What is a good rental yield in the UK?
The short answer: many landlords aim for a gross yield of 5% to 8%, which usually means a net yield of 3% to 6% after costs. A £200,000 home let at £1,050 a month has a gross yield of 6.3%, but a net yield nearer 3.7% once letting fees, empty months and running costs come off, and that is before any mortgage.
Gross and net yield
Gross yield = annual rent ÷ price × 100
Net yield = (annual rent − running costs) ÷ price × 100
| £200,000 property, £1,050 a month | Per year |
|---|---|
| Rent for 12 months | £12,600 |
| Two empty months | −£2,100 |
| Letting agent, 12% of rent collected | −£1,260 |
| Insurance, safety certificates, repairs | −£1,800 |
| Net income before mortgage and tax | £7,440 |
| Gross yield | 6.3% |
| Net yield | 3.7% |
Why yields vary so much by area
Rents don't rise in line with house prices. Cheaper areas often have higher yields, while expensive areas have lower yields but have historically seen bigger price growth. Illustrative examples:
| Example | Price | Monthly rent | Gross yield |
|---|---|---|---|
| Flat in a northern city | £120,000 | £750 | 7.5% |
| Terraced house, Midlands | £180,000 | £950 | 6.3% |
| Semi in the South East | £375,000 | £1,650 | 5.3% |
| Flat in outer London | £425,000 | £1,900 | 5.4% |
These are examples, not area averages. Check local rents on letting sites and sold prices before relying on any yield figure.
What a "good" yield depends on
- Your mortgage rate: if the net yield is below your mortgage rate, a highly borrowed property can lose money each month.
- Price growth: a lower yield can still work if you expect the property to rise in value, but that is not guaranteed.
- Tenant demand: a high yield in an area with long empty periods may be worth less than it looks.
- Property type: flats can have high service charges; HMOs have higher yields but more work and licensing.
- Your time: self-managing saves agent fees but takes effort.
Yield, cash flow and return on cash
Yield ignores the mortgage. If you buy with a 25% deposit, your return on cash is your profit after mortgage interest divided by the cash you put in, including stamp duty and fees. Borrowing can boost that return when rents are well above interest costs, and hurt it when they aren't. Buy-to-let lenders typically want the rent to be 125% to 145% of the interest at a stressed rate.
A worked example with a mortgage
The same £200,000 property, bought with a 25% deposit and a £150,000 interest-only buy-to-let mortgage at 5.5%:
| Net income before mortgage (from above) | £7,440 |
| Mortgage interest at 5.5% | −£8,250 |
| Cash profit or loss before tax | −£810 |
| Cash put in: deposit, stamp duty, fees (about) | £62,000 |
| Return on cash before tax | −1.3% |
A 6.3% gross yield sounds healthy, but after costs and interest this example loses money every year, and a higher-rate landlord could still owe Income Tax on top, because individual landlords canand there is still Income Tax on the rental profit, which for an individual landlord is worked out without deducting the mortgage interest.apos;t deduct mortgage interest and get only a 20% credit for it. That is why many landlords now rely on price growth, buy with more cash, or look for higher-yielding properties.
How to check a yield before you buy
- Get real rents: look at let-agreed listings for similar homes nearby, not asking rents, and ask two local letting agents.
- Check sold prices on the Land Registry or property portals, rather than the asking price.
- Price every cost: service charge and ground rent for flats, licensing fees, insurance, safety checks, maintenance (allow around 10% of rent), and letting fees.
- Allow for empty months: at least one a year, more for student or short-let areas.
- Stress test the mortgage at a rate 2 points higher, to see whether it still pays its way.
Rules that affect yield
- Energy efficiency: minimum EPC requirements for rented homes are tightening, so a low-rated property may need spending on it.
- Renters' Rights Act in England: fixed-term tenancies and no-fault evictions are ending, with rent rises limited to once a year.
- Selective licensing: some councils require a licence for every rented home in certain areas, at a cost of several hundred pounds.
Costs people forget
- Higher stamp duty on additional homes. See stamp duty on a second home.
- Tax on rental profit, with mortgage interest only getting a 20% credit. See how rental income is taxed.
- Capital Gains Tax when you sell. See Capital Gains Tax on a second home.
- Licensing, safety certificates, deposit protection and new rules from the Renters' Rights Act in England.
Figures are illustrative. Yields and costs vary widely by property and area.
Common questions
What is a good rental yield in the UK?
Many landlords look for a gross yield of 5% to 8%, which tends to leave a net yield of 3% to 6% after costs. What counts as good depends on the area, the property and whether you also expect the price to rise.
How do I calculate rental yield?
Gross yield is the annual rent divided by the price, times 100. For example, £1,050 a month on a £200,000 property is £12,600 a year, a gross yield of 6.3%.
What is the difference between gross and net yield?
Gross yield uses the rent alone. Net yield subtracts running costs such as letting fees, empty months, insurance, repairs and service charges. Net yield is the more realistic figure.
Does rental yield include the mortgage?
Yield is usually worked out before mortgage costs. To include the mortgage, look at your cash flow or return on the cash you put in.