Gross & net rental yield for buy-to-let properties
Gross yield is simple: annual rent divided by property value. It's the headline figure used to compare properties quickly. Net yield is more useful: it deducts all realistic costs to show your actual return on the property value. A property with a 7% gross yield might deliver only 3–4% net yield once all costs are accounted for.
Gross yield benchmarks vary widely by location. London: 3–5%; South East: 4–6%; Midlands and northern cities: 6–9%; some northern towns: 8–12%. As a rule of thumb, gross yields above 7% are strong for UK residential property. Net yields (after all costs) of 4–5% are solid; anything above 6% net is excellent. Don't be seduced by very high gross yields in depressed areas — tenant demand, void risk, and capital growth potential matter as much as yield.
Gross yield: (annual rent ÷ property value) × 100. Simple and quick to calculate, useful for initial comparisons. Net yield: (annual rent − all annual costs) ÷ property value × 100. Costs typically subtract 25–45% from gross rent. If a property generates £12,000/year gross rent but costs £5,500 per year (mortgage interest, agent, maintenance, insurance, voids), the net profit is £6,500. On a £200,000 property, that's a 3.25% net yield vs 6% gross.
Gross yield = (Monthly rent × 12) ÷ Purchase price × 100. Example: £900/month × 12 = £10,800/year. £10,800 ÷ £180,000 × 100 = 6.0% gross yield. Net yield: subtract all annual costs from £10,800. If total annual costs are £4,500 (mortgage interest, agent 10%, maintenance £1,500, insurance £300, 4-week void), net income = £6,300. Net yield = £6,300 ÷ £180,000 × 100 = 3.5%.
Buy-to-let remains viable but requires more careful analysis than it did a decade ago. Section 24 (tax changes limiting mortgage interest relief for higher-rate taxpayers) means highly leveraged portfolios face a much higher tax burden. Higher mortgage rates in 2024–2026 have squeezed cash flow significantly. EPC requirements (properties must achieve EPC rating C or above to rent legally after 2028) may require upfront capital expenditure. Despite this, strong rental demand, shortage of housing supply, and long-term capital growth in quality areas continue to attract investors. The key: buy in areas with strong rental demand, aim for higher yields, and run the numbers carefully.
Comprehensive cost checklist: mortgage interest (not capital repayment for cash-flow calculation); letting agent fees (8–12% for let-only, 12–18% for full management); annual maintenance budget (1% of property value is a common rule of thumb); landlord building and contents insurance (£150–£400/year); annual gas safety certificate (£60–£100); EICR (electrical inspection, £150–£250, every 5 years); void periods (budget 4–8 weeks/year); ground rent and service charges (leasehold flats); property management for self-managing landlords (time cost); and income tax on profits. Don't forget acquisition costs (SDLT second home surcharge, legal fees, survey) and eventual capital gains tax when modelling total return.
Researched and maintained by Iulian, founder of Flux Media Systems. General information, not professional advice — about this site & our sources →