Rental yield: how to work it out and what counts as good in 2026

Gross rental yield is your annual rent divided by the property's price, multiplied by 100. It is the quickest way to compare two investments, and the quickest way to fool yourself if you stop there. Net yield, which deducts running costs, is the number that actually pays your bills.

The gross calculation on real numbers

Look at the case of Manchester, with the ONS housing prices data for that city, as it stood in August 2026. In June 2026 the average price of a flat or maisonette was £195,000 and in July 2026 the average monthly rent for a flat was £1,142. When you divide the annual rent of £13,704 by £195,000 you get a gross yield of 7.0%.

If you take the city-wide averages and carry out the same calculation, £1,365 for rent against an average price of £251,000, you'll arrive at 6.5%. Simply spending two minutes using a calculator and consulting the public data is better than relying on any flashy investment brochure.

Why flats out-yield houses

The ONS page also states that semi-detached houses in Manchester have an average price of £328,000 and command rents of £1,487. This represents an annual income of £17,844 on a property costing £328,000, giving a gross yield of 5.4%, which is lower than the 7.0% obtained from flats. In the case of Manchester described here, flats achieve a higher gross yield since their average purchase price is lower in relation to the rent they generate. This kind of pattern can be found in other markets as well, though it differs greatly from one location to another and depending on the type of property.

Flats may also involve additional costs which are not taken into account by the gross yield, such as service charges and, where applicable, ground rent. If you are considering a leasehold investment, our guide to selling a leasehold flat explains more about service charges, management information and other leasehold costs.

Net yield, worked properly.

Remain with the flat valued at £195,000 and the rent of £13,704, and then subtract an example figure for the costs: £1,370 for property management at 10% of the annual rent, £1,500 for the service charge and ground rent, £150 for landlord's insurance, £850 for the safety certificates and repairs, and £1,142 for the one month when the property is unoccupied between tenancies. This amounts to £5,012 in costs, leaving a sum of £8,692, which is a net yield of 4.5% before mortgage interest and tax.

In this case, the running costs cause the yield to drop from 7.0% gross to 4.5% net. The actual costs may be considerably higher or lower depending on the property and the way it is managed.

What counts as good in 2026

Evaluate the yield in relation to your financing rather than according to folklore. Buy-to-let lenders usually determine affordability by means of an interest coverage ratio (ICR), ensuring that the anticipated rent will cover a certain percentage of the mortgage interest which has been calculated at a stressed rate. The specific requirements differ depending on both the lender and the borrower, with ICR requirements of about 125% or 145% being commonly applied. Our guide to buy-to-let mortgages in 2026 explains deposits, ICR stress tests and lender criteria in more detail.

A high headline yield does not automatically imply that a property will satisfy a lender's affordability criteria or will generate a healthy profit after deducting mortgage and running costs.

It is not the case that one gross yield figure alone makes a property a good investment, since the outcome will vary according to the purchase price, the mortgage amount and the interest rate, the running costs, the tax position, and the periods during which the property might be unoccupied. Instead of depending just on the overall yield, you should calculate the expected income and expenses for that particular property.

How you own the property can also affect your costs and tax position. If you are considering buying or holding rental properties through a company, read our guide to moving buy-to-lets into a limited company.

The mistakes that flatter the number

Wherever possible, use evidence of rents actually being received rather than depending only on the advertised asking rents. The rental figures published by the ONS for England are based on data relating to both new and existing tenancies, whereas the information available from property listings shows the rent that landlords are asking for rather than the amount which is actually agreed.

It is wrong to compare your gross yield with someone else's net yield. Yield is only one element of an investment's possible return since capital gains or losses can have a significant effect on the total result, even though past house price growth does not ensure that future growth will occur.

Where to get honest numbers

The ONS publishes local house-price and rental data for council areas across the UK, updated monthly. Match the figures to what you are actually buying: a two-bed flat should be tested against two-bed rents and flat prices, not the city averages, and the block's actual service charge figures are more useful than a general estimate.

Before you make an offer, request the current service charge and any other standard leasehold costs and then redo the calculation with those figures. It is also worth budgeting for the legal work involved. Our guide to buy-to-let conveyancing costs explains how buying an investment property can differ from a standard residential purchase.

Once you have decided to go ahead with the purchase, you can get quotations for buy-to-let conveyancing from regulated firms within a matter of minutes.