If you’re looking for a new investment opportunity, then buying a buy-to-let property in London may be the way to go. But with so many areas of the city to choose from, it can be difficult to know where is the best place to make your investment.
But first, there’s a question of whether London is the right location at all. The property market in the capital has grown exponentially over the past decade. According to the UK House Price Index, the average house price in London has increased from £311,364 to £535,789 over the last 10 years (January 2013 to January 2023). Our internal data shows most investors have a budget of around £50,000 to use as a deposit, which would put London out of touch given most buy-to-let mortgages require a 70-80% loan-to-value (LTV) ratio.
And although rental prices have grown in that time too, the high purchase price of London property means it can be difficult to achieve a solid, profitable rental yield, which is key for any buy-to-let investor.
Plus, Savill’s regional forecasts predict a slower rate of house price growth in London over the next 5 years than anywhere else in the country (excluding prime, luxury-level properties).
None of this means London is a bad choice. Even a small percentage increase in house prices in London can result in a substantial amount of raw monetary value (other areas across the country simply have more scope for bigger percentage increases given their lower starting position). And, Savill’s report (above) estimates London will see the biggest growth in rental prices than anywhere else in England as graduates and young professionals continue to flock to the capital.
So, with rental demand set to soar, this leads us back nicely to the question of where are the best areas for a buy-to-let in London. Data from Portico shows there are still pockets of the city that deliver strong rental yields, meaning careful, smart choices by investors can generate excellent returns.
So, where are the best buy-to-let areas in London in 2023?
There’s often lots of hype about London, with certain areas touted as hotspots or ‘the next big thing’. In this report, we want to remove the hype and use data to make an objective analysis.
So, we’ve scored each postcode district in London on two factors:
- Rental yield – The annual rental income as a percentage of the property’s value. Yield is key to profitability, as the higher the yield, the more likely it is that the monthly rental income covers all costs with room to spare.
- Five-year price growth – The growth in average asking prices over the past five years. Whilst past performance is no guarantee of future growth (especially during the anticipated market slowdown), it is nonetheless a highly useful indicator.
The best buy-to-let opportunities offer a balance of both factors, so we’ve used a simple system to calculate the best spots:
- The postcode with the highest rental yield receives 119 points (as there are 119 postcodes in our research). The second-best receives 118 points. And so on.
- The postcode with the highest growth over the last five years receives 119 points. The second-best receives 118 points. And so on.
We then weighted the results by doubling the rental yield scores. This helps to reward postcodes with higher yields, which is very important for a buy-to-let investment strategy. It also helps to push down London’s most expensive areas, making this research more applicable to investors with a wide range of budgets.
Finally, the points were added together to calculate a final score.
Now, without further ado, here are the top 20 buy-to-let areas in London:
|Postcode||Area||Avg asking price||Avg rental price||Avg yield||Yield score||Five-year price growth||Growth score||Combined score|
|E13||Plaistow, Upton Park||£405,851||£1,923||5.70%||234.00||12%||85.00||319.00|
|SE14||New Cross, New Cross Gate||£431,853||£1,789||5.00%||192.00||16%||101.00||293.00|
|E15||Stratford, West Ham||£439,957||£2,105||5.70%||232.00||2%||41.00||273.00|
|E12||Manor Park, Little Ilford, Aldersbrook||£450,667||£1,738||4.60%||170.00||13%||89.00||259.00|
|E3||Bow, Mile End||£435,425||£2,180||6.00%||236.00||-4%||22.00||258.00|
Our data shows that the best buy-to-let area in London is E9, covering parts of Hackey and Homerton. Interestingly, this result is part of a wider pattern, whereby the table is dominated by areas in the East and South East (plus a healthy sprinkling of North London postcodes).
Compared to other parts of London, many areas in the table above are historically poorer neighbourhoods. They’re in a transition process as extensive regeneration projects revive and boost the local communities.
But for now, they’re in the early stages. And that means that whilst average prices have increased substantially over the past five years, they’re still far more affordable than other areas in London. Plus, rents are more proportionate to these prices, resulting in solid yields.
Now, let’s take a closer look at the five top performers.
E9 – Hackney and Homerton
To get the most return on your buy-to-let investment in London, our data shows E9, covering Hackey and Homerton, is the best choice. With solid rental yields (for London) of 5.4% and a staggering growth in average prices of 20%, it represents an excellent choice for investors.
