Where in the UK will have the best rental yields in 2022?
For property investors, the past two years have made for interesting times. While the Covid pandemic may have adversely affected almost all industries, investors in the property market have managed to not only come out unscathed but to have actually enjoyed strong growth.
Although rents have risen as well as prices, it’s now cheaper in terms of the annual cost to rent a property than it is to purchase one - and 2021 marked the first time this has happened in the UK market for six years. As a result, the demand for rental properties has increased, and so have rental yields.
Where should I invest in property in 2022 in the UK?
Over the past twelve months, house prices in the United Kingdom have risen at their fastest rate in almost a decade. An average property price increase of nearly 11% highlights just how lucrative property investment can be - provided you choose the right areas to make a purchase.
Property investors need to take several factors into consideration when seeking out the best places to invest in the UK. Some of these might seem obvious to the experienced investor, but in order to figure out where to buy in the UK in 2022, we need to focus on some key metrics, including the following:
- House prices
- Demand among tenants
- Population of the area
- Regeneration within the area
- Career opportunities nearby
- Rental yields
- Tenant demographics
- Transport links
- Local amenities
- Buy-to-let opportunities
When we focus on these indicators, we can create a more detailed picture of the potential buy-to-let performance in a town or city. Our Local Data tool is the perfect tool for helping you to analyse a local property market, and understand all these numbers.
Interestingly, following these metrics may lead investors to spot opportunities in emerging cities which might not have previously been considered traditional areas for investment. As a property investor, it is important for you to understand each of these metrics, as they will help you decide whether to consider purchasing a property in a particular town or city.
Where is the highest rental demand in the UK?
In recent years, rental demand has doubled across the UK’s major cities - a trend that is expected to continue throughout 2022 and beyond. Places like London, Liverpool, Manchester, and Birmingham are witnessing exponential rental growth, with recent reports suggesting that the demand for inner-city locations is at an all-time high.
Unsurprisingly, the UK’s capital remains the most popular in terms of rental growth. Demand in central London rose by 5% in the third quarter of 2021, with Birmingham a close second (4.6%). Further North, cities like Manchester, Leeds and Edinburgh all enjoyed rental growth of at least 3.6%, which is fantastic news for property investors throughout the entirety of the UK.
These areas have been hotspots for investors for the best part of 20 years, and the latest data demonstrates how demand has continued to rise even during times of economic uncertainty. Interestingly, the cities in the UK with the highest rental demand are also some of the most affordable. Tenants in London, Birmingham, Manchester, Leeds and Edinburgh pay approximately 36% of their income on rental costs, and this is in line with five-year averages. Elsewhere in the North, areas like Sheffield and Hull have also been profitable for buy-to-let investors looking to take advantage of the best rental yields in the UK.
Why are these areas so popular among tenants?
Affordable rents, close proximity to local amenities and good transport links mean that city centre properties remain attractive to tenants. In fact, current statistics demonstrate that it takes just over two weeks for a property to be rented out in a central location, which is great news for investors that don’t want to end up with voids, losing them income.
Each of the aforementioned cities also offers diversity in terms of the number of different property types on offer. This is something that appeals to a wide cross-section of renters, particularly in an era where many businesses are switching to a work-from-home model. Allow us to explain why:
People who are working from home (or splitting their work time between the home and office) are becoming increasingly attracted to larger rental properties. Houses with gardens and multiple rooms allow tenants to separate their work and home lives within the same building. With so many of us spending more time in our homes than ever before, the demand for greater space and recreational/relaxation areas has increased - which means demand for larger properties, in general, has increased, too.
Central areas in cities like Leeds and Manchester - which offer a combination of modern apartments intersected with terraces and traditional homes - tend to attract a huge cross-section of renters, from young professionals to students, and families to single occupants. As such, there are always opportunities for property investors to diversify their portfolios across a number of different residential property types.
What is a good rental yield in the UK?
A good rental yield is one that covers all the necessary expenses of maintaining a property while also allowing you to enjoy a reasonable return on your investment. It is essential that any rental income covers things like mortgage repayments, refurbishments, general wear-and-tear and redecoration from time to time. If the rent fails to cover this, you might find yourself dipping into contingency funds - and that’s not going to help you turn a profit.
Many property investors aim for a rental yield that falls between 5% and 8%. If your rental yield sits in this figure, your income from the property should cover all expenses while allowing you to enjoy a reasonable profit. However, it’s important to understand that rental yields can fluctuate from city to city. In Birmingham, for example, you can expect to enjoy some of the best rental yields in 2022, with some properties attaining figures of around 6%. In contrast, properties in London might offer half of that figure. Ultimately, it’s all about balance. It is still possible to enjoy a healthy ROI with a low rental yield, and the best way to figure out whether an investment is worthwhile or not is to use the PropertyData rental yield calculator.
