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City Centre Bounce Back Sees Average Yields of 5.3%

UK houses

According to Hamptons, a leading estate agency, Buy-to-Let investors who have purchased UK property in 2021 are achieving gross yields of 5.3% on average

Statistics have shown that major city centres, including London, are bouncing back, with yields far surpassing the 4.7% average we saw in 2020. 

In the midst of the pandemic, many tenants’ and homeowners’ priorities changed with the rise of home-working, which catalysed a ‘London exodus’. Characterised by a search for space – both inside and out – smaller apartments in central London were swapped for bigger homes in suburban towns. 

While regional cities, such as Birmingham and Derby, were impacted to a far lesser extent, the falling demands and increasing landlord pressures impacted average rents across the UK in some way, shape or form.

Rents in the capital saw the biggest declines during the pandemic, but in June 2021, rents in Inner London were 16.5% lower than the same time last year, a considerable improvement on the -20.4% statistic reported in April. 

For major leading cities outside the capital, average yields have returned to – or surpassed – pre-Covid-19 levels. According to Hamptons, Buy-to-Let investors with properties in these major city centres are benefitting from 6.2% yields on average, as opposed to 5.9%.

The more promising reports we have seen in recent months can be attributed to a combination of rising property prices and growing positivity throughout the property market. Despite the Stamp Duty holiday coming to an end at the end of the month, the average UK property price broke records yet again in August. 

Statistics from Nationwide suggest that house prices are now 13% higher than before the pandemic, bringing their average price up to £248,857. This new high is a result of 2.1% growth in prices in August – the second largest month-on-month increase in 15 years. 

The rising demand for property is at the root of this continuous growth, with over 210,500 property sales in Q1 2021 alone. This is a significant increase on the 199,885 transactions recorded in the first quarter of 2020. 

The thriving sales market has had a ripple effect across the entire property market, and especially the residential rental sector. In pushing prices to new highs, the property ladder has become less accessible for a lot of prospective buyers, causing more tenants to remain in the rental market for much longer, or indefinitely. 

As a result, city centres have slowly but surely been making a return since Q2 2021. The Zoopla Rental Market Index Report identified three distinct markets within the UK property sector: the wider commuter zones, major city centres and London. 

The upswing of city centre yields can be traced back to this point, where the likes of Birmingham and Nottingham recorded increases in average rents between 0.1% and 3.7%. The continued growth of major city centres across the UK is set to continue in the coming months, with the gradual return of office working combined with the strength of UK property prices. As city centre yields grow along with tenant demand, investors now have more opportunities when choosing Buy-to-Let locations.

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