Rental Yield Calculator UK 2026 - Buy-to-Let ROI Guide
Quick Summary
Rental yield is the cornerstone metric for buy-to-let property investment. Gross yield (annual rent divided by property value) gives a quick comparison, while net yield (after all expenses) reveals true property performance. In 2026, UK gross yields range from 3.5% in London to 8%+ in northern cities. With the stamp duty surcharge now at 5%, Section 24 tax changes, and mortgage rates around 5-6%, understanding yield calculations is essential before committing capital. This guide covers everything from basic formulas to advanced ROI analysis including capital growth.
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What Is Rental Yield?
Rental yield measures the annual rental income from a property as a percentage of its value. It is the most fundamental metric in property investment, used to compare potential investments and assess profitability.
There are two main types of rental yield that every property investor must understand:
Gross Rental Yield
Gross rental yield is the simplest calculation. It shows the total annual rental income as a percentage of the property's value, without deducting any costs:
Gross Yield Formula
Gross Yield = (Annual Rental Income / Property Value) x 100
This gives you a quick comparison between properties and locations, but it does not account for any operating costs.
Net Rental Yield
Net rental yield is a more realistic measure that accounts for annual operating costs:
Net Yield Formula
Net Yield = ((Annual Rental Income - Annual Operating Costs) / Property Value) x 100
Operating costs include management fees, insurance, maintenance, void periods, safety certificates, and other ongoing expenses. Net yield does NOT typically include mortgage payments or tax, as these depend on your personal financial situation.
Why Both Metrics Matter
Gross yield is best for: Quick property comparisons, area analysis, initial screening of investment opportunities.
Net yield is best for: Actual investment decisions, cash flow forecasting, comparing properties with different cost structures (e.g., leasehold vs freehold).
A general rule of thumb: net yield is typically 1.5-3 percentage points lower than gross yield, depending on the property type and management approach.
Use our buy-to-let calculator to calculate both gross and net yield for any property.
How to Calculate Rental Yield: Step-by-Step
Let us walk through detailed rental yield calculations with realistic numbers.
Gross Yield Calculation
Example: Two-Bedroom Flat in Manchester
Property details:
- Property value: £185,000
- Monthly rent: £1,050
- Annual rent: £1,050 x 12 = £12,600
Gross Yield = (£12,600 / £185,000) x 100 = 6.81%
Net Yield Calculation
Same Property - Net Yield
Annual operating costs:
| Letting agent management (10%) | £1,260 |
| Void periods (5% of rent) | £630 |
| Buildings and landlord insurance | £500 |
| Maintenance and repairs | £925 |
| Gas safety, EICR, EPC certificates | £280 |
| Accountancy fees | £400 |
| Total annual costs | £3,995 |
Net annual income: £12,600 - £3,995 = £8,605
Net Yield = (£8,605 / £185,000) x 100 = 4.65%
The difference between gross (6.81%) and net (4.65%) yield is 2.16 percentage points - this is your "cost drag" and represents the reality of running a rental property.
Cash-on-Cash Return (True ROI)
Neither gross nor net yield accounts for leverage (mortgages). Cash-on-cash return measures what you actually earn relative to the cash you have invested:
Same Property - Cash-on-Cash Return
Investment:
| Deposit (25%) | £46,250 |
| Stamp duty (5% surcharge) | £9,250 |
| Legal, survey, setup costs | £2,500 |
| Total cash invested | £58,000 |
Annual cash flow:
| Net rental income | £8,605 |
| Less: Mortgage interest (£138,750 at 5.5%) | -£7,631 |
| Less: Income tax impact (Section 24, 40% rate) | -£1,916 |
| Annual cash flow | -£942 |
Cash-on-Cash Return = (-£942 / £58,000) x 100 = -1.62%
Despite a strong 6.81% gross yield, this property produces negative cash flow for a higher-rate taxpayer due to mortgage costs and Section 24 tax impact. This demonstrates why gross yield alone is an inadequate measure of investment performance.
Average Rental Yields by UK Region
Rental yields vary dramatically across the UK. Understanding regional differences is crucial for identifying the best investment opportunities.
