Rental yield: gross, net and return on cash

In short

• Gross yield is the year's rent as a share of the price. Quick, but it ignores every cost.
• Net yield takes off running costs. It compares properties fairly, whatever the mortgage.
• Return on cash is what's left after every cost, mortgage included, as a share of the cash you put in. It's the one that tells you if a deal pays.
• On our example: 7.3% gross, 5.8% net, and 6.5% on your cash before tax.

All three use the same example: a £180,000 house let for £1,100 a month, bought with a 25% deposit and a 5% interest-only mortgage.

Gross yield

The year's rent divided by the price:

It's what estate agents quote, and it's useful for a first look at many listings. But two houses with the same gross yield can perform very differently once the costs come in, especially flats with service charges.

Net yield

Take off the costs of running the property, but not the mortgage:

Leaving the mortgage out means net yield measures the property itself, so you can compare a house you'd buy with cash against one you'd buy with a big loan. Add service charge and ground rent for a flat, and bills if you pay them.

Return on cash

This measures your money rather than the property. Take the cash left each year after every cost, mortgage included, and divide by all the cash you put in to buy:

Then think about tax. A higher-rate taxpayer (£60,000 salary) owning this house personally would keep £883 a year after tax: a return of just 1.5%. That's the effect of Section 24, and a gross yield of 7.3% gives no hint of it.

Return on cash also shows the risk of borrowing. If the mortgage rate rose from 5% to 7%, the cash left would fall from £3,722 to £1,022 a year.

What's a good yield?

There's no single number. Yields are usually higher where prices are low, and lower where prices have grown fast, so a high yield often trades off against slower growth. A few rules of thumb hold up better than any target:

• Judge the deal on return on cash, after tax, at your own tax rate.
• Check it still pays if things go wrong: a higher rate when the fix ends, a month or two empty, a big repair.
• Check the lender's stress test. Most want the rent to cover the interest 1.25 times at a test rate, or 1.45 times for higher-rate taxpayers. This example covers it 1.78 times at 5.5%. On a shorter fixed rate, many lenders test at your own rate plus 2 points instead, which is stricter, so ask yours.
• Use real costs. A self-managed house costs less than one with a letting agent; an old house costs more to keep up than a new flat.

Every figure on this page is worked out by the NestInsights calculator, using the tax rules in force on 10 October 2026. The rules were checked against GOV.UK and the Welsh Revenue Authority on 8 October 2026. This guide explains how the rules work; it isn't financial or tax advice, so check your own case with an accountant or adviser.