What is a good rental yield, and how do you calculate it?

In the UK, rental yield is a market comparison measure, not a legal threshold. In England, Wales, Scotland and Northern Ireland, the useful answer is usually gross yield for quick screening, net yield for profitability, and lender interest coverage for mortgage affordability.

What is a good rental yield?

No UK law defines a “good” yield — legislation.gov.uk’s full-text search for the phrase returns nothing usable — and the real lender test is not a yield at all: it is the Bank of England buy-to-let interest coverage ratio, with the PRA noting that “The current industry standard is to set the minimum ICR threshold at 125%.” For a good gross rental yield in the UK market, 5–8% is a defensible working range: Zoopla says “a good gross rental yield is typically 5–8%, while anything under 4% is considered below average,” while AXA’s rule of thumb is 5–6% good and above 7% very good. So 7% is a good rental yield, but it is not automatically good after mortgage interest, repairs, voids, tax and licensing costs; it is a strong gross screen, not proof of profit.

How do you calculate rental yield?

Calculate gross rental yield as annual rent divided by the property price, multiplied by 100; for example, £15,000 rent on a £250,000 property is a 6% gross yield. Zoopla states the market formula directly: “Gross rental yield is the annual rental income expressed as a percentage of the property price,” and RICS gives the same structure as “income divided by capital value, multiplied by 100.” Net yield deducts running costs first: annual rent minus letting fees, repairs, insurance, service charge, licences, voids and other landlord costs, divided by the purchase price or current value, multiplied by 100. A UK rental yield calculator or property yield calculator is therefore only as good as the inputs: gross yield compares properties quickly, net yield compares real profitability, and the lender’s separate ICR compares expected monthly rent with stressed monthly interest. Abodient can hold the actual rent received and recorded running costs against each property, which matters because net yield is only as good as the real income and expense figures behind it, not a number rebuilt from memory.

What is the average rental yield on an HMO?

The average HMO rental yield is best stated as about 7.6–9.6% gross, because the main 2025–26 figures measure different samples rather than one national census. Paragon reported that “HMO yields rose by 0.17 percentage points during the quarter to reach 8.78%, compared with an average gross yield of 6.96% across the wider market,” based on its lending book. Lendlord’s Q4 2025 sample of 1,158 HMOs put the average higher, saying “Average yields decreased by 0.8pp (10.4% → 9.6%).” A lower landlord-survey figure also exists: Pegasus Insight’s NRLA-member sample reported HMO owners at 7.6% versus 6.5% overall. The practical answer is that HMOs often out-yield single lets, but the apparent average changes depending on whether the data is mortgage offers, advertised or managed stock, or landlord self-reporting.

What is a good rental yield on commercial property?

A good commercial property rental yield is commonly around 5–6% gross, with above 6% often treated as very good, but sector, lease length, tenant strength and location can make a lower yield better than a higher one. Leicester City Council’s commercial estate report states the market rule of thumb plainly: “5-6% is considered ‘good’ rental yield with above 6% being considered ‘very good’.” That sits close to Savills’ UK prime-market figure, where “the average prime yield” was “5.9% for six consecutive months.” No UK statute sets a good commercial rental-yield percentage; even tax law’s nearest language about a “reasonable return” is context-specific and says the rent must take account of “the actual lease’s terms and conditions.” For commercial property, a secure 5% lease to a strong tenant can be better than an 8% yield with short income, weak covenant or heavy repair exposure.

What is the difference between rental yield and return on investment?

Rental yield measures rent against property value, while return on investment measures the whole investment result, including income, costs, finance, tax and capital growth or loss. HMRC’s manuals separate the two economic benefits, saying an investor may benefit from “capital growth over time, in addition to obtaining rental yield.” In valuation language, HMRC describes yield as “the rent the property is currently generating expressed as a percentage of its value,” whereas total return benchmarks add capital movement to income: MSCI says total return “incorporates both capital and income elements.” Rental yield and ROI are therefore not the same. Use gross yield to compare rent strength, net yield to compare operating income, and ROI or total return when you want to compare properties after financing, purchase costs, refurbishment, tax and expected resale value.

