Buy-to-Let Yields Hit a 15-Year High, So Why Are Some Landlords Making Less Money?

Average gross buy-to-let yields reached 7.22% in Paragon Bank’s Q3 2026 mortgage-offer data, the highest level since Q1 2011. Yet separate Savills analysis recently reported falling landlord profits. The apparent contradiction has a straightforward explanation: gross yield measures the rent against the property value, before the costs of earning it.

A landlord can collect more rent and still have less money available. Maintenance, management and borrowing can absorb the improvement. A refinancing can change the result even when the property remains fully let.

That makes the mortgage part of the investment calculation. For a landlord considering another acquisition, or approaching the end of a fixed rate, the useful question is how much cash the property will leave under the funding actually available.

Two Different Reports, One Useful Question

Savills’ analysis of HMRC data showed the average tax-paying landlord’s profit falling 11.2% in 2024/25 as finance costs rose 32%. It also noted that just under 40% of private landlords had mortgages.

Those findings concern a different population and period from Paragon’s Q3 figures. They do not demonstrate that the same landlords experienced rising yields and falling profits simultaneously. They do show why a favourable yield headline cannot settle the question of profitability.

Willow’s recent article on landlord finance costs and falling profits explored the divide created by debt. The new yield data adds another perspective: an asset can look attractive before financing while providing a much thinner cash surplus afterwards.

Gross Yield Is the First Calculation

Gross rental yield usually expresses annual rent as a percentage of the property value or purchase price used in the calculation. The basis should always be stated, because an investor’s original purchase price and the property’s current value may differ.

It does not deduct the expenditure needed to own and let the property. Management, insurance, repairs, service charges where applicable, periods without rent and other costs still need consideration. Mortgage costs and tax come later.

Yield can also rise without the landlord collecting an extra pound. If the property’s value falls while rent remains unchanged, the ratio increases. That may improve the headline percentage while reducing equity or making a refinancing more difficult.

For an existing owner, look at the rent and valuation separately before interpreting the yield movement. A higher percentage is useful information, but the reason behind it matters.

The Same 8% Yield Can Leave Very Different Amounts

Consider two identical hypothetical properties, each worth £500,000 and generating £40,000 of annual rent. Both have an 8% gross yield. Assume each has £10,000 of annual operating expenditure, leaving £30,000 before financing and tax.

One owner has no mortgage. The other has £375,000 of interest-only debt, equivalent to 75% loan-to-value. At an illustrative 6% rate, annual interest is £22,500. That leaves the borrower £7,500 before tax, compared with £30,000 for the debt-free owner.

The difference is £22,500 a year, despite the same property, rent and operating expenditure. The yield headline describes the asset; it does not describe the owner’s cash position.

The borrowed money has allowed the second owner to commit less equity to this property. That can support a wider investment strategy, but it also leaves a smaller cash buffer within the asset. Both consequences belong in the assessment.

You Cannot Simply Subtract the Mortgage Rate From the Yield

An 8% gross yield and a 6% mortgage rate do not produce a 2% net return. The percentages use different denominators: the yield relates to the property, while interest is charged on the loan balance.

In the example, operating expenditure reduces the income before financing to 6% of the property value. Interest then applies to £375,000 of debt, rather than the full £500,000 value.

The simplest approach is to calculate in pounds. Start with expected rent received, deduct operating expenditure, then deduct the relevant financing costs. Have the accountant assess tax and identify any other cash commitments.

Only then convert the result into a percentage, using a clearly defined basis. That avoids a comparison that appears precise but says little about the money available to the landlord.

Return on Equity Adds Another Perspective

The debt-free owner in our illustration has £500,000 of current property equity. The borrower has £125,000, calculated as value less outstanding debt.

Dividing the illustrated pre-tax cash surplus by those equity figures produces 6% for both owners: £30,000 divided by £500,000, and £7,500 divided by £125,000. The cash amounts differ considerably, while this simplified percentage is the same.

That does not make the positions equally resilient. At an illustrative 7% interest rate, the borrower’s annual cash surplus falls to £3,750 before tax and the excluded costs. The debt-free property has no equivalent interest-rate exposure.

