Buy-to-Let UK 2026 — Mortgages, Tax, Yields and Landlord EssentialsRental Yield Calculator UK — How to Calculate Buy-to-Let Returns
Calculate gross and net rental yield. How to work out return on investment for buy-to-let property, and what yields to aim for.
If you are evaluating BTL financing, landlord setup, and yield strategy together, use the Buy-to-Let Hub as your primary route map.
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
| 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
| 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 |
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