Rental yield

Rental yield is the percentage of a property’s purchase price (or open-market value) you collect as rent each year. The textbook formula is gross yield: annual rent divided by purchase price, multiplied by 100. A £220,000 two-bed flat let at £1,200 a month produces £14,400 of gross rent and a 6.5% gross yield. The number is easy to calculate, easy to compare, and almost useless for deciding whether the deal works, because it ignores every cost between collecting the rent and banking the residual.

Net yield strips out the operating costs every UK landlord actually pays: letting-agent management (typically 10–12% + VAT for full management, 8% for tenant-find-only), repairs and maintenance (industry rule of thumb is 1% of the property value per year, though modern flats run lower and pre-1919 stock runs higher), buildings insurance, ground rent and service charges for leasehold flats, accountancy, voids (assume at least 1 month every 18–24 months on a typical tenancy), and gas / EICR / EPC certificate renewals. On the same £220k flat, those costs realistically clear £5,500–7,000 a year, taking gross 6.5% down to a net yield of 3.4–4%.

Cash-on-cash return is the figure most experienced landlords actually optimise for. Instead of dividing by the purchase price you divide by the cash you put in: deposit + SDLT + legal fees + survey + any refurbishment. A 75% LTV mortgage at £220k means £55k deposit; add £12,900 SDLT (the 5% additional-property surcharge has applied since 31 October 2024, and it lands on the whole price, not just the top slice), £1,500 legal and £500 survey: £69,900 of cash in. After an interest-only mortgage at, say, £1,000/month and £5,500 of running costs, residual cash flow is negative: roughly minus £3,100 a year, about minus £260 a month, at current 2026 rates. The "yield" looks fine; the cash flow is negative.

Section 24 (Finance Act 2015) makes the post-tax picture even less flattering for higher-rate taxpayers. Mortgage interest is no longer deductible as an expense: you pay tax on the gross profit and receive a 20% tax credit on the interest cost. A higher-rate landlord on the example above can see effective tax rates above 60% in the personal-allowance taper window. The calculator shows both pre- and post-tax cash flow so you can spot the trap before you offer.

Region matters enormously. Prime London (W, NW, SW1–10, EC, E14) routinely shows gross yields of 3.5–4.5%: the cash flow only works on cash purchase or capital-growth thesis. Northern England (Liverpool L4–7, Hull HU3–9, Bradford BD1–8, Sunderland SR1–6) and the Welsh valleys regularly show 8–10% gross on £80–120k stock, where management overhead and stress-test pass rates are the binding constraints rather than yield. The East Midlands and South Yorkshire occupy the middle ground at 6–7% gross. Use the regional comparison as a sanity check before you pay a London broker for a Bradford deal.

When you run the numbers, look at three figures together: gross yield (for screening), net yield after costs (for operational reality) and cash-on-cash after tax (for whether you actually get richer). If cash-on-cash after tax is below the redemption yield on a 5-year UK gilt (about 4.3% in July 2026: check the live figure before you rely on it, gilt yields move daily), the deal earns less than risk-free government debt while loading you with a 25-year mortgage, void risk, tenant default risk and statutory-compliance liability. The calculator computes all three and surfaces them side by side.