Buy-to-Let Yield Calculator 2025/26

Understanding Rental Yield

Rental yield is the most common measure of a buy-to-let property’s income performance, expressed as a percentage of the property’s value. There are two types you need to know:

Gross yield is the simplest calculation: annual rent divided by property price, expressed as a percentage. A property worth £200,000 generating £12,000 per year in rent has a gross yield of 6%. It’s useful for quick comparisons but ignores all the costs that eat into your actual return.

Net yield subtracts your annual costs (mortgage payments, insurance, maintenance, management fees, void periods) from the rental income before dividing by the property price. This gives a much more realistic picture. That same property might have a net yield of only 2–3% once costs are factored in.

Cash-on-Cash Return

While yield measures return against total property value, cash-on-cash return measures return against the money you actually invested — your deposit plus purchase costs. This is often a more useful metric for investors because it shows the return on your own capital.

If you put down a £50,000 deposit on a £200,000 property and your annual net profit (after all costs including mortgage) is £3,000, your cash-on-cash return is 6% — even though the net yield on the property value might only be 1.5%. Leverage (using a mortgage) amplifies your returns on invested capital.

What Costs To Include?

Mortgage payments are typically your largest cost. Buy-to-let mortgages usually require a 25% deposit minimum and charge higher interest rates than residential mortgages (typically 0.5–1% higher). Most landlords use interest-only mortgages to maximise monthly cash flow, though capital repayment builds equity over time.

Letting agent fees for full management typically run 8–15% of monthly rent. This covers tenant finding, rent collection, and day-to-day management. If you self-manage, you save this cost but invest your own time.

Insurance — landlord building insurance plus contents insurance and potentially rent guarantee insurance. Budget £300–600 per year depending on the property.

Maintenance and repairs — a good rule of thumb is 10–15% of annual rent set aside for ongoing maintenance. Older properties cost more. Major items like a new boiler (£2,000–4,000) or roof repairs can wipe out several years of profit.

Void periods are weeks when the property is empty between tenants. Even in high-demand areas, budget for at least 2–4 weeks per year. This covers not just lost rent but also any refresh costs (cleaning, minor repairs) between tenancies.

Ground rent and service charges apply to leasehold properties (most flats). These can be £1,000–3,000+ per year and tend to increase over time.

Worked Examples

Common Mistakes to Avoid

1. Using gross yield as your decision metric. A property with 8% gross yield might have 2% net yield once you account for all costs. Always calculate net yield and cash-on-cash return before investing.
2. Underestimating maintenance costs. New-build properties will have lower maintenance costs initially, but all properties require ongoing upkeep. Budget at least 10% of rental income, and keep a reserve fund for major unexpected expenses.
3. Forgetting about tax. Rental income is taxable. Since April 2020, mortgage interest relief for individual landlords has been replaced by a 20% tax credit — meaning higher and additional rate taxpayers pay significantly more tax on rental income than they used to. This has made buy-to-let less attractive for higher earners and led many to consider purchasing through a limited company.
4. Ignoring void periods. Even one month empty can eliminate several months’ profit. Focus on properties in areas with strong rental demand, price competitively, and maintain the property well to reduce tenant turnover.

Buy-to-let purchases attract a 3% stamp duty surcharge – run the numbers with the stamp duty calculator before committing.

Use the mortgage repayment calculator to model your BTL mortgage costs against your projected rental yield.

Frequently Asked Questions

What’s a good rental yield?

In the UK, gross yields typically range from 3–4% in London and the South East to 7–10% in northern cities and university towns. A net yield above 3–4% is generally considered decent. Cash-on-cash returns above 5% are strong. The “best” yield depends on your strategy — high-yield areas may have lower capital growth potential, and vice versa.

Should I use an interest-only or repayment mortgage?

Interest-only maximises monthly cash flow but you still owe the full loan at the end. Repayment builds equity gradually — your tenant is effectively paying off your mortgage. Many investors start with interest-only for cash flow, then switch to repayment as rents increase or they acquire more properties.

Should I buy through a limited company?

Since the restriction on mortgage interest relief for individuals, purchasing through a limited company has become more tax-efficient for many landlords — especially higher rate taxpayers. Companies can still deduct the full mortgage interest cost, and corporation tax (25%) is lower than higher rate income tax (40%). However, company structures have drawbacks: higher mortgage rates, more complex accounting, and you pay income tax when extracting profits as dividends.

What about Section 24?

Section 24 (the “tenant tax”) restricts individual landlords from deducting mortgage interest costs from rental income. Instead, they receive a 20% tax credit. For a basic rate taxpayer, the net effect is the same. For higher rate taxpayers, the effective tax on rental income increases significantly. This is the main driver behind the trend towards limited company purchases for buy-to-let.