Understanding Rental Yields in the UK (2026)
Rental yield is the most important metric for buy-to-let investors. It tells you how much return a property generates relative to its value — essentially, how hard your money is working. Understanding the difference between gross and net yield, and knowing what constitutes a "good" yield in 2026, is essential for making profitable investment decisions.
Gross Yield vs Net Yield
Gross Rental Yield
The simplest measure of rental return. Formula: (Annual Rental Income / Property Value) × 100. It doesn't account for any costs and gives a quick comparison metric between properties.
Net Rental Yield
A more realistic measure that deducts running costs. Formula: ((Annual Rent - Annual Costs) / Property Value) × 100. Costs include maintenance, insurance, letting agent fees, void periods, service charges, and ground rent. Net yield is what actually goes into your pocket.
Average UK Rental Yields by Region (2026)
| Region | Avg Gross Yield | Avg Property Price |
|---|---|---|
| Liverpool | 7.5–9.0% | £165,000 |
| Manchester | 6.5–8.0% | £230,000 |
| Birmingham | 5.5–7.0% | £220,000 |
| Leeds | 6.0–7.5% | £210,000 |
| Nottingham | 6.5–8.0% | £185,000 |
| Bristol | 4.5–6.0% | £340,000 |
| Edinburgh | 5.0–6.5% | £290,000 |
| London (outer) | 4.0–5.5% | £450,000 |
| London (inner) | 3.0–4.5% | £650,000+ |
| UK Average | 5.0–6.0% | £285,000 |
Section 24: How Tax Changes Affect Landlords
Section 24 of the Finance Act (often called the "tenant tax") fundamentally changed how mortgage interest is treated for buy-to-let investors. Previously, landlords could deduct mortgage interest from rental income before calculating tax. Now, they receive a flat 20% tax credit on mortgage interest instead.
The impact is most significant for higher-rate (40%) and additional-rate (45%) taxpayers. For example, a landlord with £12,000 annual rent and £8,000 mortgage interest:
- Old rules (40% taxpayer): Taxed on £4,000 profit = £1,600 tax, plus £1,600 credit = net tax of £0
- New rules (40% taxpayer): Taxed on £12,000 at 40% = £4,800, minus 20% credit on £8,000 = £1,600, so net tax = £3,200
Key Costs to Include in Your Yield Calculation
- Maintenance & repairs: Budget 1–2% of property value per year (or 10% of annual rent)
- Landlord insurance: £200–£600/year for buildings + landlord liability
- Letting agent fees: 8–15% of monthly rent if using an agent (tenant-find only is cheaper at 50–100% of one month's rent)
- Void periods: Factor in 2–4 weeks per year between tenancies
- Service charges: £1,000–£5,000+/year for leasehold flats
- Gas safety certificate: £60–£90/year (legally required)
- EPC certificate: £60–£120 every 10 years
- Selective licensing: £500–£1,000 every 5 years (area-dependent)