UK Regional Gross Rental Yields (2026)
| Region / City | Average Gross Yield | Average Property Price | Average Monthly Rent |
|---|---|---|---|
| Sunderland | 8.5-9.5% | £105,000 | £750-825 |
| Burnley | 8.0-9.0% | £95,000 | £650-700 |
| Liverpool | 7.0-8.5% | £145,000 | £850-1,000 |
| Manchester | 6.5-7.5% | £210,000 | £1,100-1,300 |
| Nottingham | 6.5-7.5% | £185,000 | £1,000-1,150 |
| Leeds | 6.0-7.0% | £200,000 | £1,000-1,150 |
| Birmingham | 5.5-6.5% | £220,000 | £1,000-1,200 |
| Newcastle | 6.0-7.5% | £165,000 | £850-1,000 |
| Bristol | 5.0-6.0% | £320,000 | £1,350-1,550 |
| Edinburgh | 5.0-6.0% | £290,000 | £1,250-1,400 |
| Outer London | 4.5-5.5% | £400,000 | £1,500-1,800 |
| Central London | 3.0-4.0% | £650,000+ | £1,800-2,200 |
The Yield vs Growth Trade-Off
There is generally an inverse relationship between rental yield and capital growth:
- High-yield areas (7%+): Lower property prices, stronger cash flow, but typically slower capital appreciation (2-4% per year)
- Low-yield areas (3-5%): Higher property prices, often negative cash flow, but stronger capital growth potential (4-7% per year)
A London flat yielding 4% gross but appreciating at 6% per year may outperform a Liverpool terrace yielding 8% but growing at 3% per year over a 10-year investment horizon. Your strategy should align with whether you prioritise income or long-term wealth building.
Best Areas for Rental Yield in 2026
Top 5 UK Cities for Gross Rental Yield
- Sunderland: 8.5-9.5% - Very affordable property, strong rental demand, regeneration potential
- Burnley: 8.0-9.0% - Among the lowest property prices in England, solid rental market
- Liverpool: 7.0-8.5% - Strong student and young professional market, ongoing regeneration
- Middlesbrough: 7.5-8.5% - Low entry prices, industrial heritage, growing rental demand
- Stoke-on-Trent: 7.0-8.0% - Affordable entry, university town, improving infrastructure
Gross Yield vs Net Yield: What Expenses to Include
The gap between gross and net yield represents the real cost of owning and managing a rental property. Understanding every expense is critical for accurate investment analysis.
Essential Operating Costs to Include in Net Yield
| Expense Category | Typical Annual Cost | % of Annual Rent |
|---|---|---|
| Letting agent management fees | 10-15% of rent | 10-15% |
| Void periods (empty property) | Varies | 5-10% |
| Maintenance and repairs | £500-2,000 | 4-10% |
| Buildings insurance | £200-600 | 2-4% |
| Landlord insurance | £100-300 | 1-2% |
| Gas safety certificate (CP12) | £60-90 | <1% |
| Electrical safety (EICR) | £40-60/year (every 5 years) | <1% |
| EPC certificate | £15-25/year (every 10 years) | <1% |
| Accountancy and tax return | £300-800 | 3-5% |
| Ground rent and service charge (leasehold) | £100-3,000+ | Varies widely |
Rule of Thumb: Net Yield Estimation
For a quick estimate, deduct 25-35% from gross rental income to approximate net income:
- Professionally managed freehold house: Deduct ~25-30%
- Professionally managed leasehold flat: Deduct ~30-40% (service charges add significantly)
- Self-managed freehold house: Deduct ~15-20%
If a property yields 7% gross with professional management, expect approximately 4.5-5% net yield.
Costs NOT Included in Net Yield (But Critical for Cash Flow)
- Mortgage payments: These are financing costs, not operating costs, so they are excluded from standard yield calculations
- Income tax / Corporation tax: Tax depends on your personal circumstances
- Capital expenditure: New boiler, kitchen renovation, roof repairs (one-off rather than annual)
- Stamp duty: A purchase cost, not an ongoing expense
For a complete investment analysis including mortgage and tax, use our buy-to-let calculator and mortgage calculator.
