By Asaf Navot, founder and CEO, Home Made
Since the onset of COVID-19, investors have turned away from many of the asset classes whose presumed security and capacity for long-term value creation were once thought unimpeachable. With international lockdowns accelerating existing trends towards flexible working practices and e-commerce, investors have seen billions wiped off the value of commercial property assets.
However, while commercial property has suffered, the value of residential assets has fared well during the pandemic. Thanks to the extended stamp duty holiday, the sales market is buoyant and price growth has exceeded expectations, while a surprisingly robust lettings market benefited from permission to continue operating during later lockdowns and a flurry of activity as renters seek out housing that more closely aligns with their post-COVID priorities.
At Home Made, we have analysed data from thousands of property listings across London to create an up-to-date guide on buy-to-let rental yields for investors in the capital. Here are the top 10 postcodes in London offering investors the best rental yields for 1, 2, and 3-bedroom properties.
- IG11 (Barking, Upney) – 6.12 per cent
- N9 (Lower Edmonton) – 5.89 per cent
- TW13 (Feltham, Twickenham) – 5.65 per cent
- EN8 (Cheshunt, Waltham Cross) – 5.57 per cent
- IG1 (Ilford) – 5.56 per cent
- EN3 (Enfield) – 5.50 per cent
- RM6 (Chadwell Heath, Goodmayes, Marks Gate, Little Heath) – 5.46 per cent
- RM1 (Romford) – 5.43 per cent
- RM7 (Romford, Dagenham, Hornchurch) – 5.39 per cent
- IG2 (Gants Hill, Newbury Park, Aldborough Hatch) – 5.35 per cent
- UB1 (Southall) – 5.93 per cent
- IG11 (Barking, Upney) – 5.64 per cent
- EN3 (Enfield) – 5.52 per cent
- RM6 (Chadwell Heath, Goodmayes, Marks Gate, Little Heath) – 5.48 per cent
- N9 (Lower Edmonton) – 5.42 per cent
- TW5 (Hounslow) – 5.39 per cent
- N18 (Upper Edmonton) – 5.39 per cent
- IG1 (Ilford) – 5.37 per cent
- IG3 (Ilford, Cransbrook, Loxford) – 5.35 per cent
- RM1 (Romford) – 5.33 per cent
- RM8 (Dagenham, Beacontree) – 5.13 per cent
- RM9 (Dagenham, Beacontree) – 5.01 per cent
- RM10 (Dagenham, Beacontree) – 4.90 per cent
- IG11 (Barking, Upney) – 4.80 per cent
- EN3 (Enfield) – 4.76 per cent
- RM3 (Harold Wood, Harold Hill) – 4.64 per cent
- N9 (Lower Edmonton) – 4.61 per cent
- CR0 (Croydon) – 4.56 per cent
- N18 (Upper Edmonton) – 4.54 per cent
- CR7 (Thornton Heath) – 4.54 per cent
- IG11 (Barking, Upney) – 5.13 per cent
- RM10 (Dagenham, Becontree) – 4.97 per cent
- RM9 (Dagenham, Becontree, Castle Green) – 4.94 per cent
- RM8 (Dagenham, Becontree, Becontree Heath, Chadwell Heath) – 4.91 per cent
- SE28 (Thamesmead, Greenwich, Bexley) – 4.88 per cent
- E13 (Plaistow, West Ham) – 4.59 per cent
- RM3 (Harold Wood, Harold Hill, Noak Hill, Harold Park) – 4.54 per cent
- N9 (Lower Edmonton) – 4.44 per cent
- E6 (East Ham, Beckton, Barking) – 4.40 per cent
- RM6 (Chadwell Heath, Marks Gate, Little Heath, Goodmayes) – 4.35 per cent
What does the data show and why?
As the data indicates, the most attractive investment prospects right now are mainly clustered in London’s outermost Eastern boroughs: Barking and Dagenham, Redbridge, and Havering. A review of our previous yields analysis (published in late 2019) suggests that there has been a sustained eastwards shift in the location of postcodes offering the best potential ROI for buy-to-let landlords.
There are several likely reasons why this is the case, with trends established both before and during the pandemic responsible for the continuing eastwards shift.
Improvements to transport infrastructure
As was the case in our original 2019 analysis, improvements to London’s transport infrastructure mean that residents in high-yield areas can commute into the major economic hubs of the city centre with relative ease. The forthcoming Elizabeth line will drastically improve transport connections between many of this year’s best performing locations to the rest of the TfL network, with stations opening in Ilford, Goodmayes, Chadwell Heath, and Romford. We know that rental prices react more quickly than sales values to infrastructural improvements, so investors should expect to see an even greater spike in rental yield value in these East London suburbs.
The impact of urban redevelopment
Urban redevelopment schemes that introduce thousands of units of high-specification housing and modern amenities tend to change the profile of tenants, making them more attractive to working professionals on higher incomes. This increases the value of nearby property, leading to a sustained rise in rental yields over the medium term as rental price growth outpaces the growth in sales prices.
East London’s outer boroughs are currently further behind in their redevelopment journey than many of the more central neighbourhoods that have already been transformed by various urban renewal projects (e.g Stratford, Royal Docks). Ambitious redevelopment plans underway in the East, particularly in Havering, are set to have a similar impact, and investors should expect to see consistent growth in rental yields along with significant appreciation in the sales value of any property.
Consumer and renter behaviour
Tenant migration patterns have been altered significantly by COVID-19. Since the onset of the pandemic, the widespread adoption of flexible working practices has meant that renters have had more freedom to move across the city without as much concern for the impact on their daily commute. When we analysed enquiry data for rental properties in TfL travel zones 4, 5, and 6, we found that 40 per cent of the renters enquiring on properties in these areas were currently based in zones 1, 2, and 3, suggesting a significant spike in the number of tenants moving towards London’s suburbs. Similarly, 64 per cent of the renters logged in our database in 2020 were moving to a completely new area of the city, with an average travel time of 44 minutes between their previous property and prospective new home.
As well as having the flexibility to stray further away from the workplace, tenant priorities have changed drastically following our collective experiences of successive lockdowns. The so-called ‘race for space’ is well documented, with many tenants moving to the suburbs or leaving the city altogether in search of larger properties with more access to green space and better suited to pet ownership – features which are now a higher priority for many than proximity to the workplace.
Many have also moved further away from the centre to reduce costs during a period of sustained economic upheaval. For many of London’s working professionals, it no longer makes financial sense to pay a premium for expensive central property when there is no need to maintain a daily physical presence in the workplace. Properties in high-yield areas are able to satisfy both the post-COVID lifestyle priorities and affordability criteria of London’s renters.
Overall, the residential lettings market has proven remarkably adaptable when faced with unprecedented economic and social circumstances, along with various existing trends that disrupt the way people rent and let property. As a result, rental yields in outer zones have remained high, and even increased in the last 18 months, as renters expanded their search radius to include the new areas that they would now consider living in.
This post has originally been featured in Property Wire.