Investing in property in London? Find out what is a good rental yield in the capital of England.
With a current population of over 9.5 million people, the vibrant and cultural city of London is a fabulous place for property investors to earn a great return.
The ever-increasing house prices, rents and rental demand make it a fantastic place to invest in long-term rental properties and short-term rental properties alike.
Read on to find out the best buy-to-let areas in London, and where the best rental yields in London can be achieved.
Table of Contents
- Where to invest in property in London?
- Is buying real estate in London a good investment?
- What is the average rental yield in London?
- Why buy real estate in London?
- Can foreigners buy real estate in London?
- What is the tax on rental income in London?
- Is now a good time to buy real estate in London?
- Short, mid or long-term?
- Invest in London with GuestReady
1. Where to invest in property in London?
According to LiveYield data, the highest-yielding boroughs of London are Barking and Dagenham, Newham, Bexley and Hounslow. The lowest-yielding boroughs are currently Islington, Camden, Westminster and the City of London.
Buy-to-let Barking and Dagenham
- 5.5% rental yield
- £2.024 average price per m2
The London Borough of Barking and Dagenham has been a borough in London since 1965 although not always under the same name. It has a current population of approximately 180.000 people and is north of the River Thames, with a total area of just over 36 km².
The average annual yield is currently 5.5%, making it the highest-yielding borough in Greater London for property investors, and one of the best buy-to-let areas in London. As of April 2022, it ranks as the cheapest London borough with an average property price of £336.126.
- 4.9% annual yield
- £3.573 average price per m2
The London Borough of Newham has been a borough of London since 1965, and has a current population of approximately 388.000 people, making it the third most populated London borough. It is in Inner London, located just 5 miles east of the City of London and north of the River Thames. Newham is probably best known for the Olympic Park and London City Airport.
The average annual yield is currently 4.9%, making it the second-highest yielding borough in London. As of April 2022, the average property price in Newham is £407.474, making it one of the best buy-to-let areas in London.
- 4.1% annual yield
- £10.822 average price per m2
The London Borough of Hackney has been a borough of London since 1965, and currently has an estimated population of 281,000 people. Located in Inner London, Hackney is partially regarded as being in East London, and partially in North London.
The average annual yield for properties in Hackney is 4.1%, and the average property price as of April 2022 is £607,030. These figures make it the 10th most expensive London Borough, and the 18th highest yielding.
Buy-to-let Kensington and Chelsea
- 4.0% annual yield
- £28.509 average price per m2
The Royal Borough of Kensington and Chelsea has been a borough of London since 1965, and has an estimated population of 159,000 people. It is the smallest London borough by area, at just 12.13km², however, it is one of the most densely populated. It is located in Central London and gained royal status in 1901.
The average annual rental yield for properties in Kensington and Chelsea is 4.0%, mainly due to the fact that it is the most expensive London borough by an enormous margin. The average property price in Kensington and Chelsea is a staggering £1.5million, according to an April 2022 report. The borough has excellent long, mid and short-term property investment opportunities.
- 3.0% annual yield
- £16.016 average price per m2
With an approximate population of 270,000 people and located in Central London, Camden is home to many well-known London attractions such as The National British Museum, The British Library, London Zoo, The Roundhouse and Camden Market.
The average rental yield for properties in Camden Borough is 3.1%, and it is the third most expensive borough in London, with an average property price of £874.081.
While Camden currently has one of the lowest average rental yields in London, it is a hugely popular and vibrant borough with enormous potential for Airbnb and other short-term rental opportunities. Are you planning on starting a short-term rental business in London? Check our London Airbnb landlord guide.
GuestReady is an international short-term rental management company present worldwide and professionally managing properties around the globe. Are you planning on starting a short-term rental business? For more information, get in touch with our team of experts today.
Buy-to-let City of London
- 2.9% annual yield
- £17.159 average price per m2
The City of London is a ceremonial county home to Canary Wharf, the Bank of England, St Paul’s Cathedral, and the Old Bailey. Despite having a residential population of less than 10,000 people, the City of London employs over half a million people and is a major business, professional and financial centre.
The average rental yield for properties in the City of London is 2.9%, making it the lowest-yielding region of Greater London. The region ranks the fourth most expensive in London, at £838.145 average property price. Despite its low rental yield, the fantastic tourism in the area makes it a lucrative place to own short-term rental properties, like Airbnb properties.
2. Is buying real estate in London a good investment?
The short answer? Yes. Buying real estate in London is a great investment because of continually increasing property prices, growth in employment and ever-increasing rental demand, despite the increasing popularity of remote working.
Increasing Property Prices
The London property market has bounced back significantly since the Coronavirus pandemic. In April 2022, average house prices increased by 7.9%, and in the current moment of time [July 2022], the average property in London costs £530,000. The continual increase in property prices creates a significant opportunity for those buying property in London to benefit from rapid capital appreciation.