How to Calculate ROI Including Capital Growth
Rental yield alone does not tell the full investment story. Total return includes both rental income and property value appreciation (capital growth).
Total Return Formula
Total Return = Net Rental Yield + Capital Growth Rate
Example comparison over 1 year:
Property A - Liverpool (high yield, lower growth):
| Property value | £150,000 |
| Net yield | 5.5% = £8,250 |
| Capital growth (3%) | £4,500 |
| Total return | £12,750 (8.5%) |
Property B - London Zone 3 (low yield, higher growth):
| Property value | £400,000 |
| Net yield | 3.0% = £12,000 |
| Capital growth (5.5%) | £22,000 |
| Total return | £34,000 (8.5%) |
Both properties deliver 8.5% total return, but Property B generates £21,250 more in absolute terms because of the higher property value. However, Property B required over 2.5x the initial investment.
Return on Equity (Leveraged Returns)
When using a mortgage, your actual return on equity can be significantly amplified:
Leveraged ROI Example
Liverpool property with 75% LTV mortgage:
| Property value | £150,000 |
| Your equity (25% deposit + costs) | £45,000 |
| Net rental income after mortgage | £2,063 |
| Capital growth (3% on full £150k) | £4,500 |
| Mortgage principal repaid (if repayment) | £2,200 |
| Total return on YOUR equity | £8,763 (19.5%) |
Leverage amplifies the 8.5% property return to 19.5% return on your personal investment. However, leverage also amplifies losses if property values fall or rents decrease.
Section 24 Tax Relief Changes: Impact on Landlords
Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how mortgage interest is treated for tax purposes. Understanding its impact is essential for accurate yield and profitability analysis.
How Section 24 Works
Before April 2020 (old system): Landlords deducted their full mortgage interest payments from rental income before calculating income tax. A higher-rate taxpayer effectively received 40% tax relief on mortgage interest.
From April 2020 (current system): Mortgage interest can no longer be deducted from rental income. Instead, all landlords receive a flat 20% tax credit on mortgage interest paid, regardless of their tax band.
Section 24 Impact Example
Scenario: Rental income £15,000, operating costs £3,500, mortgage interest £8,000, landlord pays 40% tax
OLD system:
Taxable profit: £15,000 - £3,500 - £8,000 = £3,500
Tax at 40%: £1,400
After-tax profit: £2,100
NEW system (Section 24):
Taxable profit: £15,000 - £3,500 = £11,500
Tax at 40%: £4,600
Less 20% credit on mortgage interest: £8,000 x 20% = £1,600
Net tax: £3,000
Net profit after tax and interest: £11,500 - £3,000 - £8,000 = £500
Impact: Annual profit reduced from £2,100 to £500 - a 76% reduction in profit for this 40% taxpayer.
Strategies to Mitigate Section 24
1. Limited Company Ownership
Companies can still fully deduct mortgage interest before paying corporation tax (currently 19-25%). For higher-rate taxpayers, purchasing via a limited company often results in significantly better after-tax returns. However, extracting profits from the company triggers dividend tax, and incorporating existing properties can trigger CGT. Use our capital gains tax calculator to assess transfer costs.
2. Reduce Mortgage Borrowing
The less mortgage interest you pay, the smaller the Section 24 impact. Paying down mortgages or purchasing with larger deposits reduces the differential between the old and new tax systems.
3. Invest in Higher-Yield Properties
Higher rental yields create more "headroom" to absorb the additional tax. A property yielding 8% gross has more margin to remain profitable than one yielding 4%.
Mortgage Interest and Buy-to-Let Lending Criteria
Understanding mortgage requirements is essential because financing terms directly impact your investment returns.
