Scotland and Wales lead for rental yields as landlord margins tighten

The strongest landlord yields are concentrated in Scotland, Wales and parts of the North, according to research from Dwelly.

Its study examined government house price records and the latest ONS rental figures to highlight where returns remain most resilient.

The analysis comes after the OBR confirmed that tax on property income, savings and dividends will rise by 2%.

For landlords operating as individuals, higher taxes will cut net yields at a time of rising compliance costs.

Incorporated investors will also feel the impact through changes to dividend and savings income.

Another landlord tax increase

Sam Humphreys, the firm’s head of M&A, said: “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.”

He added: “For landlords facing a higher tax environment, these areas offer valuable opportunities to help maintain margins as operating costs continue to rise.”

Smaller landlords will struggle

Analysts warn that smaller landlords, in particular, may struggle to absorb yet another income hit, increasing the risk of further contraction in the private rented sector.

Across Great Britain, the average yield has held at 6% over the past year.

Rising rents have broadly kept pace with climbing house prices, helping stabilise returns.

Dwelly’s breakdown shows that West Dunbartonshire sits at the top of the rankings with a 9.1% yield.

The best rental yields

Other high yielding markets include Greater Glasgow at 7.8%, Renfrewshire and Inverclyde at 7%, Merthyr Tydfil and Newcastle upon Tyne at 6.6%.

They are followed by Portsmouth at 6.5%, North Lanarkshire at 6.4%, Dundee and Angus at 6.3%, Southampton at 6.3% and Manchester at 6.2%.

The research also identifies where yields have climbed most sharply over the year.

The firm points to Merthyr Tydfil for recording the largest increase, up 0.94 percentage points as rents rose and prices softened.

Westminster followed with a 0.54 point rise, ahead of Rhondda Cynon Taf at 0.51, Tower Hamlets at 0.49 and West Dunbartonshire at 0.47.

Other notable annual improvements were seen in Barking and Dagenham, Lambeth, Rutland, Redcar and Cleveland, King’s Lynn and West Norfolk.

Property118 commercial reality check

The numbers confirm a familiar truth. Strong yields still exist, yet they reward scale, structure and disciplined capital allocation. Tax friction is rising for every ownership model, which means the landlords who treat their portfolios as businesses will keep their margins while others feel squeezed. Noise about shrinking returns hides a more important point. Regional yield dispersion creates opportunity for those who plan early and act with intent.

What serious landlords should do next

Model your post-tax yields with precision
Run updated cash flow forecasts that factor in the 2% rise to property income, savings and dividend tax. Quantify the impact on each unit rather than relying on portfolio averages. A single percentage point change can alter gearing strategy, refinancing timetables and acquisition criteria.

Document and audit readiness: Prepare valuations, rent schedules and cost histories so you can benchmark assets against the high-performing regions identified in the research. Clean records support faster decision making when opportunities appear.

Smart refinancing: Review fixed rate expiries and interest coverage now. Rising yields in parts of Scotland and Wales strengthen the case for targeted refinancing to improve cash flow and free working capital for selective expansion.

Selective disposals: Dispose of drag assets that no longer meet your return thresholds. Rebalancing into stronger yielding regions can lift overall portfolio efficiency and strengthen your balance sheet. If you are considering selling, it is worth reviewing this guide on calculating Capital Gains Tax before making any decisions: https://www.property118.com/why-every-landlord-should-calculate-cgt-before-selling-a-single-property/

Structural planning: Reassess whether individual or corporate structures remain optimal given the latest tax changes. Ownership structure affects dividend strategy, borrowing capacity and long-term exit planning.