Glossary · UK
What is Net Rental Yield?
A buy-to-let property's annual rental income after deducting all running costs, expressed as a percentage of its value -- a more realistic measure of actual return than gross yield.
Full Definition
Net rental yield strips out the costs that gross yield ignores, giving a truer picture of what a buy-to-let investment actually returns. The formula is: ((Annual Rent minus Annual Costs) divided by Property Value) multiplied by 100. Annual costs to include are: void allowance (typically 4-8 weeks' rent per year), letting agent management fees (8-12% of rent) or self-management time costs, routine maintenance and repairs (often estimated at 1% of property value per year), landlord buildings and contents insurance, service charges and ground rent for leasehold properties, and any accountancy fees for the rental income tax return. Mortgage interest is usually excluded from the net yield calculation itself (as it relates to financing rather than operating costs) but must be considered when calculating net cash flow. Due to the Section 24 mortgage interest restriction, individual landlords can no longer deduct mortgage interest from rental income; instead, they receive a 20% basic rate tax credit on the lower of: interest paid, property profits, or adjusted total income. This rule means higher-rate taxpaying landlords face significantly higher effective tax rates. A property yielding 6% gross might net down to 3.5-4% after typical costs, before tax. Net yield is the figure that should inform investment decisions.