Advanced options
Costs to include: letting agent fees, insurance, maintenance, service charges and ground rent, safety certificates, and an allowance for empty periods. Mortgage interest is usually assessed separately. Estimates only, not investment advice.
What The Rental Yield Calculator Works Out
- Gross yield: annual rent divided by the purchase price. A GBP 250,000 property letting for GBP 1,200 a month grosses GBP 14,400 a year, a 5.76% gross yield. UK landlords typically look for at least 5% to 6%; northern cities and terraced houses yield more, London and the South East trade lower yields for historically stronger capital growth.
- Net yield: annual rent minus running costs, divided by the price. Insurance, maintenance, safety certificates, service charge and ground rent commonly consume 20% to 30% of the rent, so a 6% gross yield is often a 4% to 4.5% net one.
- Annual rent: the monthly rent multiplied by 12, before any empty periods.
- Letting agent fee (advanced): full management typically costs 10% to 15% of the rent collected, tenant-find-only services around a month's rent. It is deducted before the net yield.
- Empty weeks (advanced): a sensible void allowance is two to four weeks a year between tenancies. Each empty week costs a week's rent, and the net yield and cash flow are reduced accordingly.
- Yield on total outlay (advanced): net rent divided by the price plus purchase costs. The 5% SDLT surcharge on additional properties (8% ADS in Scotland), legal fees and a survey add materially to the entry cost and pull the true yield down.
- Monthly cash flow (advanced): rent collected minus costs and interest-only mortgage interest, per month. Section 24 restricts mortgage interest relief to a 20% tax credit for individual landlords, so the tax bill can exceed what this cash figure suggests.
- Return on cash invested (advanced): annual cash flow divided by your own money in the deal (price minus loan plus purchase costs). Gearing lifts this when the yield beats the mortgage rate and sinks it when it does not.
- Lender stress test (advanced): lenders require rent of 125% to 145% of the interest at a stressed rate, often 5.5% or more. The card shows your rent cover and the rough maximum loan at a 125% test.
Source and further reading: GOV.UK: renting out a property.