UK housing
Central London is performing less well for landlords than the rest of the countryReuters

Landlords are making better returns on their investments in cities outside of central London amid rising rents and property prices.

According to estate agent Knight Frank, the gross yield for landlords in central London is 4.3%. But this is well below the UK average of 6.4%. In Manchester and Leeds, the gross yield is 8.2% and in Birmingham, it is 8.1%.

House prices are rising all across the UK as the economy recovers and mortgages are cheap because of the record-low 0.5% Bank of England base rate.

According to the Office for National Statistics (ONS), the average price of a UK home hit £262,000 in May 2014 after leaping 10.5% across the year.

That means that the average landlord in the UK is raking in £11,266 per property a year in rent and capital gains, implied by the ONS and Knight Frank data.

"Capital growth has accelerated in every area we monitor over the last six months, with the exception of central London, where annual growth slowed from 9.5% in Q4 2013 to 7.6% in Q2 this year," said Grainne Gilmore, head of UK residential research at Knight Frank.

"However the outer zones of London experienced the biggest growth in capital values, with an average 13.5% rise in zones 3-6 rising in value by 13.5% and blocks in zones 2 and 3 rising by an average of 12.9%.

"Rental growth has not quite kept pace with the rise in capital values however, with average rents increasing by 2.6% in the year to Q2. This is down from a rise of 2.9% in 2013. However the regional picture varies.

"London has seen rents picking up over the last six months from a low base. While there has been a slight moderation in regional rental growth, these city markets are still far outperforming the capital in terms of annual rental increases."

While rising rents and house prices are good for landlords, they are bad news for renters and first-time buyers.

Rents are rising twice as quickly as wages in England and Wales as the cost of living squeeze continues. The average monthly residential rent was £747 in June having risen by 1.4% across the year.

That is according to LSL Property Services in its monthly buy-to-let index for June. ONS figures show that regular pay was growing at a rate of 0.7% in June. But rents were rising more slowly than price inflation, which lifted 1.9% in the same month.