Why Gross Yield Is the Most Misleading Metric in UK Property

Gross yield is the number most landlords quote when talking about returns. Ask someone how their buy to let is performing and you will usually hear a percentage almost immediately.

Seven per cent.
Nine per cent.
Sometimes even double digits.

What they are almost always referring to is gross yield. It is simple, familiar, and widely used by agents and property portals. Unfortunately, in the UK market, it is also one of the most misleading metrics you can rely on.

Gross yield can make an average deal look attractive and a risky deal look safe. More importantly, it hides the very costs and risks that determine whether a property genuinely works as an investment.

This article explains why gross yield falls short, particularly for UK landlords, and what you should be looking at instead.

What gross yield actually measures

Gross yield is calculated by dividing annual rent by the purchase price of the property.

If a property rents for £1,000 per month, or £12,000 per year, and costs £200,000, the gross yield is six per cent.

People like gross yield because it is quick to calculate, easy to compare, and commonly quoted in listings and marketing material. It gives a fast, headline view of rental income relative to price.

The problem is not that gross yield is incorrect. The problem is that it is incomplete.

The assumption hidden inside gross yield

Gross yield assumes a world where real costs barely exist.

It assumes low or no service charges, minimal maintenance, few voids, cheap management, and stable borrowing costs. For many UK landlords, particularly those with leasehold flats, that world does not exist.

Once service charges, ground rent, repairs, letting fees, void periods, and mortgage interest are taken into account, gross yield quickly loses its usefulness.

A realistic UK example

Consider a very typical scenario.

The property costs £250,000 and rents for £1,200 per month, which is £14,400 per year. On the surface, the gross yield is 5.76 per cent.

Now factor in real costs.

• Annual service charge of £3,200.
• Ground rent of £300.
• Letting agent fees at ten per cent, £1,440.
• Repairs and maintenance at five per cent of rent, £720.
• One month of voids, £1,200.

Before any mortgage costs, total annual expenses come to £6,860. That leaves £7,540 per year.

The net yield before finance is now just over three per cent, almost half the original gross yield.

And this is still not the full picture.

Why gross yield fails once mortgages are involved

Most landlords use leverage. That is not a problem in itself, but it is where gross yield becomes actively dangerous.

If the mortgage balance is £160,000 at an interest rate of 4.5 per cent, annual interest is £7,200.

That leaves £340 per year after mortgage costs. Around £28 per month.

The same property still appears to deliver a 5.76 per cent gross yield, yet the reality is a deal that is barely cashflow neutral.

Gross yield did not warn you. Cashflow does.

The metrics that actually matter

If gross yield is not enough, what should landlords focus on instead?

Net yield before mortgage shows how efficient a property is once operating costs are included. It is useful for comparing properties structurally, but it still does not show personal risk.

Monthly cashflow is the most honest metric in property investing. It shows what is left each month after all costs and mortgage interest. This tells you whether the property supports itself or relies on your income.

Cash on cash return looks at return on the money you actually have tied up in the property. If you have £60,000 of equity invested and the property generates £6,000 per year after costs, that is a ten per cent return on your capital. This perspective often changes how landlords view their portfolio.

Break even interest rate is the interest rate at which cashflow drops to zero. It is one of the most important risk numbers and one most landlords do not know. It tells you how exposed you are to remortgaging and rate rises.

Why UK landlords are especially exposed

The UK rental market increasingly involves leasehold properties, rising service charges, professional management, tighter regulation, and interest rate sensitivity.

Gross yield does not account for any of this. As a result, landlords relying on it often make decisions based on optimism rather than analysis.

A better way to think about returns

Instead of asking what the yield is, ask three questions.

• What does this property pay me each month?
• What return am I getting on my equity?
• At what point does this deal stop working?

Those questions lead to clearer decisions about holding, selling, remortgaging, or reducing exposure.

Final thought

Gross yield is not useless, but on its own it is not enough.

Real investment decisions require numbers that reflect real costs, real financing, and real risk. Anything less creates false confidence.