Now that employees are gradually returning to office environments, employment is at its highest ever. Despite the attractiveness of remote working, regions in Greater London like the City of London still provide an enormous number of jobs for London residents.
Increasing Rental Demand
With rising employment rates comes increasing rental demand. For long-term and mid-term lets, increasing employment means many more people looking for properties. An increasing number of young professionals are choosing to rent as an alternative to buying property, and an ever-booming number of tourists are present, excellent opportunities for short-term rental accommodation.
3. What is the average rental yield in London?
The average rental yield in London is currently 4.1%, making it the 10th highest-ranking region of the UK for property investors. It outranks the South West of England and is comparable to the rental yields achievable in the East of England and the East Midlands. The huge demand for both long and short-term rental properties makes it one of the most favourable places to invest, despite expensive property prices and slower house price growth than some other areas of the UK.
4. Why buy property in London?
Easy access to funding, potential for huge capital appreciation, rising rents and a stable demand, are just a few of the reasons why more and more property investors are choosing to buy property in London.
Access to Funding
With low-interest rates and a large number of lenders in the market, mortgages are fairly easy and cheap to come by at the moment, which is one reason why investors are choosing to put their money in property, particularly in London. With many lenders joining the market, increased competition means that borrowing is relatively cheap, despite recent increases in interest rates.
Capital appreciation is always promising when it comes to a capital city like London. With ever-increasing house prices and a current average property price of £530.000, London boasts a huge number of opportunities for investors from across the globe to benefit.
In addition to house prices rising, rents are also rising in most areas of London. At the time of writing, the London Borough of Kensington and Chelsea has the highest average rent in Greater London at £2535 pcm, followed closely by Westminster, the City of London and Camden. Sutton, Barking and Dagenham and Bexley have the lowest rents, all coming in at under £1200 pcm on average.
Demand has always been very stable in the capital, and now it’s back on the rise after the Coronavirus pandemic. Demand is always strong for long-term rental properties, with an estimated 5.8 million jobs available in the capital. There is ever-increasing demand for short-term rental and holiday properties, with the city regularly attracting over 20 million visitors per year.
5. Can foreigners buy real estate in London?
Yes, foreigners are able to buy real estate in London. However, if they are not buying the property out of their own pocket then they may need to pay a larger deposit (up to 40% in some cases) and may only be able to secure mortgages with higher interest rates. Foreign investors should speak to a qualified mortgage broker for more information about their funding options.
6. What is the tax on rental income in London?
If you invest in property in the UK, you will be subject to Stamp Duty Land Tax, Income Tax, Capital Gains Tax and Inheritance Tax. Property investors should speak to a qualified tax professional for more information about their tax requirements and liabilities related to rental income and the sale of investment properties in the UK.
Stamp Duty Land Tax
Owners of UK property are subject to Stamp Duty Land Tax when they buy a freehold or leasehold property, a property in a shared ownership scheme or if they are transferred land or property in any other way, for example, they take on a mortgage. Different rates apply depending on whether you are a first-time buyer, UK resident or second homeowner.
Owners of rental properties are subject to income tax, just like most people in the UK, at a rate between 20% and 45%. Investors will receive the first £1000 of property income tax-free and will be taxed on the rest of their income in accordance with their earnings.
Capital Gains Tax
UK and foreign investors may also be subject to capital gains tax when they sell a property that is not their main residence.
Any proceeds from a buy-to-let investment, be it rental income or the asset itself, are subject to inheritance tax at 40% upon death, provided they do not fall within any allowances.
7. Is now a good time to buy real estate in London?
Yes, the potential for capital appreciation, increasing rents and increasing rental demand in London makes it a great time for property investors to enter the market or increase the size of their portfolio.
8. Short, medium or long-term?
In London, residential and academic areas of the city are traditionally better suited to long-term and mid-term rental investments, whereas the more touristic areas of the city are better suited to short-term rental investments.
GuestReady is a short-term rental management company that can help property investors predict and manage their estimated returns for their property investment in London. GuestReady assists property investors with the management of their short-term rental businesses by offering a 24/7 communication service with guests in several languages, reservations management, online advertisements optimisation, cleaning and maintenance and décor and professional photography.
Short-term rental opportunities in London allow investors to achieve much greater returns than they would with a long-term rental strategy while providing them with the flexibility to stay in the property themselves as and when they need to.
GuestReady helps to make this form of renting as hassle-free and passive as possible, by implementing key changeover systems that allow for seamless transitions between guests, something which is important for those important five-star reviews.
London is a great place to invest for a number of reasons. The increasing house prices present a great opportunity for capital appreciation while increasing demands and rents make for strong cash flow potential.
9. Invest in London with GuestReady
GuestReady has years of experience working with property investors. We know where the best real yields and we help investors by providing them with insightful information on their investments and by presenting them with short-term rental management plans for their hassle-free new business.
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