The rent arrives, the mortgage goes out, the letting agent takes a cut and the service charge demand lands twice a year. And you still don’t know whether the flat is making you money or quietly costing you. This guide gives you the formulas, a worked example with current UK figures and an interactive calculator, so you can work out your rental yield properly. It also shows why, with buy-to-let mortgage rates near 6% in autumn 2026, the gap between “gross yield” and what you actually keep has rarely mattered more.
Why gross yield alone isn’t enough
Listings and “investment opportunity” emails quote gross yield. It’s a quick number for comparing one flat with another, but a poor basis for a decision. It ignores the service charge, ground rent, letting fees, insurance, repairs, empty months and the mortgage, which are exactly the items that decide whether anything is left at the end of the year.
So we’ll work through four levels, from the roughest to the most precise:
Gross yield
A quick comparison of properties. Rent and price, nothing else.
Net yield
What the flat earns after its running costs, as if you had bought it outright.
Cash flow
What is left each month (or what you have to top up) once the mortgage is paid.
Cash-on-cash return and ROI
How hard the money you actually put in is working.
Calculating gross rental yield
The simplest measure, used for a fast first comparison of several properties.
Our example: a two-bedroom leasehold flat in Leeds bought for £160,000 and let for £950 a month. Both figures sit close to the official averages for Leeds: flats sold for an average of £151,734 in July 2026 (UK House Price Index), and the average private rent was £905 for a flat and £975 for a two-bedroom home in August 2026 (ONS). The flat itself is illustrative.
Annual rent = £950 × 12 = £11,400. Gross yield = £11,400 ÷ £160,000 × 100 = 7.1%.
What gross yields look like across the UK
There is no official UK statistic for rental yield. What you can do is divide the official average rent (ONS Price Index of Private Rents) by the official average price (UK House Price Index) for the same area. That gives a rough guide, not a measurement, and it comes with two caveats. The rents cover homes that are let, while the prices cover homes that sold, which is a different mix. And the UK HPI average is a mix-adjusted geometric mean, which sits below a simple average of sale prices, so the result tends to flatter the yield. The flats column is affected most. Treat the two columns as the ends of a range, and both as being before any costs.
| Area | All homes: rent / price | Ratio | Flats: rent / price | Ratio |
|---|---|---|---|---|
| United Kingdom | £1,400 / £272,611 | 6.2% | £1,367 / £192,704 | 8.5% |
| London | £2,332 / £550,037 | 5.1% | £2,056 / £424,013 | 5.8% |
| Bristol | £1,883 / £352,262 | 6.4% | £1,508 / £241,393 | 7.5% |
| Manchester | £1,373 / £252,309 | 6.5% | £1,147 / £195,305 | 7.0% |
| Birmingham | £1,099 / £234,257 | 5.6% | £919 / £144,814 | 7.6% |
| Leeds | £1,145 / £247,695 | 5.5% | £905 / £151,734 | 7.2% |
| Liverpool | £913 / £189,036 | 5.8% | £786 / £129,558 | 7.3% |
| North East | £788 / £166,943 | 5.7% | £662 / £103,288 | 7.7% |
← Scroll horizontally to see the full table
Two patterns are worth noticing. London has the highest rents in the country and still the lowest ratio, because prices there are so high: the most expensive address tends to earn the least in percentage terms. And flats show higher ratios than “all homes” almost everywhere, partly because they are cheaper to buy, partly because of the measurement effects described above, and partly because they have higher running costs, which a gross figure never shows. That last point is the subject of the next section. How prices themselves have moved in your area is covered in How property value grows over time.
Net rental yield: where the decision is made
This is where the real calculation starts. From the annual rent you take off every running cost of the property. With a leasehold flat, that includes the building’s costs, not just the flat’s.