Current BTL Mortgage Landscape (2026)
| Criteria | Typical Requirement |
|---|---|
| Minimum deposit | 25% (some lenders offer 20%) |
| Interest rates (75% LTV) | 5.0-6.0% (fixed 2-5 years) |
| Interest rates (60% LTV) | 4.5-5.5% |
| Rental coverage ratio (ICR) | 125-145% of mortgage payment at stress rate |
| Stress test rate | 5.5-6.5% (regardless of actual rate) |
| Minimum personal income | £25,000 (many lenders) |
| Maximum age at term end | 75-85 years |
| Mortgage type | Interest-only (most common) or repayment |
How Rental Coverage Ratio Works
ICR Calculation
Property: £200,000 with 25% deposit (£150,000 mortgage)
Stress test rate: 5.5%
Annual interest at stress rate: £8,250
Monthly interest: £687.50
Required monthly rent at 125% ICR: £859
Required monthly rent at 145% ICR: £997
If the achievable rent is only £900/month, a lender requiring 145% ICR would decline the application, even though a lender at 125% ICR would accept it. Shopping around between lenders or using a specialist BTL mortgage broker is essential.
Model different mortgage scenarios using our mortgage calculator and check what you can borrow with our mortgage affordability calculator.
HMO Yields vs Single Lets
Houses in Multiple Occupation (HMOs) - properties let to three or more tenants forming separate households - can significantly boost rental yields.
HMO vs Single Let: Yield Comparison
Same Property, Different Strategy
4-bedroom terraced house, value £180,000
As a single family let:
| Monthly rent | £1,100 |
| Annual rent | £13,200 |
| Gross yield | 7.3% |
As a 4-bed HMO (per room):
| Monthly rent per room (4 rooms x £500) | £2,000 |
| Annual rent | £24,000 |
| Gross yield | 13.3% |
But HMO costs are higher:
| HMO licence fee (amortised) | £200/year |
| Council tax (landlord pays) | £1,800 |
| Utility bills (landlord pays) | £3,600 |
| Higher management fees (15%) | £3,600 |
| Higher maintenance | £1,500 |
| Contents insurance | £400 |
| Higher void/turnover | £1,200 |
| Fire safety compliance | £300 |
| WiFi and communal costs | £600 |
| Total HMO-specific costs | £13,200 |
HMO net income: £24,000 - £13,200 = £10,800
HMO net yield: 6.0%
Single let net income: £13,200 - £4,000 = £9,200
Single let net yield: 5.1%
HMO advantage: 0.9% higher net yield, plus £1,600 more annual income.
HMO Licensing and Regulations
HMOs require mandatory licensing if they house 5 or more people from 2 or more households. Many councils also operate additional licensing for smaller HMOs. Requirements include:
- Minimum room sizes (6.51m2 for single, 10.22m2 for double)
- Fire safety measures (fire doors, alarms, extinguishers, escape routes)
- Kitchen and bathroom facilities ratios
- Annual gas and electrical safety certificates
- Waste management arrangements
- "Fit and proper person" test for the landlord
Operating an unlicensed HMO when a licence is required is a criminal offence with unlimited fines, and tenants can claim up to 12 months' rent back through a Rent Repayment Order.
Student Lets Market Analysis
Student property is a specialist sub-sector of the rental market with distinct characteristics that can deliver attractive yields.
Student Let Advantages
- Higher yields: Student lets typically achieve 7-10% gross yield due to per-room pricing
- Guaranteed demand: University towns have consistent annual demand from new student cohorts
- Group tenancies: Joint and several liability means all tenants are responsible for the full rent
- Parental guarantors: Many student tenancies come with parental guarantees, reducing default risk
- Predictable letting cycle: Most lets start in September, giving clear planning windows
Student Let Challenges
- Summer voids: Many student properties are empty June-September (3 months), effectively reducing annual income by 25%
- Higher wear and tear: Student properties typically require more frequent refurbishment
- University dependency: Reliance on a single institution's student numbers carries risk
- Purpose-built competition: Growing numbers of PBSA (purpose-built student accommodation) blocks compete for tenants
- HMO licensing: Most student houses require an HMO licence
Best University Towns for Student Let Yields
| University Town | Typical Student Room Rate (pcm) | Gross Yield |
|---|---|---|
| Sunderland | £350-425 | 9-11% |
| Stoke-on-Trent (Keele) | £375-450 | 8-10% |
| Liverpool | £425-525 | 8-10% |
| Nottingham | £450-550 | 7-9% |
| Leeds | £450-575 | 7-8% |
| Manchester | £500-625 | 6-8% |
| Birmingham | £475-575 | 6-8% |
| Bristol | £525-650 | 5-7% |
Stamp Duty Surcharge for Additional Properties
The stamp duty surcharge is a critical cost that impacts your overall return on investment. Since October 2024, the surcharge increased from 3% to 5% on all bands.
