Dwelly reveals the strongest rental market for current returns
The latest research from Dwelly has highlighted which pockets of the British rental market are currently providing landlords with the greatest returns, helping them combat the incoming tax hikes announced in last week’s Autumn Budget.
Dwelly analysed the latest Government house price data alongside the most recent rental market figures from the ONS to identify the areas delivering the strongest current average rental yields, as well as those that have seen the largest annual increases since last Christmas*.
Increased tax pressures deepen the squeeze on landlord profitability
Alongside the headline property measures in the Budget, the OBR’s updated fiscal tables confirm that tax rates on property income, savings income and dividend income will all rise by 2 percentage points over the forecast period. These changes did not feature prominently in the Chancellor’s speech but form a core part of the government’s revenue strategy.
For landlords operating outside corporate structures, higher taxation on property income will directly reduce net rental returns at a time when many are already navigating increased regulation and operational demands. The rise in savings and dividend tax will further impact incorporated landlords and those who rely on investment income, fuelling a broader decline in net yields for private investors.
These measures are likely to place particular pressure on smaller, amateur landlords and could accelerate the gradual contraction of the rental sector if investors continue to face diminishing returns. Against this backdrop, identifying strong-performing rental markets becomes increasingly important.
Strongest current average rental yields
The research by Dwelly shows that, across Great Britain, the average rental yield has remained broadly stable at 6.0% over the past year, with rents rising but house prices also edging upward.
However, Dwelly’s analysis reveals that the highest yielding pockets of the UK remain concentrated in Scotland, Wales and parts of the North, with West Dunbartonshire (9.1%) leading the market.
Other strong performers within the top ten strongest rental markets include Greater Glasgow (7.8%), Renfrewshire/Inverclyde (7.0%), Merthyr Tydfil (6.6%), Newcastle upon Tyne (6.6%), Portsmouth (6.5%), North Lanarkshire (6.4%), Dundee and Angus (6.3%), Southampton (6.3%) and Manchester (6.2%).
Largest annual increases in yield since last Christmas
Dwelly also identified the markets where yields have strengthened most over the past 12 months. Merthyr Tydfil (+0.94pp) has recorded the sharpest uplift, driven by a combination of rising rents and softening house prices. Westminster (+0.54pp) has also seen a notable improvement, followed by Rhondda Cynon Taf (+0.51pp), Tower Hamlets (+0.49pp) and West Dunbartonshire (+0.47pp).
Strong annual improvements were further recorded in Barking and Dagenham (+0.45pp), Lambeth (+0.44pp), Rutland (+0.43pp), Redcar and Cleveland (+0.43pp) and King’s Lynn and West Norfolk (+0.42pp).
Sam Humphreys, Head of M&A at Dwelly, commented:
“With the Budget confirming yet another tax increase for landlords, identifying markets that offer strong or improving yields is essential, as even small percentage changes to property income tax and dividends can significantly impact overall portfolio performance.
Our analysis shows that despite rising pressures, there are still many parts of the country delivering exceptional returns, and others where yields have strengthened markedly over the past year.
For landlords facing a higher tax environment, these areas offer valuable opportunities to help maintain margins as operating costs continue to rise.”
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