Home Made analysed data from thousands of property listings across London to create an up-to-date guide on buy-to-let rental yields for investors in the capital. Having crunched the numbers for every postcode in Greater London, they have identified the areas that offer the best investment opportunities for buy-to-let landlords.
The value of residential assets has fared well during the pandemic. Thanks to the extended stamp duty holiday, the sales market is buoyant and price growth has exceeded expectations, while a surprisingly robust lettings market benefited from permission to continue operating during later lockdowns and a flurry of activity as renters seek out housing that more closely aligns with their post-COVID priorities.
The top 10 postcodes in London offering investors the best rental yields for 1, 2, and 3-bedroom properties.
1-bedroom properties
1. IG11 (Barking, Upney) - 6.12%
2. N9 (Lower Edmonton) - 5.89%
3. TW13 (Feltham, Twickenham) - 5.65%
4. EN8 (Cheshunt, Waltham Cross) - 5.57%
5. IG1 (Ilford) - 5.56%
6. EN3 (Enfield) - 5.50%
7. RM6 (Chadwell Heath, Goodmayes, Marks Gate, Little Heath) - 5.46%
8. RM1 (Romford) - 5.43%
9. RM7 (Romford, Dagenham, Hornchurch) - 5.39%
10. IG2 (Gants Hill, Newbury Park, Aldborough Hatch) - 5.35%
2-bedroom properties
1. UB1 (Southall) - 5.93%
2. IG11 (Barking, Upney) - 5.64%
3. EN3 (Enfield) - 5.52%
4. RM6 (Chadwell Heath, Goodmayes, Marks Gate, Little Heath) - 5.48%
5. N9 (Lower Edmonton) - 5.42%
6. TW5 (Hounslow) - 5.39%
7. N18 (Upper Edmonton) - 5.39%
8. IG1 (Ilford) - 5.37%
9. IG3 (Ilford, Cransbrook, Loxford) - 5.35%
10. RM1 (Romford) - 5.33%
3-bedroom properties
1. RM8 (Dagenham, Beacontree) - 5.13%
2. RM9 (Dagenham, Beacontree) - 5.01%
3. RM10 (Dagenham, Beacontree) - 4.90%
4. IG11 (Barking, Upney) - 4.80%
5. EN3 (Enfield) - 4.76%
6. RM3 (Harold Wood, Harold Hill) - 4.64%
7. N9 (Lower Edmonton) - 4.61%
8. CR0 (Croydon) - 4.56%
9. N18 (Upper Edmonton) - 4.54%
10. CR7 (Thornton Heath) - 4.54%
Overall
1. IG11 (Barking, Upney) - 5.13%
2. RM10 (Dagenham, Becontree) - 4.97%
3. RM9 (Dagenham, Becontree, Castle Green) - 4.94%
4. RM8 (Dagenham, Becontree, Becontree Heath, Chadwell Heath) - 4.91%
5. SE28 (Thamesmead, Greenwich, Bexley) - 4.88%
6. E13 (Plaistow, West Ham) - 4.59%
7. RM3 (Harold Wood, Harold Hill, Noak Hill, Harold Park) - 4.54%
8. N9 (Lower Edmonton) - 4.44%
9. E6 (East Ham, Beckton, Barking) - 4.40%
10. RM6 (Chadwell Heath, Marks Gate, Little Heath, Goodmayes) - 4.35%
What does the data show and why?
As the data indicates, the most attractive investment prospects right now are mainly clustered in London’s outermost Eastern boroughs: Barking and Dagenham, Redbridge, and Havering. A review of our previous yields analysis (published in late 2019) suggests that there has been a sustained eastwards shift in the location of postcodes offering the best potential ROI for buy-to-let landlords.
East London locations that performed well in 2019, such as East Ham, Plaistow, and Thamesmead, once again appear among top performers when looking at overall yields across each property category. However, they have lost considerable ground to towns such as Barking, Ilford, and Romford, located further out in travel zones 4, 5, and 6.
1. Improvements to transport infrastructure
As was the case in our original 2019 analysis, improvements to London’s transport infrastructure mean that residents in high-yield areas can commute into the major economic hubs of the city centre with relative ease. The forthcoming Elizabeth line (services are scheduled to begin in 2022, though the project has already been beset by significant delays) will drastically improve transport connections between many of this year’s best performing locations to the rest of the TfL network, with stations opening in Ilford, Goodmayes, Chadwell Heath, and Romford. We know that rental prices react more quickly than sales values to infrastructural improvements, so investors should expect to see an even greater spike in rental yield value in these East London suburbs.
2. The impact of urban redevelopment
Urban redevelopment schemes that introduce thousands of units of high-specification housing and modern amenities tend to change the profile of tenants, making them more attractive to working professionals on higher incomes. This increases the value of nearby property, leading to a sustained rise in rental yields over the medium term as rental price growth outpaces the growth in sales prices.
East London’s outer boroughs are currently further behind in their redevelopment journey than many of the more central neighbourhoods that have already been transformed by various urban renewal projects (e.g Stratford, Royal Docks). Ambitious redevelopment plans underway in the East, particularly in Havering, are set to have a similar impact, and investors should expect to see consistent growth in rental yields along with significant appreciation in the sales value of any property.
3. Consumer and renter behaviour
Tenant migration patterns have been altered significantly by COVID-19. Since the onset of the pandemic, the widespread adoption of flexible working practices has meant that renters have had more freedom to move across the city without as much concern for the impact on their daily commute. When we
analysed enquiry data for rental properties in TfL travel zones 4, 5, and 6, we found that 40% of the renters enquiring on properties in these areas were currently based in zones 1, 2, and 3, suggesting a significant spike in the number of tenants moving towards London’s suburbs. Similarly, 64% of the renters logged in our database in 2020 were moving to a completely new area of the city, with an average travel time of 44 minutes between their previous property and prospective new home.
As well as having the flexibility to stray further away from the workplace, tenant priorities have changed drastically following our collective experiences of successive lockdowns. The so-called ‘race for space’ is well documented, with many tenants moving to the suburbs or leaving the city altogether in search of larger properties with more access to green space and better suited to pet ownership - features which are now a higher priority for many than proximity to the workplace.
Many have also moved further away from the centre to reduce costs during a period of sustained economic upheaval. For many of London’s working professionals, it no longer makes financial sense to pay a premium for expensive central property when there is no need to maintain a daily physical presence in the workplace. Properties in high-yield areas are able to satisfy both the post-COVID lifestyle priorities and affordability criteria of London’s renters.
Asaf Navot, CEO and founder of Home Made, comments: "The lettings sector demonstrated its resilience during the Covid-19 lockdowns and the related financial recession. Rental yields in Central London were more significantly impacted by the addition of thousands of short-let properties back into the market, while less central locations benefited from the consumer behaviour shift towards remote-working alternatives.
"As a result rental yields in outer zones have remained high, and even increased in the last 18 months, as renters expanded their search radius to include the new areas that they would now consider living in. In a sign of the market’s strength for those who can adapt, Home Made added tens of thousands of new properties to its portfolio in the last year, with landlords benefiting from our ability to offer properties all across London and minimise the disruption of COVID restrictions using our digital tenancy processes and tools.
"We remain highly optimistic about the future of the UK’s rental space as more people than ever are looking to live in rental properties for longer periods of time, and as the ongoing supply shortage remains significant, with the government consistently well below its annual housing construction targets."
