"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"
- Sam Humphreys - Dwelly
New research from Dwelly has identified which areas of the British rental market are currently delivering the strongest returns for landlords as they prepare for tax increases announced in last week's Autumn Budget.
Dwelly analysed the latest government house price data alongside recent rental market figures from the ONS to identify areas delivering the strongest current average rental yields, as well as those that have seen the largest annual increases since last Christmas.
Tax pressures on landlord profitability are increasing. 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.
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, analysis reveals that the highest yielding areas of the UK remain concentrated in Scotland, Wales and parts of the North. West Dunbartonshire leads the market at 9.1%.
Other strong performers within the top ten include Greater Glasgow at 7.8%, Renfrewshire/Inverclyde at 7.0%, Merthyr Tydfil at 6.6%, Newcastle upon Tyne at 6.6%, Portsmouth at 6.5%, North Lanarkshire at 6.4%, Dundee and Angus at 6.3%, Southampton at 6.3% and Manchester at 6.2%.
Dwelly also identified the markets where yields have strengthened most over the past 12 months. Merthyr Tydfil has recorded the sharpest uplift at 0.94 percentage points, driven by a combination of rising rents and softening house prices. Westminster has also seen notable improvement at 0.54 percentage points, followed by Rhondda Cynon Taf at 0.51 percentage points, Tower Hamlets at 0.49 percentage points and West Dunbartonshire at 0.47 percentage points.
Great annual improvements were further recorded in Barking and Dagenham at 0.45 percentage points, Lambeth at 0.44 percentage points, Rutland at 0.43 percentage points, Redcar and Cleveland at 0.43 percentage points, and King's Lynn and West Norfolk at 0.42 percentage points.
"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," said Sam Humphreys, head of M&A at Dwelly.
"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," Humphreys added. "For landlords facing a higher tax environment, these areas offer valuable opportunities to help maintain margins as operating costs continue to rise."
