Quick Links:
Ask five property people what a good rental yield is and you will get five confident, different answers. So here is a more useful way in: I can tell you exactly what yield a mortgage lender’s maths needs, because that number is calculable, and then show you what real yields look like in my patch. Whether the result is good for YOU depends on what you want the property to do.
How to work out rental yield
Gross yield is the annual rent divided by the purchase price, times 100. A £250,000 property renting at £1,000 a month earns £12,000 a year: a 4.8% gross yield. Net yield subtracts the running costs, voids, maintenance, agent fees, insurance, and is always the more honest number, just harder to standardise.
The yield a mortgage actually needs
Here is the number nobody publishes. A lender testing at a 5.5% stress rate with 145% rent cover on a 75% loan needs the rent to hit 0.75 × 5.5% × 145% of the property’s value: very close to a 6% gross yield. Through a limited company at 125% cover, about 5.2%. Below those yields, the maximum loan starts shrinking beneath 75%, and your deposit has to grow to fill the gap. The full mechanics are in my stress test guide.
Gross yield: annual rent divided by purchase price, times 100
At 75% loan to value on typical test figures, the lender’s maths needs roughly a 6% yield personally, about 5.2% through a company
Winchester’s yield of around 3.79% supports roughly 47.5% loan to value on the same test
On my analysis of 16 Hampshire areas, only Portsmouth and Southampton pass a 145% rent cover test at 75% LTV
A low yield with strong capital growth can still make sense, that trade-off is personal
What yields actually look like in Hampshire
On my own analysis of 16 local authority areas at 75% loan to value and a 5.5% stress rate, only Portsmouth and Southampton pass a 145% rent cover test; several more pass at 125% through a limited company. Winchester, at a yield of around 3.79%, supports roughly 47.5% loan to value on the same test, which is why Winchester landlords tend to carry bigger deposits. The full local numbers live on my Hampshire buy to let page.
Gross vs net: the yield that pays you
Gross yield sizes the mortgage; net yield pays your bills. A 6% gross yield with heavy management, regular voids and an ageing boiler can net less than a quiet 5% let to a long-term tenant. When you compare properties, compare like with like, and be sceptical of advertised yields built on optimistic rents.
Is a low yield automatically a bad buy?
No, and this is where personal goals beat rules of thumb. Lower-yield areas like Winchester tend to trade yield for tenant quality and long-run capital growth; higher-yield areas do the reverse. Neither is wrong. What a low yield definitely means is more deposit and less leverage, because the lender’s maths above does not negotiate.
How to improve the numbers on a property you want
The levers, in rough order of effect: buy through a limited company so the 125% test applies, put down a bigger deposit, pick a lender whose stress rate suits the case, or add lettable value (an extra room matters more than a new kitchen). Letting by the room takes yields higher again, but that becomes an HMO with its own rules.
Speak to an expert
Want to know if a property’s yield passes a lender’s test? Call me on 01425 203055 or email info@htgmortgages.com. I will run the numbers before you offer.
Where yield fits in the decision
Yield is the gate, not the goal. It decides whether the mortgage works and how much deposit you need; the decision itself also weighs tenant demand, your time, and what you want the property doing in ten years. My guide to buy to let borrowing shows how the yield converts directly into a loan ceiling.
Check a real property, not a rule of thumb
Send me a listing and a realistic rent and I will tell you the yield, whether it passes the lender maths, and what deposit it genuinely needs. Book a call, phone 01425 203055, or WhatsApp 07731 675537.
Need Personal Mortgage Advice?
Every buyer’s situation is different. While this guide explains the general rules, the right mortgage for you depends on your income, deposit, credit history and future plans. If you’d like tailored advice, I’m here to help, with whole-of-market coverage.
