Gross Rental Yield
Gross rental yield is the simplest calculation and gives you a quick way to compare properties. The formula is: annual rental income divided by the property value, multiplied by 100 to get a percentage.
For example, if a property costs £200,000 and generates £12,000 per year in rent (£1,000 per month), the gross yield is 6% (£12,000 / £200,000 x 100). This figure does not account for any costs, so it overstates the actual return, but it is useful for initial comparisons between properties and locations.
Net Rental Yield
Net rental yield provides a more accurate picture by deducting your costs from the rental income before calculating. Common costs to include are mortgage payments, letting agent fees, insurance, maintenance and repairs, void periods, and ground rent or service charges for leasehold properties.
Using the same example: if your annual costs total £6,000 (mortgage interest, fees, insurance, and maintenance), your net annual income is £6,000. The net yield is 3% (£6,000 / £200,000 x 100). This is a much more realistic measure of your actual return and should be the figure you base investment decisions on.
What Is a Good Rental Yield?
Gross yields in the UK typically range from 3% to 7%, with significant variation by region. Northern cities like Liverpool, Manchester, and Nottingham tend to offer higher yields (5% to 7%), while southern locations and London typically deliver lower yields (2% to 4%) but potentially stronger capital growth.
A good yield depends on your investment strategy. If you prioritise monthly cash flow, higher-yielding properties in the north may suit you. If you are focused on long-term capital appreciation, lower-yielding properties in high-demand areas may deliver better overall returns when capital growth is factored in.
Factors That Affect Yield
Several factors influence rental yield, including the purchase price, achievable rent, running costs, and the local rental market. Properties in areas with strong tenant demand — near universities, transport links, or employment centres — typically command higher rents relative to their value.
Property type also matters. Smaller properties (one and two-bedroom flats) often deliver higher yields than larger family homes because the rent-to-price ratio is more favourable. HMOs can deliver significantly higher yields by letting individual rooms, though they require more management and specialist mortgages.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.