How to Work Out Rental Yield on your Property in Peterborough
By Wayne Beecham | Created on 17th February 2025
When researching the best areas to invest in Peterborough, you must calculate the property’s return on investment. Calculating rental yield allows you to be confident that you can cover all necessary expenses and make a reasonable return. Before you buy a property, understand the numbers through net and gross rental yield, and learn how to use a rental yield calculator.
A flat in central Peterborough areas will have very different numbers compared to a detached property in Cambridgeshire or Stamford. Read on to find out all the factors to take into account before you put in an offer for a Peterborough property.
What Is Rental Yield?
Rental yields describe your annual rental income as a percentage of the total value of the property. It is used by buy-to-let investors to determine whether a property will be a good investment or to understand the return on investment of a property they already own. Attractive rental yields are a key part of the conversation when considering a pension or property as a long term investment.
Why Is Rental Yield Important?
Rental yield is important because it gives landlords an accurate calculation of the value of their property investment. Working out rental income alone doesn’t take into account key factors such as capital appreciation, changing mortgage rates and fluctuations in house prices.
To ensure that an investment will be worthwhile and profitable, rental yield provides a comprehensive calculation to check that landlords can generate a good long-term ROI.
What is the difference between gross and net rental yield?
Net rental yield is based on monthly rental income less costs. Gross rental yield is a quick calculation that doesn’t consider expenses. Since you don’t need details of the likely costs, gross rental yield is a popular way to compare potential investment properties early on.
Capital Appreciation
Property investors also make money from capital appreciation, which is the value by which the property goes up over time. According to ONS, property prices in Peterborough between November 2023 and November 2024 increased by 1.4%, with an average selling price of £237,000.
To estimate appreciation, you must compare the expected price five, ten or twenty years from now with the current selling price. A knowledgeable local estate agent will be able to help you with this.
Divide the expected gain by the house price, and multiply by 100 to give the capital gain percentage.
For instance, if today’s house price is £400,000 and you expect the property to be worth £450,000 in ten years, the following calculation would tell you the estimated capital appreciation, in this case, 12.5%
Price in ten years’ time (£450,000) – House price (£400,000) = Gain (£50,000)
Gain (£50,000) ÷ House price (£400,000) = 0.125
0.125 x 100 = 12.5%
Rental yield and property appreciation should be considered before purchasing an investment property.
How To Work Out Rental Yield
To work out rental yield for a property, take your annual rental income, deduct your costs then divide this number by the value of your investment. Finally, multiply this figure by 100 to give a rental yield percentage. The rental yield formula is shown below:
Rental yield = ((Annual rental income – Annual costs) ÷ Investment) x 100
Annual Rental Income
Estimate how much you can charge in rent, look on property portals like Rightmove and Zoopla, or talk to a local letting agent. Remember that the asking price isn’t always the amount achieved, so you should test your calculations with conservative rental income estimates.
Multiply that amount to get the total rent you would collect in a year. For weekly rent, multiply by 52.
Most landlords experience void periods at some point. We recommend you stress test your calculations based on 11 months of rental income.
Annual Running Costs
An online rental yield calculator probably won’t include ongoing expenses, giving a much higher and unachievable rental yield. Actual rental income is the rent left over after your expenses have been met. Typical landlord costs include:
If you bought the property in cash, this is the property’s purchase price. For property purchased with a mortgage, use the deposit you put down.
Add the following costs that come with buying:
Stamp duty
Solicitors fees
Survey fees
Include any costs you incur preparing your property for rental, for instance, redecorating and buying furniture and white goods. Find out more about your landlord tax return here.
Example Of Rental Yield On A Peterborough Property
A two-bedroom apartment in Peterborough commands monthly rent of £850, which adds up to an annual rental income of £10,200.
The sale price of the above property would be around £230,000.
The stamp duty would be £11,500. Add an estimated cost for professional fees of £2,000.
It is impossible to predict what maintenance your buy-to-let property will need, but property experts recommend budgeting for spending 0.5% of its value per year. In this case, £1,150 per year.
If you pay estate agent fees and landlord insurances, you should also factor these outgoings into your rental yield calculation.
Purchased With A Mortgage
Say you took out an interest-only buy-to-let mortgage for 75% of the purchase cost (£275,000) at a rate of 4.5%. Your monthly mortgage payments would be £773 or £9,281 per year.
Your deposit is £68,750 (the remaining 25% of the property price).
If you purchase a property with a buy to let mortgage, make sure you find the best mortgage interest rates to keep your mortgage payments as low as possible. You may also be able to reduce maintenance costs by using more competitive contractors.
Raising the rent
Check whether your current rent is in line with the local rental market. If you have not increased the rent for a while, this could be an option, but this should be done with caution. Rent can only be increased when the tenancy agreement allows, and the tenant must be given proper notice.
Rent increases must be fair and realistic, and tenants can challenge increases that they believe to be unfair. The Renter’s Rights Bill is set to introduce changes to the rules around rent increases, so keep up to date with the legislation to ensure any rent increase is compliant.
You should also weigh up the risk of losing a good, reliable tenant if you increase the rent.
Expanding the property
You could expand the size of the property with an extension, either to accommodate more tenants in an HMO or to increase the rental price. In this case, you would have to consider how the costs affect your rental yield and property appreciation.
Improving the property
Smaller improvements to the property could help to attract high-paying tenants. For example, upgrading the kitchen and bathroom could help to achieve higher rent.
Consider allowing pets
If you currently do not accept tenants with pets, you could increase the tenant pool by allowing pets. The Renter’s Rights Bill intends to prevent landlords from unfairly refusing pets, so you may need to accept pets in the near future anyway.
What Is A Good Rental Yield?
There is always a demand for rental property in and around Peterborough. Relatively high house prices mean a buy-to-let property must work hard to generate a healthy return. Anywhere between 5-8% is considered an excellent rental yield.
According to home.co.uk, the average rent in Peterborough is £800-£1,000 per month, generating average rental yields of around 5.5%. Calculate your rental yield percentage for a more accurate projection of monthly rental income.
We Can Help
Our Full Management service provides you with complete peace of mind. From finding reliable tenants to ensuring all legal compliance is met, we will cover every aspect of letting your property. Contact us if you need help with your property in Peterborough areas including Northampton and Kettering.
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Wayne Beecham
Wayne is East Midland’s answer to property management. His hard work and high standards of service have gained him a fierce reputation within the regional lettings market. He knows what it takes to own and manage a profitable portfolio himself, because he is not only a successful investor and landlord, but co-founder and “hands on” managing director of Progressive Lets.
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