A good rental yield in London is normally between 4% and 6%, with anything above 6% considered very good – especially as it’s one of the country’s most expensive markets.
If you’re thinking about investing in London property (or already have) it’s likely you’ve asked yourself: What’s a good rental yield these days?
It’s one of the most important metrics in buy to let, but it’s also one of the most misunderstood. I’ve worked in property management across the capital for many years, and I can tell you this: rental yield isn’t just about chasing the highest number – it’s about understanding what that number really means for your long-term return.
So, let’s break it down properly.
Calculating Rental Yields
Rental yield is the amount of profit you get from a property, in relation to how much you paid for it. In short, it’s a quick way to work out how profitable a property is as an investment.
The formula for working out gross rental yield is:
(Annual Rental Income / Property Value) x 100 = Gross Rental Yield
For example. If a property costs £500,000 and you get £20,000 in annual rent from it, the gross rental yield is (£20,000 / £500,000) x 100 = 4%.
However, the gross rental yield does not take into account any costs – so it’s worth considering this within the equation too.
If you wanted to work out the net rental yield, your formula would look more like:
(Annual Rental Income – Annual Expenses) / Property Value x 100 = Net Rental Yield
Back to the previous example. If a property costs £500,000 and you get £20,000 in annual rent from it, but your annual costs are around £2,500, the net rental yield is (£20,000 – £2,500 / £500,000) x 100 = 3.5%.
Average Rental Yields in London
As of 2024, the average gross rental yield in Greater London is around 4.4%, according to the Track Capital. But yields change a lot depending on the area.
So, what’s considered ‘good?’
In general, a rental yield between 4% and 6% is considered good in London, and anything above 6% is very good – especially when you consider the high property prices we’re dealing with here.
To give you a few examples from Track Capital.
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Barking and Dagenham (RM10) is currently one of the top performers, offering a 6.2% gross yield.
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Newham and Tower Hamlets (E13 and E3) also offer yields of 6% or more.
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On the flip side, central locations like Westminster (W1) deliver yields as low as 2.3% – despite charging high rents – mainly because of how expensive property is there.
Zoopla also puts London’s average gross yield at around 4.93%, while specific boroughs like Bexley and Greenwich (SE28) see yields of 5.7% and 6.2% respectively (Zoopla, April 2024).
What Affects Rental Yield in London?
A number of factors influence yield, and it’s rarely just about the rent:
1. Location, Location, Location
High property prices in central London mean landlords are likely to have lower yields, even if rents are high. However, more affordable boroughs on the outskirts – like Barking, Dagenham, and Bexley – tend to produce stronger yields thanks to lower property prices but strong appeal for Londoners.
2. Property Type
Flats in new builds often come with high service charges, which eat into your net rental yield. HMOs (houses in multiple occupation), on the other hand, can generate more income and improve overall returns – but only if they are managed well.
3. Local Demand
Areas with good transport links, strong rental demand (especially from students or young professionals), and local regeneration projects tend to perform better.
4. Expenses
It’s important to separate gross yield (before costs) and net yield (after costs). In London, service charges, maintenance, mortgage payments and letting fees can affect your returns.
Why A Good Rental Yield Matters
In essence, yield is the metric that tells you how much income your property is generating relative to what you paid for it. The higher the yield, the more profitable the investment.
A strong yield:
- Helps you cover expenses (mortgage, maintenance, fees)
- Generates cash flow
- Makes your investment more sustainable long-term
As a landlord, especially in a city like London where property prices are high, knowing your net yield is important to understanding whether you’re really turning a profit.
For example, your property might have a 5% gross yield, but high costs that bring the net yield down to 2%. That’s why having your eyes on the costs from the start can be incredibly important for the long-term success of your investment.
Good Rental Yield vs. Capital Growth – Which Is More Important?
Here’s where things get interesting.
Some areas of London offer high rental yields but slow house price growth. Others, especially in prime areas of the city, may offer lower yields but strong capital appreciation over time.
Take W1 in Westminster, for example. Yields are around 2.3% (Track Capital), but property prices in this area have performed very well over the long term. So while your income is smaller, your asset might be gaining value long-term.
Ultimately, the metric you look at depends on your strategy:
- If you’re looking for steady monthly income, go for high-yield areas.
- If you’re banking on capital growth, low-yield central locations might be worth a look.
- Many landlords aim for a balanced mix of the two.
How Does London Compare to the Rest of the UK?
It’s no secret that London can offer lower rental yields than many other areas of the UK, mainly because of the capital’s high property prices.
Let’s look at the data:
| Region | Average Yield (2024) |
|---|---|
| Scotland | 6.18% |
| North East | 5.18% |
| North West | 4.83% |
| Wales | 4.88% |
| Greater London | 4.40% |
| East of England | 4.15% |
(Source: UK Buy-to-Let Yield Map 2024)
Cities like Manchester, Nottingham and Newcastle are offering yields of 7–12% in some postcodes. For example, Manchester’s M14 postcode delivers a huge 12%, thanks to its student-heavy population (UK Top 10 Yielding Postcodes 2024).
However, for investors looking to lock-in long-term, the slow capital growth in the city might make it less appealing long-term.
Is Yield Everything?
Not really.
While yield is important – especially if you’re relying on rental income – it’s just one piece of the puzzle. As a property manager, I always advise clients to consider:
- Tenant demand (can you keep it let?)
- Void periods (how long will it sit empty?)
- Ongoing costs (how much will it really cost to run?)
- Capital growth potential (is the area up-and-coming?)
In short, a good yield in London is 5-6% gross, ideally translating to 4%+ net. But don’t dismiss an investment with a lower yield if it offers long-term appreciation.
Every landlord’s situation is different – and the best portfolio is often one that blends high-yield income properties with capital growth assets.
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.
