UK Rental Yield Calculator 2025
Calculate the gross and net rental yield on your buy-to-let property. Factor in mortgage payments, letting agent fees, maintenance costs, insurance, service charges, and void periods to see your true return on investment.
What Is Rental Yield?
Rental yield is the annual return on a property investment expressed as a percentage of the property's value. It is one of the most important metrics used by buy-to-let investors, landlords, and property analysts to evaluate whether a property is a worthwhile investment. A higher rental yield means you are earning more rental income relative to what you paid for (or could sell) the property.
Rental yield is distinct from capital growth, which measures how much the property's value increases over time. Ideally, a good property investment delivers both a healthy rental yield (regular income) and capital appreciation (long-term value growth). Some investors prioritise yield for cash flow, while others accept lower yields in areas with stronger capital growth potential, such as London and the South East.
There are two main types of rental yield: gross yield, which is a simple headline figure, and net yield, which accounts for the ongoing costs of owning and managing the property. Understanding both is essential for making informed investment decisions.
Gross Yield vs Net Yield
Gross rental yield is the simplest calculation. It divides the total annual rental income by the property value and multiplies by 100. For example, if a property worth £200,000 generates £12,000 in annual rent, the gross yield is 6.0%. This figure is easy to calculate and useful for quick comparisons, but it does not tell the whole story.
Net rental yield is a more accurate measure because it deducts all operating expenses from the annual rental income before dividing by the property value. Operating expenses include management fees, maintenance and repairs, insurance, ground rent and service charges, and an allowance for void periods. Net yield is typically 1 to 3 percentage points lower than gross yield.
The formulas are:
- Gross yield = (Annual rental income / Property value) × 100
- Net yield = ((Annual rental income − Annual expenses) / Property value) × 100
For example, consider a £250,000 property renting for £1,100 per month (£13,200 annually), with annual expenses of £3,800:
- Gross yield: £13,200 / £250,000 × 100 = 5.28%
- Net yield: (£13,200 − £3,800) / £250,000 × 100 = 3.76%
The 1.52 percentage point difference reflects the real cost of operating the property. Always use net yield when evaluating profitability.
What Is a Good Rental Yield in the UK?
Rental yields vary significantly across the UK. London and the South East typically have the lowest yields because property prices are disproportionately high relative to rents. Northern cities and some coastal towns often offer the highest yields. The following table shows typical gross yield ranges by region:
| Region | Typical Gross Yield | Commentary |
|---|---|---|
| London (Zone 1-2) | 3.0% – 4.0% | Low yield but strong capital growth potential |
| London (Outer) | 3.5% – 4.5% | Slightly better yield than central London |
| South East | 3.5% – 5.0% | Moderate yield, good demand from commuters |
| South West | 4.0% – 5.5% | Popular holiday let areas can push yields higher |
| Midlands | 5.0% – 7.0% | Good balance of yield and growth |
| North West | 5.5% – 8.0% | Manchester and Liverpool offer strong yields |
| North East | 6.0% – 9.0% | Highest yields but slower capital growth |
| Scotland | 5.0% – 7.5% | Glasgow and Edinburgh are strong rental markets |
| Wales | 5.0% – 7.0% | Good yields in Cardiff and Swansea |
As a general rule, a gross yield of 5% or above is considered respectable, and a net yield of 4% or above is considered strong. However, context matters: a 3.5% yield in a prime London postcode may be a better long-term investment than a 9% yield in an area with declining demand, depending on your investment strategy.
Buy-to-Let Costs to Consider
Before purchasing a buy-to-let property, it is essential to understand all the ongoing costs that will eat into your rental income. Many first-time landlords underestimate these costs, leading to disappointing returns. Here is a comprehensive list of expenses you should budget for:
Mortgage Payments
Buy-to-let mortgages typically require a deposit of at least 25% and carry higher interest rates than residential mortgages. Most are interest-only, meaning your monthly payments are lower but you do not reduce the loan balance over time. Buy-to-let mortgage rates are typically 1 to 2 percentage points higher than equivalent residential rates. Lenders usually require the rental income to cover at least 125% to 145% of the mortgage payment.
Management Fees
If you use a letting agent to manage the property, expect to pay 8% to 15% of the monthly rent. Full management services (including tenant finding, rent collection, and maintenance coordination) typically cost 10% to 12%. Tenant-find-only services are cheaper at around 50% to 100% of one month's rent as a one-off fee. Self-managing saves this cost but requires your time and expertise.
Maintenance and Repairs
Budget 1% to 2% of the property value per year for maintenance and repairs. Older properties and those with gardens require more upkeep. Common costs include boiler servicing, plumbing repairs, roof maintenance, redecorating between tenancies, and replacing white goods. Setting aside a maintenance fund prevents unexpected costs from catching you out.
Insurance
Landlord insurance is essential and typically costs £200 to £500 per year depending on the property. This should include buildings insurance, landlord liability cover, and optionally contents insurance if you let the property furnished. Rent guarantee insurance, which covers lost rent if a tenant defaults, costs an additional £150 to £300 per year.
Ground Rent and Service Charges
If your property is leasehold (common with flats), you will pay ground rent (typically £200 to £500 per year) and service charges (typically £1,000 to £3,000 per year for a flat). Service charges cover communal area maintenance, building insurance, lifts, and any shared amenities. These are non-negotiable costs that can significantly reduce your net yield.
Void Periods
No property is occupied 100% of the time. You should budget for at least 2 to 4 weeks of void periods per year, during which you earn no rent but still pay mortgage, insurance, and other fixed costs. Properties in high-demand areas tend to have shorter voids, while student lets may have extended summer voids of 8 to 12 weeks.