Furthermore, investors will not be short of tenants. Hackney and the surrounding areas are in high demand as the entire borough makes rapid progress. Excellent transport links, green spaces like the ever-popular Victoria Park, a famed cultural scene, and good rental value are major pulls.
All in all, with its mix of traditional terraced houses and modern apartments, London’s E9 postcode is an ideal place to invest in a buy-to-let.
E9 by the numbers:
- Average asking price – £509,531
- Average rental price – £2,281
- Average annual income from rent – £27,372
- Average rental yield – 5.40%
- Five-year property price growth – 20%
E6 – East Ham
Five miles to the southeast of E9 is E6, covering East Ham. Properties are slightly cheaper, but average yields remain equally high at 5.4%.
East Ham is on the rise, with plenty of redevelopment projects either finished, in progress or in the pipeline. And that’s led to a proliferation of interest from renters, especially those looking for a balance between affordability and location.
Plus, with an average asking price slightly lower than E9 but a very strong growth in prices over the last five years, it represents an excellent alternative choice for investors with lower budgets.
E6 by the numbers:
- Average asking price – £432,850
- Average rental price – £1,948
- Average annual income from rent – £23,376
- Average rental yield – 5.4%
- Five-year property price growth – 18%
SE28 – Thamesmead
There are many reasons to invest in property in SE28. Primarily covering Thamesmead but stretching across to Woolwich, the area has excellent links to central London, making it a convenient place to live or work. Nonetheless, with a riverside spot towards the outer reaches of London’s southeast, it’s easy for residents to escape the city at the weekend and head into Kent – a major attraction for families.
Most notably though, SE28 offers the strongest yield of any postcode in the capital according to our data. Combine that with a very affordable average asking price that has shown clear evidence of strong improvements in the past five years (+12%), and it may be the perfect time to enter the local market as an investor.
SE28 by the numbers:
- Average asking price – £331,477
- Average rental price – £1,678
- Average annual income from rent – £20,136
- Average rental yield – 6.1%
- Five-year property price growth – 12%
E13 – Plaistow and Upton Park
E13, home to Plaistow and Upton Park, actually neighbours E6 (see above), highlighting the strength of the area.
In fact, this section of East London, plus nearby Stratford and West Ham some of the most up-and-coming areas in the city. These once-neglected districts are thriving with new businesses, restaurants, and residential developments thanks to several regeneration projects. As a result, property prices in the area have sharply increased in recent years, with E13 up 12% in the last five years. Even so, there’s still an opportunity for savvy investors to purchase property in these areas while prices are still relatively affordable.
Therefore, it’s no surprise that E13 generates one of the strongest rental yields in all of London, with an average of 5.7% coming in at the third-highest in our top 20.
E13 by the numbers:
- Average asking price – £405,851
- Average rental price – £1,923
- Average annual income from rent – £23,076
- Average rental yield – 5.7%
- Five-year property price growth – 12%
N18 – Upper Edmonton
N18, covering Upper Edmonton, is the first postcode from north of the Thames, making it the best buy-to-let area in North London.
Sitting in between Edmonton, Walthamstow and Tottenham, N18 and Upper Edmonton have serious potential. It is the subject of a £6bn council-led regeneration project, named Meridian Water, that will bring 10,000 new homes to the area. There’s also a £850m project to redevelop Joyce Avenue and Snell’s Park.
With the area set to be transformed over the next decade, now may be the perfect time for investors to get involved, especially with the entry-level prices on offer.
N18 by the numbers:
- Average asking price – £387,951
- Average rental price – £1,725
- Average annual income from rent – £20,700
- Average rental yield – 5.3%
- Five-year property price growth – 15%
If you know where to look, there is value to be found all over London for a buy-to-let investor. By using data to remove assumptions and conduct an objective analysis, you can identify some of the highest potential spots across the entire region – helping you steal a march on the market and generate even better returns long-term.
Please get in touch if you’d like to invest in a buy-to-let in London. We’re a property investment company with an office in Canary Wharf. And with decades of combined experience amongst our team, we know how to help you find and acquire a property that suits your budget and goals.
Get in touch to learn more and speak to our team today:
About the data
The data in this article comes from PropertyData. It accurately represents the London property market as of August 2023. We’ll update this report next year, in 2024, with fresh data.