What is the 2% rule for property?

The 2% rule is a poor UK property test: 2% of the price per month implies roughly 24% gross annual yield, far above the 5–7% UK landlords typically see. The rule is an American residential-investing shortcut, described as monthly rent being around 2% of the purchase price; one UK industrial-property source puts the contrast neatly: “A UK industrial unit at a 6 percent yield produces 0.5 percent of its price in rent per month, and nobody in the market would call that mispriced.” UK law has unrelated 2% figures, including SDLT on some non-residential lease rent in England and Northern Ireland and a PRA cap on assumed rental growth, but neither is a 2%-of-price rent rule. For UK renting, a 2% monthly screen rejects ordinary viable properties and should not be used as a buy-to-let rule.

What is the drawback of using a gross rent multiplier?

The main drawback of using a gross rent multiplier is that it values a property from gross rent while ignoring operating costs, voids, finance, repairs, tax and capital expenditure. That is why it can make two very different investments look identical: £20,000 gross rent from a low-maintenance flat and £20,000 gross rent from a high-cost HMO produce the same GRM if the price is the same, even though the net profit may be completely different. Phoenix & Partners state the core weakness directly: “GRM does not use the net operating income of a building unlike the capitalisation rate.” UK tax law also works on profits, not gross rent: “Income tax is charged on the profits of a property business.” A gross rent multiplier is useful as a fast screen, but it is not a substitute for net yield, cash-flow modelling or a proper valuation.

Last reviewed September 2026.

Sources

• Bank of England PRA SS13/16 — “The current industry standard is to set the minimum ICR threshold at 125%.” Source
• Zoopla, best buy-to-let locations — “So, a good gross rental yield is typically 5–8%, while anything under 4% is considered below average.” Source
• AXA, how to calculate rental yield — “As a general rule, a gross rental yield between 5 and 6 percent would be considered ‘good’ and anything above 7 percent would be ‘very good’.” Source
• Zoopla, best buy-to-let locations — “Gross rental yield is the annual rental income expressed as a percentage of the property price.” Source
• RICS, APC valuation competency advice — “The yield is calculated by income divided by capital value, multiplied by 100.” Source
• Paragon Bank, Are HMOs still worth it for landlords? — “Paragon’s Q1 2026 Buy-to-Let Yields Report shows HMO yields rose by 0.17 percentage points during the quarter to reach 8.78%, compared with an average gross yield of 6.96% across the wider market.” Source
• Lendlord, HMO data Q4 2025 — “Average yields decreased by 0.8pp (10.4% → 9.6%).” Source
• Paragon Bank, Who are HMO landlords? — “It found that HMO owners in its NRLA member sample achieved average rental yields of 7.6%, compared with an overall average achieved yield of 6.5%.” Source
• Leicester City Council, Corporate Estate Annual Report 2024/25 — “5-6% is considered ‘good’ rental yield with above 6% being considered ‘very good’.” Source
• Savills, UK Commercial Market in Minutes August 2025 — “The market remains in a period of stasis, with the average prime yield remaining at 5.9% for six consecutive months.” Source
• Corporation Tax Act 2010 s.867 — “the rent gave a reasonable return for the asset's market value at the relevant time, taking account of the actual lease's terms and conditions.” Source
• HMRC Business Income Manual BIM60560 — “It may be the case that an investor in UK property expects primarily to benefit from capital growth over time, in addition to obtaining rental yield.” Source
• HMRC International Manual INTM518040 — “In this context it means the rent the property is currently generating expressed as a percentage of its value.” Source
• MSCI Property Indexes Methodology — “It incorporates both capital and income elements, and is calculated as the percentage value change plus net income accrual, relative to the capital employed.” Source
• Industrial Property Finance, industrial property yields — “A UK industrial unit at a 6 percent yield produces 0.5 percent of its price in rent per month, and nobody in the market would call that mispriced.” Source
• Phoenix & Partners, Gross Rent Multiplier — “GRM does not use the net operating income of a building unlike the capitalisation rate.” Source
• Income Tax (Trading and Other Income) Act 2005 s.268 — “Income tax is charged on the profits of a property business.” Source