
| Hackney | 3.4% |
| Brixton | 2.9% |
| Stratford | 4.21% |
| Wembley | 5.44% |
| Islington | 2.87% |
| Battersea | 2.66% |
| Ealing | 2.50% |
| Greenwich | 3.35% |
| Canary Wharf | 3.94% |
Where Are The Areas With The Highest Rental Yields in London?
In London, the top 10 areas with the highest rental yields are found in East and South London.
Top 10 Highest Rental Yields in London*
| Area | Rental Yield |
| Purfleet | 7.3% |
| Barking | 6.8% |
| Dagenham (RM10) | 6.7% |
| Bow | 6.3% |
| Greenhithe | 6.3% |
| Dagenham (RM8) | 6.2% |
| Canning Town | 6.1% |
| Thamesmead | 6.1% |
| Grays | 6.1% |
| East Ham | 6.0% |
What To Consider When Buying to Rent in London?
Rental yield is one of the most important factors to consider when buying to rent in London as it gives you an idea of whether your property will have a good return on investment. Within that, you will need to think about property prices – low property price in certain areas could lead to high rental yields – and rent prices. If you are buying in an area that commands high rents, it could be worth it to make a higher initial investment and have a lower rental yield.
You might also consider the area itself. If you choose to invest in an area which is undergoing important regeneration projects, it is likely that the property value and demand will increase in time. This could mean better prospects for your rental yield.
Also, consider tenant demand. Investing in a more affordable area may mean that you are not able to charge as much monthly rent as in some other areas. However, more affordable areas are more in demand for renters. Strong demand could mean a better return on your investment as you’ll have more consistent occupancy for your property.
Finally, wherever you choose to invest, think about the accessibility to London. Areas with better transport links will always lead to a higher rental yield.
Maximising Rental Yield in London
To get the highest rental yield properly, you need to put your rent at a price that is realistic for the area. The ideal rental price will attract tenant demand and will mean that you are making a profit as a landlord. Using a free rent valuation tool can help you to set the right price for your London property, or, working with a professional property management company in London can help.
Thinking about investing in or letting a property in London? I’m always happy to chat through your options. Just get in touch with us at info@jpropertymanagement.co.uk where we can help you maximise your returns, whatever your strategy.
*Data from Property Investments UK, Ellis and Co., RW-Invest
