2024 Buy-to-Let Investment Guide: Top UK Cities

Landlording is getting more challenging as higher mortgage interest rates and stricter privately rented home regulations grip the market.

Choosing suitable rental properties is becoming more challenging, so property investors need to do their groundwork to find homes that potentially offer the best profit.

Two factors come into play, depending on the type of investment:

• Rental profitability for medium to long-term buy-to-let investors
• Price growth gains for investors seeking a faster turnaround

Predicting which city generates the best return on investment - or yield - is part of the groundwork for landlords wanting to expand their portfolios.

Fortunately, some property and financial firms have already crunched the numbers.

Buy-to-let dilemma - yields or gains?

Specialist property consultancy Baron & Cabot has published the latest data predicting the best city for buy-to-let investors in 2024.

The firm looks forward to a positive trend this year, with rents increasing and property values stabilising.

Investors face a dilemma. Do they look for high yields, lower property values, or lower returns on investment from higher-priced homes?

Yields in the North look like outstripping those in the South, with the average return floating around 7.4 per cent.

The South is suffering from higher house prices as the more a home is worth, the lower the yield. The average yield in the South is 5.4 per cent - but homes are cheaper farther North.

Cities with the highest rental yields in 2024

The data shows the best five cities for buy-to-let yield for 2024:

Manchester - 5.9 per cent yield

The city has a thriving rental market and a strong demand from tenants, says Baron & Cabot. Year-on-year rents have risen by 13 per cent, and the 5.9 per cent yield is the highest outside London and the most posted in the North-West. The report also noted the number of homes to let in the city is diminishing.

Birmingham - 6.3 per cent yield

It is another of the UK’s powerhouse cities with affordable properties and strong rental demand, especially from young professionals and families. Birmingham’s economy is growing as firms in financial services, digital technology and creative industries move in to drive more rental demand.

Nottingham - 6.0 per cent yield

The city’s two universities boast a combined student population of over 60,000, providing a massive demand for rented homes. The economy is taking off as digital and high-tech businesses move in while more established healthcare, manufacturing and retail companies are doing well.

            Liverpool - 6.2 per cent yield

One of Britain’s most vibrant cities for culture. Demand for affordable rented homes is underscored by a combined student population of more than 70,000 studying at the city’s three universities. City centre development will boost the rental market and attract more young professionals.

Leeds - 6.3 per cent yield

Property prices are competitive but affordable, contributing to a shortage of homes to rent as private tenants working in finance and technology jostle for homes alongside the 60,000-strong student population. This competition for homes to rent has generated an average 8 per cent rent increase in the past year.

The study also looked at the best cities in Wales and Scotland for buy-to-let investment in 2024.

In Wales, the South Coast cities offer the best opportunities for landlord investors. The capital, Cardiff, returns a 7.61 per cent yield, while Swansea lagged in second place with a yield of 5.27 per cent. Third was Newport, posting a 5.12 per cent yield.

Glasgow has the best yield for investors north of the border, averaging 6.73 per cent. Aberdeen returns around 5.5 per cent, and the capital, Edinburgh, has an investment return of 4.6 per cent thanks to some of Scotland's highest property prices.

Buy-to-let yield FAQ

What’s the average rental yield across the UK?

The average yield depends on which firm is consulted, the size and type of data sample, when they took the measurement and how they analysed their data. Baron & Cabot set the average yield at 5.03 per cent, while property portal Zoopla suggests the figure is more like 8 per cent.

How is gross rental yield calculated?

Gross rental yield is the return on investment before deducting any business costs, such as mortgage repayments, insurance and repairs.

To arrive at the gross yield for a buy-to-let home, divide the annual rent by the property’s value and multiply by 100 to give a percentage.

For example, the gross yield on a home worth £250,000 that generates rent of £9,000 a year is 3.6 per cent.

The workings are (9,000/250,000) x 100 = 3.6 per cent

How is net rental yield calculated?

Net rental yield is the return on investment after deducting business costs.

To arrive at the net rental yield, deduct annual business costs from the property’s annual rent, divide by the property value and multiply by 100 to give a percentage.

For example, the gross yield on a £250,000 home generating £9,000 rent a year and costs of £2,000 is 2.8 per cent.

The workings are ((9,000- 2,000)/250,000) x 100 = 2.8 per cent

What variables affect rental yield?

Rent, house price and business costs all impact yield.

For example, the gross yield on a home worth £250,000 that generates rent of £9,000 a year is 3.6 per cent.

Change the property value to £175,000, and the yield becomes 5.14 per cent.

Why calculate rental yields?

Rental yields are helpful for landlords looking to buy properties or check their financial performance. Landlords can compare the return on investment from each property with gross rental yields to show which homes are the best to buy. Yields can also identify underperforming properties in a portfolio and how performance changes each year to plot trends.