This is a cash return on current property equity, not total investment return. A fuller assessment would consider value changes, capital repayments, acquisition and disposal costs, tax and the capital actually invested. Define the measure before comparing properties or strategies.

A Higher-Yielding Region Is Not Automatically the Better Purchase

Regional averages can help an investor identify questions worth researching. They do not establish the performance of a particular street, building or tenancy.

A landlord buying away from their home area may need more professional management. Repairs, access and contractor availability can affect both expenditure and the time needed to resolve problems. Tenant demand and achievable rent need local evidence.

The property’s condition matters too. An apparently attractive acquisition price may come with substantial work before letting. Those costs belong in the investment budget even if the advertised gross yield ignores them.

Willow can establish what suitable finance would cost and what borrowing criteria the property needs to meet. Choosing the location and investment remains a decision for the client, informed by appropriate local and professional advice.

HMOs Need Their Own Cost Assessment

A property let by the room may have a different operating model from a conventional single tenancy. Depending on the arrangement, the landlord may pay utilities, provide more services and face different management or maintenance requirements.

Licensing, property use and the proposed letting model also need checking with the relevant professionals. They can affect both the expenditure budget and the suitable lender routes.

Compare the actual net income and financing commitment. The highest gross yield category does not automatically deliver the highest cash return for a particular investor.

This matters especially when moving from standard buy-to-let into a more operationally demanding property. A familiar mortgage calculation should not substitute for a realistic assessment of how the building will be run.

Taxable Profit and Cash Flow Still Need Separating

For individual residential landlords, HMRC’s finance cost rules generally provide relief through a basic-rate tax reduction rather than deducting those finance costs from taxable rental profit. Conditions and limits apply.

The cash left after mortgage interest therefore cannot simply be labelled taxable profit. Ownership structure affects the calculation, and the accountant should establish the after-tax result.

For company-owned property, assess the relevant company taxes and any consequences of taking money out for personal use. Cash retained in a company and income available to the individual are different outcomes.

Keep the tax and financing assessments connected. A property schedule can show the rent and borrowing; the accountant can explain what that means for the owner’s actual position.

The Next Fixed-Rate Expiry May Matter More Than the Latest Yield

A portfolio can look comfortable while several properties still carry older mortgage pricing. The current surplus may not represent the position after those deals end.

Build the forecast around each expiry date. Compare suitable current options with the existing cost, including product fees, early repayment charges and the proposed repayment basis. Product transfers and remortgages should be assessed on total cost and suitability.

Then allow for operating expenditure and reserves. A positive annual figure may still hide a difficult quarter if a void, repair invoice and mortgage fee arrive together.

Lender eligibility needs a separate check. Rental cover tests can use a stress rate and do not necessarily match the investor’s own cash-flow calculation. Passing an underwriting test does not prove the property leaves a comfortable surplus, while a property the investor wants to retain may still face borrowing constraints.

Review the Debt Before Recycling the Equity

A landlord considering another purchase may see available equity and an attractive yield as a reason to proceed. Releasing that equity also adds debt to the existing portfolio.

The assessment needs both sides: the additional cost on the property providing the capital and the income and financing on the new acquisition. Include transaction costs and the reserves needed across the holdings.

It can also be useful to compare reducing a balance, retaining more cash or postponing the purchase. Each has consequences for flexibility, borrowing costs and the client’s objectives.

The mortgage is an investment variable because it changes what the strategy delivers. It deserves consideration before the acquisition decision becomes a financing deadline.

How Willow Private Finance Can Help

Willow can review the debt behind a rental portfolio and compare suitable lending routes for refinancing, additional borrowing or an acquisition. We start with the properties, rents, balances and objectives.

The review can identify where an expiry changes cash flow, where rental assessment constrains borrowing and where fees or structure alter the comparison. For more involved arrangements, our complex property lending service can support the assessment.

Working alongside the client’s accountant helps connect the mortgage costs with the tax and cash position. The useful result is a clearer view of what the portfolio can support and what the landlord can expect to retain—not simply a more impressive yield percentage.