In 2021, the most popular areas for renters generally offered affordable rents - a trend that will continue in 2022. As a property investor, it’s always important to figure out how much you’re going to be able to charge for rent in order to make your investment worthwhile. While it’s always possible to charge more in highly sought-after areas, it’s all about finding the balance between a lucrative investment and a property that potential tenants will find attractive from a value-for-money perspective. If it’s likely that you’ll have to charge extortionate rent in order to ensure a return on your investment, you might struggle to rent out the property at all - so try to avoid adding these sorts of properties to your shortlist.
Where is the best place to invest in the UK?
Where to buy in the UK will depend on the sort of investor you intend to be. Some property investors like to be “hands-on”, which can include everything from personally overseeing repairs and maintenance to performing your own admin and rent collection. If this aligns with your investment style, it may be pertinent to invest in property close to your current location - or at least in an area that you can access quickly and easily.
Other buy-to-let investors are happy for a third-party organisation or letting agents to look after the administrative side of things - in which case, the entirety of the UK is your oyster. The following are some of the best places to invest in the UK in 2022 in terms of property prices, rental yield, rental demand and average price growth:
With a strategic plan for growth, an increasing reputation as a fantastic place to work and live, and the boon of securing the next Commonwealth Games, it’s no surprise that rental demand is on the rise in Birmingham. For investors, Birmingham offers some of the best rental yields in 2022.
It’s a rapidly growing city that is increasingly attracting skilled professionals, many of whom are swayed by the plethora of businesses that have recently relocated from areas like London. Despite this, the ratio of property prices to average rents is still lucrative for investors, which means you could expect to pull in rental yields of around 6% when you purchase a buy-to-let property in the city.
Sheffield is another rising star of the “Northern Powerhouse”. While the area owes much to its industrial heritage, Sheffield is now enjoying green regeneration and in recent years it has become a more desirable city to reside in than ever before.
It’s the perfect city to invest in for those who want to take advantage of low property prices and high rental yields. In the centre of Sheffield, yields of around 7% are easily achievable, while properties in the commuter belt on the outskirts can offer an even higher return on investment. Choose wisely, and you could expect to enjoy some of the best rental yields in 2022 just outside Sheffield - with certain areas delivering figures of nearly 8%.
It’s funny how times change. Just two decades ago, Hull had a reputation of being a rather staid and somewhat lacklustre place. However, recent investment and the award of City of Culture in 2017 have meant that serious regeneration has taken place in the area.
In the five years since receiving the CoC award, the population of Hull has exploded by over five million. This has brought around £220 million worth of investment into the city. Despite this, it’s still one of the most affordable areas for property investors to make a purchase - and with house prices rising in line with the national average, there’s plenty of scope for capital appreciation.
In recent years, Hull has also benefited from a growing student population, with many young people coming from abroad to avail of the educational facilities on offer. This means property investors can enjoy the benefits of multiple-occupancy tenancies, along with rental yields of around 7.2%.
Affordability has always been Liverpool’s strong point. Property prices are still well below the national average, while demand among tenants remains strong. This is partially thanks to the fact that Liverpool is home to no less than six different universities, which have a combined enrolment of around 70,000 students each year.
However, Liverpool is also a city undergoing impressive regeneration. This means that many of its university graduates choose to remain in the city. The knock-on effect is that rental demand has increased not just among students, but among young professionals too.
Liverpool property investors can expect to enjoy some of the best rental yields in 2022, with figures reaching 10% in some areas. In 2021, average rental prices in the city increased by over 6%, making Liverpool a very attractive proposition for buy-to-let investors.
Almost one-third of Manchester’s population are private renters. As such, it's a city with high tenant demand. With a huge student population and a growing economy, buy-to-let investors can expect to enjoy rent appreciation in excess of 17% over the next five years. Despite high demand for places to live, property prices remain comparatively low. This combination of affordability for investors and a huge private rental sector means that rental yields are likely to reach excesses of 6.7% in 2022.
Where is the worst place to invest in the UK?
Any area of the UK which offers a negative return on investment should be avoided. In 2021, the worst city for landlords was Warrington, where house prices average at just over £254,000, but rental prices reach just £560 per calendar month.
Areas like this - with relatively cheap rents - might be attractive for tenants. Unfortunately, they just aren’t lucrative for landlords from an investment perspective. In conclusion, you should always aim to invest in properties that can provide a healthy rental yield in areas of high rental demand.
The North of England will continue to provide the best rental yields in the UK over the next few years, with Birmingham also showing no signs of slowing down. The pandemic has not quite had the negative economic impact expected across Northern towns and cities - instead, rental demand is increasing in more affordable areas as well as in premium city centre spaces. For buy-to-let landlords, rental yields in the North look set to become even more appealing throughout 2022.
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