Rental Returns in the UK Market

The latest research from specialist lender, Octane Capital, has revealed the areas of the market that have delivered the lowest rental returns over the last three years, highlighting where landlords approaching the end of their mortgage terms may face the greatest difficulty in refinancing as, properties risk falling outside lender interest coverage ratio (ICR) requirements.

Octane Capital analysed average yields achieved across Great Britain since 2023 to reveal the lowest yielding areas.

The research shows that, across the UK market as a whole, the average rental yield over the last three years has sat at 5.7%. However, yields have varied widely, with certain regions consistently underperforming.

Regional Performance

Scotland has posted the strongest returns with a three-year average yield of 6.2%, with the North East (5.2%) and North West (5%) also performing well.

The South East is home to the weakest returns, with investors seeing an average yield of just 4.1% since 2022. The East of England has also struggled at 4.2%, followed by the East Midlands at 4.2% and the West Midlands at 4.4%. London, despite stronger recent rental growth, has averaged 4.5% over the same period.

Lowest Yielding Areas

However, when analysing the market at a more granular level, Octane Capital found that it’s Kensington and Chelsea that ranks as the lowest yielding area of the UK market, where average yields have sat at just 2.8% across the last three years,

Richmond upon Thames (3.0%), Elmbridge in the South East (3.0%), Waverley in Surrey (3.0%), and Derbyshire Dales (2.7%) also ranked amongst the areas offering the weakest returns to investors.

Other weak performers include Powys in Wales (2.9%), South Hams in the South West (2.9%), North Norfolk (3.1%), Rutland (3.1%) and Uttlesford in the East of England (3.1%).

Challenges for Landlords

Jonathan Samuels, CEO of Octane Capital, said, “Our latest research highlights the difficult reality for landlords in low-yielding parts of the market, where properties may no longer fit within ICR requirements as they approach the end of their current mortgage terms.

For many, the result is limited refinancing options from mainstream lenders and this is where specialist finance plays a vital role.

Bridging and short-term lending can provide the flexibility needed to manage the transition, whether that means restructuring, selling, or re-investing into stronger performing assets. At Octane Capital, we are continuing to support landlords with fast, tailored solutions that help them navigate today’s more challenging buy-to-let landscape and low-yielding investments often form a key part of this activity.”

Staying Informed

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Conclusion

The UK rental market has seen varying yields across different regions, with Scotland performing the strongest and the South East struggling the most. Landlords in low-yielding areas may face challenges in refinancing their properties, but specialist finance can provide the necessary support. It is essential for landlords to stay informed about the market and explore their options to navigate the challenging buy-to-let landscape.

Frequently Asked Questions

Q: What is the average rental yield in the UK market?

A: The average rental yield in the UK market over the last three years has sat at 5.7%.

Q: Which region has posted the strongest returns?

A: Scotland has posted the strongest returns with a three-year average yield of 6.2%.

Q: What is the lowest yielding area in the UK market?

A: Kensington and Chelsea is the lowest yielding area in the UK market, with average yields sitting at just 2.8% across the last three years.

Q: What challenges do landlords in low-yielding areas face?

A: Landlords in low-yielding areas may face limited refinancing options from mainstream lenders as their properties may no longer fit within ICR requirements.

Q: How can specialist finance help landlords?

A: Specialist finance can provide bridging and short-term lending options to help landlords manage the transition, whether that means restructuring, selling, or re-investing into stronger performing assets.