London can be a difficult place to find good buy-to-let investments. High property prices in sought-after areas often mean lower rental yields. Here, we look at which areas give the best return and offer tips to help you choose your investment property.
Buy-to-let landlords have certainly felt the impact of tax and legislation changes over recent years and may be wondering if residential letting in London continues to be a good investment. Additionally, rental yields in London are lower than in other areas of the UK. The result is that capital postcodes seldom rank in the top 10 buy-to-let regions – but that's not the whole picture.
With rising property prices putting homeownership out of reach for many, demand for rental accommodation is only expected to rise. In the past decade alone, the proportion of private renters rose by 25%. Now, one-third of all London households rent privately.
We look at the best areas for buy-to-let in London to assist your decision to invest in London residential property.
Why Invest In London?
Despite relatively lower yields, property investors are drawn to London's rental market by high demand and house price trends. Increasing demand is pushing monthly rents higher, in the last four years, average London rents have risen by 28%.
Purchasing a London buy-to-let can be costly, and house price growth is predicted to slow in the short term. But long-term investments can still pay off. The property market remains attractive to buyers, and the city's high prices mean that even modest growth can generate a respectable income.
What is the average rental yield in London?
The average rental yield in London is just over 4% in 2023, but figures vary according to your property's location and type. For a more accurate estimate, try doing your own calculations based on properties you're considering. Read our guide to learn how to work out rental yield.
Best buy-to-let locations in East London
East London offers the highest rental yields, with several postcodes ranking in the top 20. In E3, covering Bow and Mile End, properties command as much as 6%. Investors can also find decent returns in North East London.
Average yields across E15, covering Stratford, West Ham and Leyton, surpass 5.5%. E6 covering Hackney is not far behind, thanks to its popularity with young professionals. To achieve a similar return for a lower property price, look to East Ham (E9) and neighbouring Plaistow and Upton Park (E13).
Best buy-to-let locations in South London
South West London is a perennially popular place to rent. While high selling prices lower the average rental yields, landlords can enjoy a constant stream of suitable tenants, reducing the possibility of their properties lying vacant.
Kensington and Chelsea rental properties attract an average 4% yield yet boast a high occupancy rate. Multiple neighbourhoods hold longstanding appeal to high-net-worth buyers, and the terraced houses that define the local architecture sell for around £3 million.
Across the City of Westminster, buy-to-let investors can expect an average yield of around 4%. House prices in prestigious Belgravia continue to rise as buyers are drawn to the SW1W postcode. You will need a substantial deposit to enter the local property market, but long-term investors can benefit from consistent price growth.
In South East London, demand has been bolstered by Elizabeth Line connections. Those who invest in property in South Norwood (SE25) and New Cross (SE14) could see respectable rental yields of around 5%, with Walworth (SE17), Peckham (SE15) and Abbey Wood (SE2) averaging in the region of 5.5%. Further east in Thamesmead, low selling prices are helping SE28 properties to generate around 6%.
Best buy-to-let locations in West London
West London contains some of the most sought-after addresses in London. Properties in these west central areas cost upwards of £2.5 million on average, which generally lowers the rental yield. Marylebone properties cost an average of £1.6 million, with the area's prestigious townhouses averaging double the figure. The average cost of a Mayfair apartment now exceeds £5 million.
The average rental yield in Paddington is over 5.5%, with demand for high-end properties holding up. Rent has kept pace with house prices, though property investors will need a sizeable deposit to purchase a buy-to-let in the area.
You may achieve a higher rental yield further west. Hanwell (W9) properties are generating just shy of 5%, with a price growth of 15%.
Best buy-to-let locations in North London
North London may not rank at the top of the tables, but it still offers plenty of decent investment opportunities. In N7, Holloway performs well on monthly rental income with yields between 5% and 5.5%. Ongoing regeneration projects in Edmonton (N18) have considerably raised the area's profitability, with average rental yields now surpassing 5%.
Further to the North West in the London Borough of Barnet, property investments in Colindale (NW9) are achieving an average yield of over 5%.
What to look for when purchasing a buy-to-let property in London
To help you decide if a location is suitable for your buy-to-let project, use our checklist of what to look out for when choosing your investment.
- Avoid traffic hotspots - Go back a street from the main road. Quieter streets with less traffic often hold their value better and are more attractive to tenants.
- Look to the future - Research any planned regeneration schemes in the area and consider the impact on the property you're thinking of buying. Will the plans bring better facilities or mean noisy works for years to come that will deter renters?
- How are the schools? - Houses close to outstanding state and well-regarded independent schools will always be popular with renters and retain their value – but do your research. If you're targeting families looking at popular state schools, find out how close you need to live to have a realistic chance of a place.
- What are the main attractions? - Look at properties with good amenities close by. Attractive bars, restaurants and shops make a place appealing to tenants. Factors like a corner shop, neighbourhood pub and coffee shop can also give a particular street the edge.
- How is the transport? - Be aware of the property's walking distance to tube or train stations and the bus routes it's served by.
If you're considering purchasing a buy-to-let property in central London, we'd be happy to discuss the merits of different locations and share our many great properties. Contact us today to find out more.