Back to the Leeds flat at £160,000 let for £950 a month. The costs below are illustrative assumptions for a flat of this kind, not averages: service charges, agents’ fees and insurance vary widely, so replace them with the figures from your own lease, service charge demand and agency agreement.
| Item | Per year |
|---|---|
| Rent (12 × £950) | £11,400 |
| − Service charge (building insurance, cleaning, repairs to common parts, reserve fund) | −£1,500 |
| − Ground rent (older lease) | −£100 |
| − Letting agent, full management (assumed 12% of rent, VAT included) | −£1,368 |
| − Landlord insurance (contents and liability) | −£200 |
| − Safety checks and certificates (gas, electrics, EPC) | −£150 |
| − Repairs and maintenance inside the flat | −£600 |
| − Voids (one month's rent a year) | −£950 |
| Net operating income (before mortgage and tax) | £6,532 |
Net yield = £6,532 ÷ £160,000 × 100 = 4.1%.
See the drop? From 7.1% gross to 4.1% net, and that is before the mortgage and before tax. In this example, running costs take more than 40% of the rent. Two items drive it: the agent's fee and the service charge. If you manage the flat yourself, the net yield rises, but so does the time you spend on it.
A few notes on the items, because each one hides a trap:
- Service charge. The freeholder or managing agent passes on the costs of running the building, usually including buildings insurance. It can rise sharply when major works come up, so ask about planned works and the size of the reserve fund before you buy.
- Ground rent. In England and Wales, most new residential long leases granted since 30 June 2022 can only charge a “peppercorn” ground rent, in effect zero. Older leases often still carry one, so check the lease.
- Voids. One month’s rent a year (about 8%) is a common rule of thumb, not an official statistic. A practical trick is to divide the annual rent by eleven instead of twelve. In a strong rental area it may be less; for a flat that needs work between tenants, more.
- Repairs. In a flat, much of the structural cost sits in the service charge, so your own reserve covers what is inside the flat: the boiler, appliances, decoration between tenancies.
- Compliance. Landlords in England must, among other things, keep gas and electrical installations safe, provide an Energy Performance Certificate and protect the tenant’s deposit in a government-approved scheme. Scotland, Wales and Northern Ireland have their own rules.
Tax on rental income: what changes the picture
The calculations in this article stop before tax, deliberately. How much tax you pay depends on your other income, where in the UK you live, whether you own the property personally or through a company, and rules that are changing. We won’t estimate a figure for you; instead, here is what affects the calculation, with links to the official guidance:
- Rental profit is taxable. You pay tax on the profit from letting, after allowable expenses. HMRC lists letting agents’ fees, insurance, maintenance and repairs, ground rent, service charges and other direct costs of letting among them. Capital spending, such as the purchase itself or improvements beyond repairs, is not an allowable expense against rental income.
- Mortgage interest is not deducted like other costs (the restriction often called “Section 24”). Since the 2020 to 2021 tax year, individual landlords of residential property cannot deduct mortgage interest and other finance costs from their rental profit. Instead they get a tax reduction worth the basic rate of tax on those costs. Companies are treated differently.
- What that means in practice: tax is worked out on your profit before mortgage interest, with a credit afterwards. So a flat with negative cash flow can still produce a tax bill, and if your income puts you above the basic rate, the credit covers only part of the tax on that profit. This is the main reason a “cash flow before tax” figure needs a second look from someone who knows your whole tax position.
- Changes are already announced. From 6 April 2027, the government plans separate rates of income tax for property income in England, Wales and Northern Ireland, with finance cost relief given at the new property basic rate. Scotland sets its own income tax rates.
- Buying costs include tax too. In England and Northern Ireland, buying a home that means you own more than one usually triggers higher rates of Stamp Duty Land Tax. Scotland and Wales have their own property transaction taxes. Use the official calculator before you make an offer.
Before you decide: rental income is normally reported through a Self Assessment tax return. For your own figures, use HMRC's guidance or speak to a qualified tax adviser. Whether to buy personally or through a limited company is a question for an adviser too: it changes the tax, the mortgage options and the costs of running the company.
Rental cash flow: the mortgage changes everything
Net yield assumes you paid cash. Most landlords use a mortgage, and it can turn the result upside down. Cash flow is the money that actually moves through your account.
Where rates are now. The Bank of England held Bank Rate at 3.75% on 17 September 2026, but fixed mortgage rates have risen with funding costs: according to Moneyfacts, the average residential two-year fix reached 5.98% and the five-year fix 6.00% at the start of October 2026. The average fixed buy-to-let rate stood at 5.79%, up from 5.47% in August. Most buy-to-let mortgages are interest-only, and lenders generally want a deposit of at least 20–25%.
