London's yields are low

Last Updated: Jun. 28, 2018
PRIME CENTRAL
LONDON
PRICE/SQ.M. (£) YIELD (p.a.) PRICE/SQ.FT. (£)
TO BUY MONTHLY RENT TO BUY MONTHLY RENT
W1S:Marylebone, Mayfair, Soho flats 31,873 59.20 2.23% 2,961 5.50
W1K:Marylebone, Mayfair, Soho flats 27,740 59.20 2.56% 2,577 5.50
SW1Y:Belgravia, Pimlico, Westminster flats 25,296 47.54 2.26% 2,350 4.42
SW1X:Belgravia, Pimlico, Westminster flats 24,370 52.92 2.61% 2,264 4.92
W1J:Marylebone, Mayfair, Soho flats 24,080 48.44 2.41% 2,237 4.50
SW1A:Belgravia, Pimlico, Westminster flats 20,215 53.82 3.19% 1,878 5.00
SW1W:Belgravia, Pimlico, Westminster flats 19,214 46.65 2.91% 1,785 4.33
SW3:Brompton and Chelsea flats 19,074 44.85 2.82% 1,772 4.17
SW7:South Kensington flats 18,719 43.06 2.76% 1,739 4.00
W8:Kensington flats 16,642 41.26 2.98% 1,546 3.83
SW1E:Belgravia, Pimlico, Westminster flats 15,834 44.85 3.40% 1,471 4.17
SW10:West Brompton, World´s End flats 14,403 35.88 2.99% 1,338 3.33
Prime London - other areas
W1U:Marylebone, Mayfair, Soho 18,794 43.95 2.81% 1,746 4.08
W1G:Marylebone, Mayfair, Soho 18,730 43.95 2.82% 1,740 4.08
W1T:Marylebone, Mayfair, Soho 18,730 44.85 2.87% 1,740 4.17
W1H:Marylebone, Mayfair, Soho 16,835 41.26 2.94% 1,564 3.83
W1W:Marylebone, Mayfair, Soho 16,674 43.95 3.16% 1,549 4.08
W11:Holland Park, Notting Hill 15,091 40.37 3.21% 1,402 3.75
NW8:St John´s Wood 13,466 35.88 3.20% 1,251 3.33
SW1P:Belgravia, Pimlico, Westminster flats 13,380 38.57 3.46% 1,243 3.58
NW1:Camden Town, Regent´s Park 12,756 40.37 3.80% 1,185 3.75
SWIV:Belgravia, Pimlico, Westminster flats 12,164 34.98 3.45% 1,130 3.25
NW3:Hampstead, Swiss Cottage 11,873 33.19 3.35% 1,103 3.08
W14:West Kensington 11,690 34.98 3.59% 1,086 3.25
Prime Fringes
SW5:Earl´s Court 13,918 36.78 3.17% 1,293 3.42
W9:Maida Vale, Warwick Avenue 11,281 32.29 3.44% 1,048 3.00
SE1:Bermondsey, Borough, Southwark, Waterloo 10,786 37.67 4.19% 1,002 3.50
W10:Ladbroke Grove, North Kensington 10,409 33.19 3.83% 967 3.08
SW6:Fulham, Parson´s Green 9,957 29.60 3.57% 925 2.75
W6:Hammersmith 9,763 31.40 3.86% 907 2.92
SW4:Clapham 8,751 29.60 4.06% 813 2.75
All yields are gross - i.e., before taxes, repair costs, ground rents, estate agents fees, and any other costs. Net yields (what you´ll really earn) are typically around 1.5% to 2% lower.
Districts researched:
Belgravia, Brompton, Chelsea, Holland Park, Kensington, Knightsbridge, Mayfair, Marylebone, Notting Hill, Pimlico, Soho, South Kensington, Westminster
Source: LonRes Definitions: Data FAQ See also: Update Schedule


London´s residential prices have been falling in the higher-end districts. But London remains by any measure extraordinarily expensive.

That impacts rental returns, since rents have not risen as much as prices. Gross rental yields, i.e., the gross annual rental return on an investment in an apartment if fully rented out, are now quite low in London.

On the whole, rental returns are better on the prime fringes than in central London.

Yet surprisingly, in the centre, larger apartments sometimes have higher yields - particularly in the more expensive districts of London. This defies the almost universal rule in other cities that smaller flats have higher rental returns. Why is it now different in London? Because of the UK´s amazingly high stamp duties on super-expensive property purchases, which are dissuading high-flyers from buying. People prefer to rent if they are staying just a few years, because the total costs of renting high-end properties are lower than the total costs of buying and then selling them. High capital gains taxes on sale, and worries about Brexit, reinforce the message that in London, renting now makes sense for the rich.

ANNUAL RATES OF RETURN ON BUY TO LET INVESTMENTS (CASH PURCAHSE)

REGION
GROSS ANNUAL RENTAL YIELD (%)
AVERAGE VOID PERIOD (DAYS PER YEAR)
NET ANNUAL RENTAL YIELD (%)
Prime Central London
4.37
21
4.11
Rest of London
4.74
16
4.53
Rest of South East
5.26
17
5.01
South West
4.94
17
4.71
Midlands
5.21
19
4.94
North West
5.88
26
4.47
North East
5.34
22
5.02
Scotland/Wales/NI
5.98
23
5.60
All Regions
5.08
20
4.81
Source: Arla Q3 2014

Foreign residential property investors in Britain have long faced a rising rumble of discontent from the British public about exorbitant housing prices in London, which rightly or wrongly is partly blamed on the large numbers of foreign buyers, as well as the continuous flow of immigrants into London. Both are hot-button issues.

One result is that foreign buyers are now liable to capital gains taxes when they sell their UK properties (previously they were exempt). Another is that stamp duty has been ramped up on higher-end properties. There is talk of further measures - it is widely agreed that Council Tax is too low on high-end properties, and the Liberal Democrats have been agitating for a mansion tax.

Round trip transaction costs are higher in the UK now than they were in the past, especially in London given higher stamp duties on expensive properties. See our UK residential property transaction costs analysis and our Residential property transaction costs in UK compared to other countries.