Yields in city centres have bounced back after last year’s pandemic driven falls. The average investor who purchased a buy-to-let in a city so far this year achieved a gross yield of 5.3%, up from 4.7% in 2020 when rents fell and put pressure on landlord returns. But weaker house price growth combined with a recovery in rents this year have fuelled a rise in yields, offering investors stronger returns.
This is particularly true in London, where the pandemic hit rents the hardest. In June, rents in Inner London stood 16.5% lower than the same time last year, down from a low of -20.4% in April. Yet signs of a rental recovery combined with weaker house price growth mean yields in the capital have risen to the highest level in six years. As a result, 35% of landlords purchasing a buy-to-let in London so far this year achieved a gross yield more than 5%, up from 30% in 2020 and 33% in 2019. This increase has been driven by stronger rental growth in Outer London, where yields tend to be higher.
Flats in the capital have seen the biggest increase in yields, from 4.2% in 2020 to 4.7% in 2021. This has been driven by the shift in price growth during the pandemic, with prices for flats softening, while houses have outperformed. With houses in higher demand as people have sought more space, the average gross yield for a house in London has remained flat at 4.4%. 
While rents in other cities have been hit to a lesser extent than those in London, yields in cities outside the capital have also recovered to pre-pandemic levels. The average yield in these cities has risen from 5.9% in 2020 back to 6.2% in 2021. Yields tend to be stronger in these areas than in London. Outside London, two-thirds of new landlords achieved a gross yield of more than 5% this year.
In contrast to city centres, yields in smaller towns, suburbs and the countryside across England & Wales have fallen over the last year, resulting in weaker returns for new landlords. Despite strong demand for rental accommodation in these areas, strong house price growth has meant that the average gross yield outside of a city fell from 6.4% in 2020 to 6.2% so far this year.
Over the remainder of the year and into next, we expect yields to broadly stabilise at longer-term averages after falls over the course of the pandemic. While there might be a little more room for growth in city centre yields across the country as rental demand strengthens, returns for new landlords in the countryside are likely to come under pressure from continued house price growth. 
Yields in city centres have bounced back after last year’s pandemic driven falls. The average investor who purchased a buy-to-let in a city so far this year achieved a gross yield of 5.3%, up from 4.7% in 2020 when rents fell and put pressure on landlord returns. But weaker house price growth combined with a recovery in rents this year have fuelled a rise in yields, offering investors stronger returns.
This is particularly true in London, where the pandemic hit rents the hardest. In June, rents in Inner London stood 16.5% lower than the same time last year, down from a low of -20.4% in April. Yet signs of a rental recovery combined with weaker house price growth mean yields in the capital have risen to the highest level in six years. As a result, 35% of landlords purchasing a buy-to-let in London so far this year achieved a gross yield more than 5%, up from 30% in 2020 and 33% in 2019. This increase has been driven by stronger rental growth in Outer London, where yields tend to be higher.
Flats in the capital have seen the biggest increase in yields, from 4.2% in 2020 to 4.7% in 2021. This has been driven by the shift in price growth during the pandemic, with prices for flats softening, while houses have outperformed. With houses in higher demand as people have sought more space, the average gross yield for a house in London has remained flat at 4.4%.
While rents in other cities have been hit to a lesser extent than those in London, yields in cities outside the capital have also recovered to pre-pandemic levels. The average yield in these cities has risen from 5.9% in 2020 back to 6.2% in 2021. Yields tend to be stronger in these areas than in London. Outside London, two-thirds of new landlords achieved a gross yield of more than 5% this year.
In contrast to city centres, yields in smaller towns, suburbs and the countryside across England & Wales have fallen over the last year, resulting in weaker returns for new landlords. Despite strong demand for rental accommodation in these areas, strong house price growth has meant that the average gross yield outside of a city fell from 6.4% in 2020 to 6.2% so far this year.
Over the remainder of the year and into next, we expect yields to broadly stabilise at longer-term averages after falls over the course of the pandemic. While there might be a little more room for growth in city centre yields across the country as rental demand strengthens, returns for new landlords in the countryside are likely to come under pressure from continued house price growth.