Our example with a mortgage: the same Leeds flat, a 25% deposit (£40,000) and a £120,000 interest-only mortgage at 5.79%. Interest = £120,000 × 5.79% = £6,948 a year (£579 a month).
| Item | Per year |
|---|---|
| Rent | £11,400 |
| − Running costs including voids (from the table above) | −£4,868 |
| − Mortgage interest (interest-only, 5.79%) | −£6,948 |
| Annual cash flow before tax | −£416 |
So at today’s rates the flat costs you about £35 a month before tax, even with a gross yield above 7%. On a repayment mortgage over 25 years the payment would be about £758 a month, and the shortfall would grow to around £213 a month, although about £2,200 of the first year’s payments would go towards paying off the loan, which builds your home equity. Negative cash flow is not automatically a bad investment, but you have to be able to cover it from other income for years, and remember the tax point above: a shortfall in cash does not mean no tax.
Why lenders look at the same numbers. Buy-to-let mortgages are underwritten under standards set by the Prudential Regulation Authority (PRA). Lenders check that the rent covers the mortgage interest with a margin, the interest coverage ratio (ICR), and they test it at a higher rate than you will actually pay: the PRA expects them to allow for a rise of at least 2 percentage points and, in any case, to assume at least 5.5% over the first five years, unless the rate is fixed for five years or more. The PRA describes 125% as the current industry minimum, and many lenders ask for more. For our flat: £11,400 ÷ (£120,000 × 7.79%) = 122%, just short of 125%. On a five-year fix tested at the pay rate, it would clear 125% comfortably (164%). This is one reason the rent you can prove, not the price you pay, often decides how much you can borrow.
Watch the end of your fixed rate. The cash flow above only holds until your fixed-rate period ends. On the £120,000 loan, every extra percentage point costs £1,200 a year in interest. Run the numbers at your current rate and at one 2 points higher, the same test a lender would use.
Cash-on-cash return, cap rate and ROI
Cash flow is in pounds. To see how hard your own money is working, you need a percentage.
The cash you put in is more than the deposit. Add stamp duty, legal fees, the survey, mortgage fees and furnishing. In our example we assume £12,000 of buying costs on top of the £40,000 deposit, so £52,000 in total; check the stamp duty part for your own purchase with the official calculator. With cash flow of −£416, the cash-on-cash return is −0.8%.
Capital growth changes the picture, and this is where leverage works in both directions. If the flat’s value rises by 3% a year, close to the UK average pace over the past decade (+37.6% between July 2016 and July 2026, about 3.2% a year), that is £4,800 in the first year. Against your £52,000, the total return is (£4,800 − £416) ÷ £52,000 = 8.4%. But UK flats rose only 17.2% over the same ten years, about 1.6% a year; at that pace the return falls to 4.1%. And both figures are before tax. If prices fall, leverage multiplies the loss on your stake in the same way.
Two further measures leave financing out of it, which makes them handy for comparing properties with each other:
NOI (net operating income) = rent − running costs, without mortgage payments and tax. For a buy-to-let flat it is the same number as net yield on the purchase price; with today's value in place of the purchase price, it tells you what the flat earns on the money tied up in it now.
The full picture, including growth and the part of the loan you have repaid. Most useful looking back over several years, when you know what the property is actually worth.
Calculate the yield of your own flat
Enter your figures and the calculator shows all four levels at once. It works before tax: income tax depends on your whole situation and on rules that differ across the UK, so it is not included. The default values are the Leeds example above.
* All results are before income tax. For individual landlords, tax is worked out on the profit before mortgage interest, with a basic-rate tax reduction for finance costs, so the tax can be higher than this cash flow suggests. The stress check uses your rate plus 2 percentage points, or 5.5% if that is higher; lenders set their own tests and may not stress a rate fixed for five years or more. Capital growth and ROI are outside this calculator.
Is it worth it? Property vs. a global equity fund
An honest comparison, because a landlord deserves the truth rather than a sales pitch. Over the ten years to 30 September 2026, the MSCI World index, measured in pounds with dividends reinvested (net returns), returned 12.56% a year on average. That was an unusually strong decade for shares, so don’t treat it as a forecast.
