Rental Yield Calculator UK — How to Calculate Buy-to-Let Returns

Understanding rental yield helps you evaluate whether a buy-to-let investment makes financial sense.

Types of Yield

Gross Yield

What It Measures	Details
Simple calculation	Rent vs price
Before costs	No expenses deducted
Quick comparison	Between properties
Not actual profit	Just headline figure

Net Yield

What It Measures	Details
Real return	After expenses
More accurate	Shows profit
Harder to calculate	Need all costs
What matters	For investment decisions

Return on Investment (ROI)

What It Measures	Details
Return on your cash	Money you put in
Includes leverage	Mortgage effect
Total return	Including capital growth

Gross Yield Calculation

Formula

Calculation	Process
Annual rent	Monthly × 12
÷ Property value	Purchase price
× 100	For percentage

Examples

Monthly Rent	Annual	Property Price	Gross Yield
£750	£9,000	£150,000	6.0%
£850	£10,200	£180,000	5.7%
£1,000	£12,000	£200,000	6.0%
£1,200	£14,400	£250,000	5.8%
£1,500	£18,000	£400,000	4.5%
£2,000	£24,000	£500,000	4.8%

Regional Comparison

Area	Typical Gross Yield
London prime	3-4%
London outer	4-5%
South East	4-5%
South West	4-5%
Midlands	5-7%
North West	6-8%
North East	7-10%
Scotland	5-7%

Net Yield Calculation

Formula

Calculation	Process
Annual rent	Monthly × 12
- Annual costs	All expenses
= Net income	Actual profit
÷ Property value	Purchase price
× 100	For percentage

Typical Costs to Deduct

Cost	typical annual
Mortgage interest	Varies
Maintenance	1% of value
Insurance	£250-500
Void periods	1 month rent
Management fees	10% of rent
Service charge	If leasehold
Ground rent	If leasehold
Gas safety	£60-80
EPC	£60-80 (when needed)
Other compliance	Varies

Worked Example

Element	Annual Amount
Rent received	£12,000
Less: Void (1 month)	-£1,000
Less: Maintenance	-£2,000
Less: Insurance	-£300
Less: Management (10%)	-£1,200
Less: Gas safety, etc.	-£150
Net income	£7,350
Property value	£200,000
Net yield	3.7%

With Mortgage Interest

Adding Mortgage	Amount
Net income (above)	£7,350
Less: Mortgage interest
(£150k at 5% = £7,500)	-£7,500
Cash flow	-£150

Return on Investment (ROI)

Cash-on-Cash Return

Calculation	Process
Annual profit	After all costs
÷ Cash invested	Deposit + fees
× 100	For percentage

Example ROI

Element	Amount
Property price	£200,000
25% deposit	£50,000
Buying costs	£5,000
Total cash in	£55,000
Annual net income	£7,350
Less mortgage interest	-£7,500
Cash flow	-£150
Cash-on-cash ROI	-0.3%

With Capital Growth

Factor	Calculation
Annual appreciation	2% of £200k = £4,000
Add: Cash flow	-£150
Total return	£3,850
On £55,000 invested	7% ROI

Lender Calculations

Interest Coverage Ratio (ICR)

Requirement	Calculation
Rent must cover	Mortgage interest × factor
Typical factor	125-145%
Stress test rate	Usually 5.5%+

ICR Example

Element	Calculation
Mortgage	£150,000
Stress rate	5.5%
Annual interest	£8,250
ICR 145%	× 1.45
Required rent	£11,963/year
Monthly	£997

What Lenders Look For

Factor	Requirement
ICR	125-145%
Portfolio landlord	May be stricter
Higher rate taxpayer	145% common
Basic rate taxpayer	125% may suffice

Buy-to-Let Tax Considerations

Tax on Rental Income

Income Type	Tax Treatment
Rental income	Added to other income
Personal tax rates	20/40/45%
Allowable expenses	Deductible
Mortgage interest	20% credit only

Section 24 Impact

Old Rules	New Rules (Now)
Full deduction	No deduction
Of mortgage interest	From rental income
	20% tax credit instead

Example Tax Calculation

Element	Amount
Rental income	£12,000
Allowable expenses	-£3,500
Taxable profit	£8,500
Add: Mortgage interest	£7,500
Finance costs deduction	Not allowed
Tax (40% taxpayer)	£3,400
Less: 20% mortgage credit	-£1,500
Tax due	£1,900

What Yield to Aim For

By Strategy

Strategy	Target Gross	Target Net
Cash flow focused	7%+	5%+
Balanced	5-7%	3-5%
Capital growth focused	4-5%	2-3%
London/premium	3-4%	1-2%

Warning Signs

Yield Level	Consider
Above 10% gross	Why so high? Risk?
Very low area values	Tenant issues?
Declining area	Capital loss?
HMO inflated	Management intensive

Comparing Properties

Property Comparison Table

Factor	Property A	Property B
Price	£180,000	£220,000
Monthly rent	£900	£1,100
Annual rent	£10,800	£13,200
Gross yield	6.0%	6.0%
Area demand	Medium	High
Potential growth	Low	Medium
Tenant quality	Variable	Professional

Beyond Yield

Also Consider	Why
Tenant demand	Void periods
Area quality	Maintenance, tenants
Capital growth	Total return
Liquidity	Can you sell?
Management ease	DIY or agent?

Calculator Checklist

To Calculate Gross Yield

You Need	Source
Property price	Asking/agreed
Expected rent	Comparable local rents

To Calculate Net Yield

You Need	Source
Gross rental income	Market research
Void assumption	1-2 months
Insurance quote	Get quote
Maintenance estimate	1-1.5% of value
Management fees	If using agent
Service charge	If leasehold
Ground rent	If leasehold

Summary

Yield Type	Formula
Gross	(Annual rent ÷ Price) × 100
Net	((Rent - Costs) ÷ Price) × 100
Cash-on-Cash	(Profit ÷ Cash invested) × 100

Target Yields	Level
Good gross	5-7%
Good net	3-5%
Excellent gross	7%+
Minimum viable	4% gross

Key Consideration	Impact
Section 24 tax	Reduces profit
Mortgage stress test	Limits borrowing
Void periods	Hit cash flow
Maintenance	Often underestimated