Section 24 Tax Changes for Landlords
One of the most significant changes affecting buy-to-let investors in recent years is Section 24 of the Finance Act 2015, which was phased in between April 2017 and April 2020. This legislation fundamentally changed how mortgage interest is treated for tax purposes for individual landlords.
Before Section 24, individual landlords could deduct mortgage interest payments in full from their rental income before calculating their tax liability. This was particularly beneficial for higher-rate taxpayers, who effectively received 40% or 45% tax relief on their mortgage interest.
Under the new rules, mortgage interest can no longer be deducted from rental income. Instead, landlords receive a flat 20% tax credit on their mortgage interest payments, regardless of their tax band. This means higher-rate and additional-rate taxpayers now pay significantly more tax on their rental income.
For example, consider a landlord with £20,000 annual rental income and £8,000 in mortgage interest who pays 40% income tax:
| Scenario | Before Section 24 | After Section 24 |
|---|---|---|
| Rental income | £20,000 | £20,000 |
| Mortgage interest deduction | −£8,000 | £0 |
| Taxable income | £12,000 | £20,000 |
| Tax at 40% | £4,800 | £8,000 |
| 20% tax credit on interest | N/A | −£1,600 |
| Final tax bill | £4,800 | £6,400 |
The landlord pays £1,600 more in tax each year under Section 24. For some landlords with high loan-to-value mortgages, this change has turned profitable investments into loss-making ones. Many have responded by incorporating their rental properties into limited companies, where mortgage interest remains fully deductible as a business expense. However, incorporation involves stamp duty costs and potentially capital gains tax, so it is not always beneficial.
Worked Examples
Example 1: Terraced House in Manchester
A two-bedroom terraced house purchased for £180,000, renting at £850 per month. The landlord has a buy-to-let mortgage of £135,000 at 5.5% interest-only (£619 per month). Annual costs include £1,020 management fees (10%), £1,800 maintenance, £320 insurance, and 2 weeks of voids.
- Annual rent (after voids): £10,200 × (50/52) = £9,808
- Gross yield: £9,808 / £180,000 = 5.45%
- Annual expenses: £1,020 + £1,800 + £320 = £3,140
- Net yield: (£9,808 − £3,140) / £180,000 = 3.70%
- Annual mortgage cost: £619 × 12 = £7,428
- Annual profit: £9,808 − £3,140 − £7,428 = −£760
This property makes a small cash-flow loss after mortgage payments. The investor may accept this if they expect capital appreciation, or they might look for ways to increase the rent or reduce expenses.
Example 2: Flat in Leeds Owned Outright
A one-bedroom flat purchased for £120,000, no mortgage, renting at £700 per month. Annual costs include £1,008 management fees (12%), £600 maintenance, £280 insurance, £1,800 service charge, and £250 ground rent. Estimated 3 weeks of void periods.
- Annual rent (after voids): £8,400 × (49/52) = £7,915
- Gross yield: £7,915 / £120,000 = 6.60%
- Annual expenses: £1,008 + £600 + £280 + £1,800 + £250 = £3,938
- Net yield: (£7,915 − £3,938) / £120,000 = 3.31%
- Annual profit: £7,915 − £3,938 = £3,977
- Monthly profit: £331
Without a mortgage, this property is comfortably profitable. However, the service charge and ground rent significantly reduce the net yield compared to a freehold property.
Example 3: HMO in Nottingham
A four-bedroom house converted to a House in Multiple Occupation, purchased for £250,000 with a £187,500 mortgage at 6% (£937.50 per month interest-only). Each room lets for £500 per month (£2,000 total). Annual costs include £2,880 management fees (12%), £3,000 maintenance, £500 insurance, plus council tax and bills of £3,600 (paid by the landlord for HMOs). Estimated 4 weeks voids across all rooms.
- Annual rent (after voids): £24,000 × (48/52) = £22,154
- Gross yield: £22,154 / £250,000 = 8.86%
- Annual expenses: £2,880 + £3,000 + £500 + £3,600 = £9,980
- Net yield: (£22,154 − £9,980) / £250,000 = 4.87%
- Annual mortgage cost: £937.50 × 12 = £11,250
- Annual profit: £22,154 − £9,980 − £11,250 = £924
HMOs generate higher gross yields but come with higher expenses and management complexity. The higher yield compensates for the additional work and risk involved.
Common Mistakes When Calculating Rental Yield
1. Using Gross Yield to Make Investment Decisions
Gross yield is a useful screening tool, but it can be misleading if used in isolation. A property with a high gross yield might have very high expenses (significant service charges, major repairs needed, or high void rates) that make it unprofitable at the net level. Always calculate net yield before committing to a purchase.
2. Underestimating Maintenance Costs
Many new landlords budget too little for maintenance and repairs. A good rule of thumb is to set aside 1% to 2% of the property value per year. Older properties, those with gardens, or properties with ageing boilers and roofs may need even more. A single boiler replacement can cost £2,500 to £4,000 and wipe out several months of profit.
3. Ignoring Void Periods
Assuming 100% occupancy is unrealistic. Even in high-demand areas, you will experience gaps between tenants for referencing, cleaning, and minor repairs. Budget for at least 2 weeks per year, and more in less popular areas or for seasonal lets.
4. Forgetting Regulatory Costs
Landlords must comply with gas safety regulations, electrical safety standards, Energy Performance Certificate (EPC) requirements, and potentially HMO licensing. These ongoing costs are often overlooked but can add £500 to £1,500 per year, particularly for older properties that need upgrades to meet minimum EPC ratings.
5. Not Accounting for Tax
Rental income is taxable, and since Section 24, mortgage interest relief has been limited to 20%. Higher-rate taxpayers can find that a property that looks profitable before tax becomes loss-making after tax. Always factor in your personal tax rate and the impact of Section 24 when assessing whether a buy-to-let makes financial sense.