2025/26 Stamp Duty Rates for Buy-to-Let
| Property Value Band | Standard Rate | BTL Surcharge (+5%) | Total BTL Rate |
|---|---|---|---|
| Up to £250,000 | 0% | +5% | 5% |
| £250,001 - £925,000 | 5% | +5% | 10% |
| £925,001 - £1,500,000 | 10% | +5% | 15% |
| Over £1,500,000 | 12% | +5% | 17% |
Impact on Investment Returns
Stamp Duty Examples for BTL Properties
£150,000 property (Northern England):
£150,000 x 5% = £7,500 stamp duty
£250,000 property (Midlands):
£250,000 x 5% = £12,500 stamp duty
£400,000 property (South East):
£250,000 x 5% = £12,500
£150,000 x 10% = £15,000
Total: £27,500 stamp duty
The 5% surcharge adds significantly to upfront investment, reducing the effective return on capital. A £150,000 property now requires £7,500 in stamp duty alone, compared to £4,500 under the previous 3% surcharge. Calculate your exact costs with our stamp duty calculator.
Worked Examples: Three Investment Scenarios
Example 1: London Two-Bedroom Flat
Low Yield, High Growth Strategy
Property: 2-bed flat in Lewisham, SE London
| Purchase price | £350,000 |
| Monthly rent | £1,550 |
| Annual rent | £18,600 |
| Gross yield | 5.3% |
| Annual costs (30%) | £5,580 |
| Net income | £13,020 |
| Net yield | 3.7% |
Investment costs:
| Deposit (25%) | £87,500 |
| Stamp duty (5% surcharge) | £20,000 |
| Purchase costs | £3,000 |
| Total investment | £110,500 |
Annual return after financing (interest-only at 5.3%):
| Net rental income | £13,020 |
| Mortgage interest (£262,500 at 5.3%) | -£13,913 |
| Tax impact (40% rate, Section 24) | -£2,416 |
| Cash flow | -£3,309 |
| Capital growth (5% of £350k) | +£17,500 |
| Total return on equity | £14,191 (12.8%) |
Verdict: Negative cash flow of £276/month, but strong total returns driven by London capital growth. Suitable for investors who can subsidise monthly losses and hold long-term.
Example 2: Northern Terrace House
High Yield, Cash Flow Strategy
Property: 3-bed terraced house in Liverpool L7
| Purchase price | £130,000 |
| Monthly rent | £850 |
| Annual rent | £10,200 |
| Gross yield | 7.8% |
| Annual costs (28%) | £2,856 |
| Net income | £7,344 |
| Net yield | 5.6% |
Investment costs:
| Deposit (25%) | £32,500 |
| Stamp duty (5% surcharge) | £6,500 |
| Purchase costs | £2,000 |
| Total investment | £41,000 |
Annual return after financing (interest-only at 5.6%):
| Net rental income | £7,344 |
| Mortgage interest (£97,500 at 5.6%) | -£5,460 |
| Tax impact (20% rate, basic rate) | -£268 |
| Cash flow | +£1,616 |
| Capital growth (3% of £130k) | +£3,900 |
| Total return on equity | £5,516 (13.5%) |
Verdict: Positive cash flow of £135/month and a strong total return. More accessible entry point and better suited to basic rate taxpayers or those needing income.
