How to Work Out and Calculate Rental Yield for UK Properties 

With its combination of chic shops, cafes and bars, set amongst handsome period buildings and open spaces, Wimbledon Village appeals to tenants and remains an area where landlords generate healthy rental property returns. 

Elsewhere in South West London, tenants and landlords may be drawn to Clapham’s vibrant foodie scene, Putney’s village feel, and Battersea’s new developments and Northern Line connections. 

When contemplating a property investment or considering whether your existing investment is good, you need to calculate your rental yield. 

Here we explain the meaning of rental yield, how to calculate it and what is considered a good rental yield. 

What Is Rental Yield? 

Rental yield is the annual rental income as a percentage of the property purchase price. Buy-to-let (BTL) investors use it to determine the level of return an investment property can be expected to deliver. 

Why Is Rental Yield Important? 

As with any business, you need to ensure your income is covering your expenditure – and ideally, on track for long term profitability. Gross or net rental yield calculations allow you to work out what return on investment you can anticipate. A rental yield percentage also makes it simpler to compare properties of different values. 

Rental Yield Vs Capital Appreciation 

Rental yield is not the only factor determining whether a property is a good investment. Property investors also consider capital appreciation, which is the potential increase in the property’s value. However, with increased uncertainty in the housing market, many landlords and investors are looking for steady rental yields rather than significant appreciation in property value. 

How To Work Out Rental Yield 

Landlords can calculate their annual yield percentage with an online rental yield calculator or calculate rental yield using this simple formula: 

Rental yield = (Monthly rental income x 12) ÷ Property value 

Example: 

To calculate your buy-to-let investment’s rental yield: 

• First, take the total rent received over a year. Assuming a two-bed property in Wimbledon Village has a rental value of £3,200 per calendar month, that would work out to be £38,400. 
• Next, take the purchase price of the property (£620,000) and add that figure to its buying costs (£47,500 stamp duty plus £2,000 professional services fees). That gives you a total of £669,500. 
• Now perform the following calculation to calculate the rental yield percentage: 38,400 ÷ 669,500 x 100 = 5.73%. 

What If I Have A Mortgage? 

The above calculation assumes the investment property was purchased without needing a buy-to-let mortgage. The formula needs to be tweaked slightly to work out your annual return or yield considering the mortgage payments. 

Rental yield = (Monthly rental income x 12 – Annual mortgage costs) ÷ Investment 

Example: 

Let’s assume the investor takes out an interest-only buy-to-let mortgage for 80% of the purchase cost (£496,000) at a rate of 5.25%. That would result in monthly payments of £2,170 or £26,040 per year. 

• Subtracting the mortgage interest payments from the annual rent of £38,400 leaves a profit of £12,360 per year. 
• Take the deposit put down (£124,000) and add that figure to the purchase costs (£49,500). This gives a total investment of £173,500. 
• Now perform the following calculation to divide that figure by the property purchase costs: 12,360 ÷ 173,500 = 0.0712. 
• And multiply this figure by 100 = 7.12%. 

If you want to check your calculations or avoid doing the maths completely, you can use an online rental yield calculator to work out rental yield for a property instead. 

What Is A Good Rental Yield? 

Between 5-8% is a decent rental yield to aim for. The London average is generally lower – just under 5%, according to Zoopla, though a buy-to-let property in Wimbledon can reach 5.5%. Yields are similar in popular Clapham, while the sought-after Battersea Power station area can generate 6% yields. Not only that, but the property value in Wimbledon Village is also likely to appreciate if the investment is held for ten years or more.  

What Affects Rental Yields In SW London? 

Look at the whole picture as the location, area and national property market can all influence your rental yield. These are some of the factors to evaluate. 

• Location – Consider the area’s house prices and enduring popularity. 
• Type of property – There are additional charges and fees involved when you rent out a leasehold property.  
• Target tenants – Is your target market a profitable one in the area? 
• Local amenities and developments – The Wimbledon Quarter regeneration, or arrival of new London Underground connections in Battersea.  
• National housing market – National trends can impact your rental yield.  
• Interest rates – Interest rates on buy-to-let mortgages remain higher, but have now reached their lowest since the September 2022 mini-budget. 

Points To Remember When Calculating Rental Yield 

However, it is wise to remember that a landlord’s actual income from a buy-to-let investment is the amount of rent left over after all the other expenses associated with the property have been met. 

• Void periods – When working out rental yields, remember that the property is unlikely to be occupied for 12 months of the year. You might want to stress-test your calculations using 11 months of rental income. 
• Additional costs – The above rental yield calculations consider purchase cost, stamp duty tax, solicitors fees and mortgage costs. However, you are likely to incur other costs in buying and running your property. Home Buying Surveys, mortgage arrangement fees, redecorating and maintenance, furniture and white goods are just a few. You will get a more accurate rental yield figure if you include ALL costs when calculating the total investment amount. 
• Insurance – Landlord insurance can protect you from runaway costs, so budget for building insurance, content insurance, rent guarantee insurance and any other premiums. If you pay annually, divide by 12 to reach a monthly figure.  
• Rent – If you are calculating the yield on a property you are considering buying, you must estimate the rent your prospective investment could achieve. You can research the asking rent of similar properties on Zoopla and Rightmove or ask a local letting agent for advice. However, remember that this is not necessarily the amount you will achieve. 
• Ground rent – You will have to pay ground rent if your rental is a leasehold property (most apartments and flats, and select houses). 
• Agency fees – Whether you pay a letting agent to find tenants or appoint a property management company, include agents’ fees when you calculate rental yield. 

What Is The Difference Between Gross And Net Rental Yield? 

Gross rental yield is the return you can expect before expenses. This figure is helpful because it allows property investors to easily compare buy-to-let investments against each other. Mortgage providers also use gross rental yield to assess the affordability of buy-to-let mortgages, as the specific costs of owning the property are not yet known. 

Net rental yield considers the costs of running and managing the residential investment. These costs may include: 

• Insurance 
• Letting agent fees 
• Maintenance costs 
• Running costs during void periods (council tax and utility bills) 
• Cost of furniture and white goods 

Calculating net rental yield for your buy-to-let investment gives a more realistic comparison against non-property assets that don’t carry such costs. 

The difference when comparing gross and net rental yields expressed as percentages is usually between 1-2%. 

How To Maximise Rental Yield 

As a landlord, maximising your rental yield is crucial to generating a good return on your property investment. There are several ways that you can boost your rental yield, such as: 

• Keeping expenses to a minimum. This includes using the most cost-effective tradespeople for any maintenance, ensuring you are not overpaying on landlord insurance, and being aware of allowable tax-deductible expenses. 
• Price the rent to reflect demand. In Wimbledon Village, property prices are higher than in most other areas of London, and the average rent yields are higher too. You may want to increase rent to reflect the demand for rental property in the area. 
• Consider converting to an HMO. If your property is suitable, you may be able to convert it to a House of Multiple Occupation, with several tenants paying monthly rent instead of just one. 
• Increasing your tenant pool. You could open up more of the market by considering tenants with pets, for example. 
• Investing in up-and-coming areas. Research regeneration areas and places where new public transport connections are in the works. If you buy at a low price, you may benefit from rising value (and rising yield) over time.  
• Keep properties in good shape. A well-maintained property will be more appealing to tenants, and avoid minor issues becoming major problems – follow our landlord checklist for renting a house to make sure you keep your property in good shape.

We Can Help 

Robert Holmes & Co has a database of tenants interested in a wide range of property in and around Wimbledon Village, South Wimbledon, Raynes Park and Wandsworth. If you want to maximise the rental yield of your property, contact us today and learn what it could be worth.