Yields at a glance
What does yield mean?
It is the gross profit a rental property makes, before expenses, as a percentage of its value. Landlords use it as a metric to compare the rental return of different buy to let properties. It shouldn’t be used in isolation, but is nevertheless a simple way to compare properties.
How to calculate the yield of a buy to let
To calculate the yield, divide the annual rental income by the value of the property. This is the formula to use in your calculation:
Yield = Annual Rent / Property Value
Here’s a worked example of the calculation of the yield where the rent is £1,200 per calendar month and the value of the property is £250,000:
Yield = £14,400 / £250,000 = 5.7%
One thing to be aware of is that if property price is used as the value, the yield will always appear higher on the property that needs an extensive refurbishment than one that needs no work. To take away this bias, many investors add in the estimated cost of a refurbishment when comparing different projects for the initial yield.
Investors also sometimes add the cost of the stamp duty to find out what the yield is of the total money that they are investing, ie cash and any borrowing. Again, this can help them compare different projects.
The property value should be updated each year so that it continues to show the annual return on the value of the asset.
What are the average yields across the UK in 2023?
Average yields and rents vary enormously across the UK. According to the Q1 2023 Rightmove data, the average across Great Britain as a whole is 5.8%.
However, do bear in mind that Rightmove’s figures for yields are for new tenancies. Yields tend to be higher for new tenancies as landlords usually take the opportunity to bring the rent back up to market when tenants change. Rents tend to drift below the market rent when a property is tenanted, and it’s easier to increase rents back to market levels with new tenants.
Here’s the Rightmove Q1 2023 data for average yields and average rents in a handy side-by-side table for England, Scotland and Wales:
| Region/ Country | Average yield | Average rent pcm |
|---|---|---|
| London | 5.1% | £2,501 |
| South East | 5.3% | £1,676 |
| East of England | 5.4% | £1,446 |
| South West | 5.5% | £1,293 |
| East Midlands | 5.9% | £1,048 |
| West Midlands | 6.0% | £1,052 |
| Yorks. and The Humber | 6.7% | £940 |
| North West | 6.7% | £1,025 |
| Wales | 6.9% | £987 |
| Scotland | 7.8% | £957 |
| North East | 7.9% | £803 |
Source: Q1 2023 Rightmove Rental Trends Tracker published 28 April 2023
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