Property over a similar period: the average UK price rose 37.6% between July 2016 and July 2026, about 3.2% a year, while consumer prices (CPI) rose 42%. In real terms the average home ended slightly lower, and flats (+17.2%) clearly lagged. Rents did better: the average UK private rent rose 45.7% between August 2016 and August 2026, a little ahead of inflation. Add a net yield of around 3–4% a year to that price growth and an unleveraged flat has returned well under what global shares did over the decade, although with a mortgage, and in the areas where prices rose fastest, the result on your own stake could be much closer.
| Criterion | Buy-to-let flat | Global equity ETF |
|---|---|---|
| Past decade | UK prices +3.2% a year (flats +1.6%) plus rent | MSCI World in £ ≈ 12.6% a year |
| Leverage | ✅ yes (multiplies gains and losses) | ⚠️ practically none |
| Liquidity | ❌ low (months to sell) | ✅ high (sell in a day) |
| Effort | ❌ tenants, repairs, compliance | ✅ minimal |
| Money needed to start | ⚠️ tens of thousands of pounds | ✅ from a few pounds |
| Concentration | ❌ one property, one street, one tenant | ✅ well over a thousand companies |
← Scroll horizontally to see the full table
The conclusion isn’t “flat or ETF” but often “flat and ETF”. Property gives you a tangible income that has kept pace with inflation and can be bought with borrowed money; shares give you liquidity, diversification and low costs. More on how funds work in What is an ETF and how does it work.
How to keep track of rental yield over time
The calculation at purchase is only the start. Yield moves every year: the rent changes, the fixed rate ends, the service charge rises, a boiler fails, the value of the flat shifts. Without a record, it is easy to subsidise a loss-making flat for a year or two without noticing.
What to keep an eye on:
The ONS publishes average rents by local authority every month. In England, since 1 May 2026, rent can be raised at most once a year, using a section 13 notice with at least two months' notice.
Service charge, agent's fees, insurance, repairs, empty weeks. Without a record, they always seem smaller than they were.
It changes both your ROI and the yield on the money tied up in the flat. How to keep a sourced record of value over time.
Note the end date of each fixed rate and recalculate in good time, before you drop onto the lender's standard variable rate.
Checklist before buying and at each annual review
For each property in Assetli you record the purchase price, buying costs and your ownership share, and build up a history of valuations, each with a date and a source. If you prefer, you can switch on automatic growth, which is an assumption rather than a market price. Alongside the value you record rental income and expenses, including renovations, and see the property’s capital growth and yield. Each property counts towards your net worth, next to your accounts and investments, so you can see how much of your wealth sits in bricks and mortar.
Frequently asked questions
What is a good rental yield in the UK?+
There is no official benchmark. As a rough guide, average rents divided by average prices give around 5% in London and 5.5–6.5% in the other large cities in our table for homes overall, before costs. More important than the gross figure is the net yield after running costs, and whether the rent covers your mortgage at a stressed rate.
Does a rise in the flat's value count towards rental yield?+
Not towards rental yield, but it does count towards your total return (ROI). Over the ten years to July 2026, average UK prices rose about 3.2% a year and flats about 1.6% a year, both below inflation, so don't assume growth will rescue a weak yield.
Is it better to buy with cash or with a mortgage?+
Cash gives you the full net yield and steady cash flow. A mortgage lets you buy with less of your own money and multiplies the return on your stake, in both directions. With average fixed buy-to-let rates around 5.8% in October 2026, interest can take most of what a flat earns after costs, so run the numbers at today's rate and a stressed one.
Can I deduct mortgage interest from my rental income?+
Not as an expense if you own the property personally. Since the 2020 to 2021 tax year, individual landlords of residential property get a basic-rate tax reduction for mortgage interest and other finance costs instead. Companies are treated differently, and new rules for property income are planned from April 2027. For your own situation, check HMRC guidance or speak to a tax adviser.
Interest-only or repayment: which gives better cash flow?+
Interest-only gives the better monthly cash flow, which is why most buy-to-let mortgages are arranged that way, but the full loan is still owed at the end. A repayment mortgage costs more each month and builds your equity as you go. In our £120,000 example at 5.79%, the difference is about £180 a month.