Example 3: HMO Conversion
High Yield, Active Management Strategy
Property: 5-bed Victorian house converted to HMO in Nottingham
| Purchase price | £200,000 |
| Conversion costs | £25,000 |
| Total cost | £225,000 |
| Monthly rent (5 rooms x £525) | £2,625 |
| Annual rent | £31,500 |
| Gross yield (on total cost) | 14.0% |
| Annual HMO costs (45%) | £14,175 |
| Net income | £17,325 |
| Net yield | 7.7% |
Investment costs:
| Deposit (25% of £200k) | £50,000 |
| Conversion costs | £25,000 |
| Stamp duty | £10,000 |
| HMO licence, planning, costs | £3,000 |
| Total investment | £88,000 |
Annual return (limited company, interest-only at 5.8%):
| Net rental income | £17,325 |
| Mortgage interest (£150,000 at 5.8%) | -£8,700 |
| Corporation tax (19% on profit after interest) | -£1,639 |
| Cash flow (in company) | +£6,986 |
| Capital growth (3.5% of £225k) | +£7,875 |
| Total return on equity | £14,861 (16.9%) |
Verdict: Strongest returns of the three examples, with positive cash flow of £582/month. Requires more active management and regulatory compliance but delivers superior yields through the HMO strategy. Limited company structure maximises tax efficiency.
Frequently Asked Questions
What is a good rental yield in the UK?
A good gross rental yield is generally 5-7% in the UK. Northern cities like Liverpool, Manchester, and Sunderland often achieve 7-9% gross yields, while London typically ranges from 3-5%. For net yield (after expenses), 3-5% is considered good. The ideal yield depends on your strategy - prioritise higher yields for cash flow or accept lower yields in exchange for stronger capital growth.
How do I calculate rental yield?
Gross rental yield = (Annual Rental Income / Property Value) x 100. For example, a £200,000 property with £12,000 annual rent has a 6% gross yield. For net yield, subtract annual operating costs from the rent first: ((£12,000 - £3,600) / £200,000) x 100 = 4.2% net yield. Use our buy-to-let calculator for instant calculations.
What is the difference between gross yield and net yield?
Gross yield uses total annual rent divided by property value with no deductions. Net yield subtracts all annual operating costs (management fees, insurance, maintenance, void periods, certificates) before dividing by property value. Net yield is typically 1.5-3% lower and gives a far more realistic picture of actual property performance.
What is the average rental yield in London?
Average gross rental yield in London is approximately 3.5-4.5% in 2026, varying by borough. Outer boroughs like Barking and Dagenham achieve 5-6%, while prime central London areas like Kensington and Chelsea average 2.5-3.5%. London yields are lower because property prices are proportionally much higher than rents.
Are HMOs more profitable than single lets?
HMOs typically achieve 8-12% gross yields compared to 5-7% for single lets, as you charge per room rather than per property. However, HMOs have significantly higher running costs (council tax, utilities, management, licensing). Net yields are still generally 1-3% higher than single lets, but the gap is smaller than gross figures suggest. HMOs also require more management time and regulatory compliance.
How does the stamp duty surcharge affect rental yield?
Since October 2024, the stamp duty surcharge on additional properties is 5% (increased from 3%). This does not directly affect yield calculations but significantly increases upfront investment. For a £200,000 property, you now pay £10,000 in stamp duty versus £6,000 previously, reducing your overall return on investment. Calculate exact costs with our stamp duty calculator.
What is Section 24 and how does it affect landlords?
Section 24 prevents individual landlords from deducting mortgage interest from rental income. Instead, they receive a 20% tax credit on interest paid. This disproportionately affects higher-rate taxpayers (40%/45%), who previously received 40-45% relief but now only get 20%. Limited companies are not affected and can still fully deduct mortgage interest.
Should I buy in a high-yield or high-growth area?
This depends on your goals. High-yield areas (6-8%, typically northern cities) provide better monthly cash flow but slower capital growth (2-4% per year). High-growth areas (3-5% yield, typically London/South East) often have negative cash flow but stronger capital appreciation (4-7% per year). Many successful portfolios include a mix of both strategies.
Related Calculators and Resources
Calculate Your Property Investment Returns
- Use our Buy-to-Let Calculator to model your full investment scenario
- Calculate purchase costs with our Stamp Duty Calculator
- Compare mortgage options with our Mortgage Calculator
- Check borrowing capacity with our Mortgage Affordability Calculator
- Plan for property disposal tax with our Capital Gains Tax Calculator
Free Property Investment Resources
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Oliver Williams, CeMAP
Independent Mortgage Adviser
Oliver is a CeMAP-qualified independent mortgage adviser with 15+ years of experience helping first-time buyers and property investors navigate the UK housing market. He is registered with the FCA.