Best UK rental yield hotspots for 2023

At present, the rental market is being squeezed by high demand and low supply. Due to the cost of living crisis and higher interest rates, more people are delaying buying houses and are continuing to rent. Rents are continuing to rise, outstripping wage growth, meaning that rent affordability is a concern for many.

City centres are bouncing back following recovery from the pandemic as professionals and students return to city living. There are also recent reports of increased demand from tenants for 1 and 2 bed properties due to tenants downsizing to more affordable accommodation.

Landlords are also being squeezed by rising costs, including mortgage interest rates. Though it’s undeniably tough out there for landlords, there are areas delivering decent yields. With property prices forecast to drop by an estimated 10% this year, there could be opportunities on the horizon for investors.

According to data from Hamptons, rents increased by an average of 6% in 2022. This growth is forecasted to continue at 5% in 2023 and 4% in 2024, even as house prices flatline due to turbulence in the economy.

At present, the average rental yield in the North is 7.4% whilst the average yield in the South is 5.2%, meaning that there is a 2.2% gap.

For property investors looking to add to their portfolio in 2023, the North East and the Midlands could be areas to focus on for the highest rental yields.

Analysis by Zoopla shows properties in the North East have the highest rental yield in the UK.

Source: Zoopla

For those looking to diversify their portfolio from buy-to-lets, demand for student accommodation continues to remain high as record numbers attend university following the recovery from the pandemic.

Whether you’re considering investing in purpose-built student accommodation or converting a residential buy to let into a HMO, the following locations are popular student cities with growing business sectors outside of London.

Birmingham

• The UK’s second largest city

• Fast-growing tech and financial sector

• HS2 railway investment

• Ongoing regeneration to city centre, suburbs and infrastructure

• Voted one of the best cities to live

• Educational hub with 5 universities

According to Rightmove, properties in Birmingham had an overall average price of £256,167 over the last year.

The majority of sales in Birmingham during the last year were semi-detached properties, selling for an average price of £264,071. Terraced properties sold for an average of £212,446, with flats fetching £151,649.

Overall, sold prices in Birmingham over the last year were similar to the previous year and 8% up on the 2020 peak of £237,739.

Nottingham

• Large student population from two universities: University of Nottingham and Nottingham Trent

• Home to the largest teaching hospital in the UK, the Queen’s Medical Centre

• HQ to major companies, including Boots, EON and Experian

• Extensive tram network with lines north and south of the city

According to Rightmove, properties in Nottingham had an overall average price of £240,864 over the last year.

The majority of sales around Nottingham during the last year were semi-detached properties, selling for an average price of £223,816. Detached properties sold for an average of £359,717, with terraced properties fetching £172,222.

Overall, sold prices around Nottingham over the last year were similar to the previous year and 9% up on the 2020 peak of £221,915.

Manchester

• The largest economic area outside of London

• Fast growing centre for tech and media sectors

• One of the largest university cities in the UK with 5 universities

• Property prices up to 40% cheaper than in London

According to Rightmove, properties in Manchester had an overall average price of £284,922 over the last year.

The majority of sales in Manchester during the last year were semi-detached properties, selling for an average price of £310,672. Terraced properties sold for an average of £231,897, with flats fetching £202,562.

Overall, sold prices in Manchester over the last year were 1% up on the previous year and 11% up on the 2020 peak of £255,818.

Newcastle

• Large student population from two universities

• Designated UK Science City

• Emerging hub for creative and tech sectors

• Offshore & Marine Enterprise Zone

• House prices in the North East are 47% less than the UK average

According to Rightmove, properties in Newcastle Upon Tyne had an overall average price of £204,311 over the last year.

The majority of sales in Newcastle Upon Tyne during the last year were terraced properties, selling for an average price of £179,719. Semi-detached properties sold for an average of £200,651, with flats fetching £121,442.

Overall, sold prices in Newcastle Upon Tyne over the last year were 3% down on the previous year and 3% up on the 2020 peak of £198,121.

Wherever your next investment property may be, here are our three essential things to consider.

Decide on your investment strategy and goals

Will you focus solely on buy-to-lets, property flipping or development? Are you planning on adding a HMO or student let in Birmingham to your portfolio?

Does adding a student let to your portfolio fit with your long-term goals? Consider if they are a good fit for your preferred investment style.

Do your research and forecast expected returns

Thinking of investing in one of the top cities mentioned? Ensure you undertake further research into specific areas that align with your strategy. Use our free buy-to-let calculator to forecast projected rental yields and capital growth. Why not call a few local lettings agents to check if the areas you are considering align with tenant demand and your projected yields.

Get specialist tax advice

Switching strategy or changed your short or long-term goals? It may be worth getting tax advice to see if there are any tax savings available. For instance, if you’re planning on buying multiple properties in the same transaction (i.e. a block of 4 flats) you could be eligible for Multiple Dwellings Relief. Book a tax call for one-to-one advice from a property tax expert >