Conclusion
You can’t tell whether a flat pays from the rent in a listing. You can tell from four numbers: gross yield (a quick comparison), net yield (what is left after running costs), cash flow (what you keep or top up each month) and cash-on-cash return (how your own money is working). In 2026, with buy-to-let rates close to 6% and mortgage interest treated differently from other costs for tax, an honest calculation decides whether a flat adds to your net worth or quietly drains it. For the wider picture, see How to calculate your net worth.
Work it out properly once, then keep it up to date.
Assetli for landlords: the value of your properties over time, rental income and expenses, capital growth and yield in one place, next to the rest of your wealth. See how property tracking works.
Related glossary terms
Sources and references
- Office for National Statistics. Private rent and house prices, UK: September 2026 (published 16 September 2026). Average UK private rent £1,400 in August 2026, up 3.8%; London £2,332, North East £788; UK house prices up 1.4% to £273,000 in July 2026. ons.gov.uk
- Office for National Statistics. Price Index of Private Rents, UK: monthly price statistics (16 September 2026 edition). Average rents by local authority, property type and number of bedrooms, January 2015 to August 2026. ons.gov.uk
- HM Land Registry. UK House Price Index summary: July 2026. Average prices by English region and by property type. gov.uk
- HM Land Registry. UK House Price Index data downloads, July 2026: average prices and average prices by property type by area, used for the table and the 2016–2026 changes. gov.uk
- Office for National Statistics. CPI index 00: all items, 2015=100 (series D7BT), July 2016 100.6, July 2026 142.9. ons.gov.uk
- Which?. What’s happening to buy-to-let mortgage rates? (7 October 2026). Moneyfacts data: average fixed-rate buy-to-let mortgage 5.79% at the start of October, 5.47% in August. which.co.uk
- Moneyfacts. Mortgage rate hikes see sub-5% fixes vanish as average five-year fixed hits 6% (5 October 2026). Average two-year fix 5.98%, five-year fix 6.00%. moneyfactsgroup.co.uk
- Bank of England. Bank Rate held at 3.75% on 17 September 2026. bankofengland.co.uk
- Bank of England (PRA). SS13/16 Underwriting standards for buy-to-let mortgage contracts: interest coverage ratio, 125% industry minimum, stress of at least 2 percentage points, minimum 5.5% over five years, costs lenders consider. bankofengland.co.uk
- Which?. Buy-to-let mortgages explained (updated 30 July 2026): most buy-to-let mortgages are interest-only; deposits of at least 20–25%; rental cover of 125%, often around 145%. which.co.uk
- GOV.UK. Renting out a property: paying tax. Allowable expenses; mortgage interest not deductible for individual landlords; Self Assessment. gov.uk
- HM Revenue & Customs. Restricting finance cost relief for individual landlords: basic-rate tax reduction instead of a deduction, fully in place from the 2020 to 2021 tax year; companies not affected. gov.uk
- HM Treasury / HMRC. Changes to tax rates for property, savings and dividend income (26 November 2025): separate property income rates from April 2027 in England, Wales and Northern Ireland; finance cost relief at the property basic rate. gov.uk
- GOV.UK. Stamp Duty Land Tax: residential property rates. Higher rates for additional properties, official calculator. gov.uk
- Ministry of Housing, Communities and Local Government. Renters’ Rights Act: an overview for landlords (1 May 2026). Rent increases at most once a year with a section 13 notice and at least two months’ notice (England). gov.uk
- GOV.UK. Leasehold Reform (Ground Rent) Act 2022: guidance for leaseholders, landlords and managing agents. Peppercorn ground rent for most new leases from 30 June 2022. gov.uk
- GOV.UK. Renting out a property: landlord responsibilities (England). Gas and electrical safety, Energy Performance Certificate, deposit protection. gov.uk
- MSCI. MSCI World Index (GBP) factsheet: annualised net return 12.56% over 10 years to 30 September 2026. msci.com
Disclaimer: This article is for educational purposes only and does not constitute investment or tax advice. Before buying a property or deciding how to own it, please consult a qualified professional.
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