UK rents rise once again, with the average monthly rent reaching £1,340 in May 2026, 2.5% higher than a year earlier. In Greater London, average rents have climbed to £2,161 per month, reinforcing the trend that UK rents rise despite affordability pressures and wider economic uncertainty.
For landlords, rising rents may seem like an obvious win. Higher rental income should mean higher returns. But that is not always the case. The figure that ultimately determines investment performance is not the headline rent but the net rental yield, i.e., the return left after mortgage costs, maintenance, letting fees, insurance, compliance expenses, and tax.
This article peeks behind the headline rent rise figures and explains why landlords should be more concerned with net rental yield than gross. It also highlights how rent rises may push landlords into the MTD bracket.
Key Takeaways
- The average UK rent hit £1,340 in May 2026, increasing by 1.1% from the previous month and 2.5% compared with May 2025, according to the HomeLet Rental Index
- Scotland recorded the highest annual rent increase, with rents rising by 3.9%
- Gross rental yield does not reflect the costs and taxes associated with owning a property; for example, a property with a gross yield of 5.7% could generate a net cash yield of less than 1% for a higher-rate taxpayer with a mortgage
- Mortgage interest is not deductible against rental income, and landlords instead receive tax relief through a 20% basic-rate tax credit under Section 24 of the Finance (No. 2) Act 2015
- Higher rental income may push landlords above the thresholds for Making Tax Digital, which became mandatory from 6 April 2026
How Much Did UK Rents Rise in May 2026?
UK rents rose by 1.1% in May 2026 compared with April 2026 and by 2.5% compared with May 2025, taking the average monthly rent across the UK to £1,340.
The increase was widespread, with rents rising in 10 of the 12 regions monitored by the HomeLet Rental Index. HomeLet is a tenant referencing and specialist lettings insurance company and its rental index shows the average rental price for a new tenancy in the UK.
Outside Greater London, the average rent reached £1,146 per month, up 1% month on month and 2% year on year.
Greater London remained the UK's most expensive rental market. Average rents increased from £2,128 in April to £2,161 in May, representing a monthly increase of £33 and annual growth of 3.5%.
Area | Average Rent for May 2026 | Monthly Change | Annual Change |
|---|---|---|---|
UK | £1,340 | +1.1% | +2.5% |
Greater London | £2,161 | +1.6% | +3.5% |
Outside Greater London | £1,146 | +1.0% | +2.0% |
Scotland recorded the strongest rental growth, with rents rising 1.9% during the month and 3.9% over the year. The North East was unchanged month on month but remained 3.5% higher than a year earlier. Northern Ireland, meanwhile, recorded a decline, with rents falling 0.5% in May.
Why Rent Rises Don’t Necessarily Mean Bigger Profits
Rent rises do not automatically lead to higher profits because the rent you collect is not the same as the money you actually keep.
Gross rental income is the total rent received from tenants before anything is deducted. For example, if a property rents for £1,200 per month, the gross rental income is £14,400 per year. This figure is often used in headlines and yield calculations, but it assumes there are no costs involved.
Net rental income is what remains after all property-related costs have been deducted from that gross rent. These costs include mortgage interest, letting agent fees, maintenance, insurance, and tax. Once these are taken into account, the actual profit can be significantly lower than the headline rent suggests. This is why a property can show a strong gross yield but deliver a much weaker real return in practice.
The gap between gross and net returns has widened since Section 24 of the Finance (No. 2) Act 2015 was introduced. Landlords can no longer deduct mortgage interest from rental income before tax is calculated and instead receive a 20% tax credit, which is less beneficial for higher-rate taxpayers.
Worked Example: Gross 5.7% vs Net 0.7%
To understand the difference between gross and net rental yields, take a £280,000 property rented at the new UK average rent of £1,340 per month (£16,080 per year). On paper, this produces a gross yield of 5.7%, but this does not reflect actual profit.
Start with the rent collected:
- Annual Rent (i.e., Gross Income) = £16,080
From this, the first reduction is the running costs required to operate the property:
- Let’s Say, Management, Maintenance, Insurance, and Voids = £3,200
- Remaining Income After Running Costs = £12,880
Next comes financing costs:
- Let’s Say, Mortgage Interest = £7,200
- Income Left After Mortgage Interest = £5,680
Finally, tax is applied. Under current rules, mortgage interest is not deducted from taxable profit and instead attracts a 20% tax credit. For a higher-rate taxpayer, this results in a tax bill of approximately £3,712.
After tax, the amount the landlord actually retains is:
- Profit = £1,968 per year
This means that although the property shows a 5.7% gross yield, the net yield is only around 0.7% once all costs and tax are accounted for.
The key takeaway is simple. Gross yield measures income potential, while net yield shows what is actually left in the bank. The gap between the two is where many landlords misjudge performance.
Will These Rent Rises Push You Into Making Tax Digital?
Possibly. Rising rents can push more landlords into Making Tax Digital (MTD) because the tax system is based on total rental income, not profit.
Making Tax Digital (MTD) for Income Tax is already in effect for landlords and sole traders whose gross qualifying income exceeded £50,000 in the 2024/25 tax year. Those within scope are now required to submit quarterly digital updates and a final year-end declaration.
The main point to understand is that MTD is calculated using gross income, which means total rent before any deductions for mortgage interest, expenses, or tax reliefs. As a result, landlords with relatively low net profits can still fall within scope if their total rent roll is high.
Furthermore, the rollout is staged, meaning more landlords will be brought into the system over time. The MTD threshold reduces to £30,000 from April 2027 and £20,000 from April 2028, bringing progressively smaller portfolios into MTD.
So, while rent increases look positive on paper, they can also bring landlords closer to Making Tax Digital long before they feel any real increase in profit.
Conclusion
The key takeaway from the latest UK rents rise is real is that higher rent does not automatically translate into higher profit. Once running costs, the Section 24 finance-cost restriction, and potential Making Tax Digital implications are factored in, the true profits you retain in your pocket can look very different from the headline figures.
Before assuming that a rent increase has strengthened your position, it is essential to calculate your true rental yield.
FAQs
UK rents rose by 1.1% and reached £1,340 a month in May 2026, according to the HomeLet Rental Index. Greater London rents averaged £2,161, while rents outside London averaged £1,146.
Gross rental yield is what a property earns from rent before anything is taken off. Net rental yield is what’s left after all the costs are paid, like the mortgage, repairs, insurance, and fees. It shows what you actually keep.
Usually, yes. Rental income is taxed as property income under ITTOIA 2005 and added to your other income. Higher rent can push profit into the 40% or 45% band. Because mortgage interest is relieved only at the 20% basic rate under Section 24, extra rent can be taxed more heavily than you might assume.
They might. MTD for Income Tax applies to landlords and sole traders whose gross property and self-employment income exceeded £50,000 in 2024/25 (from 6 April 2026). The threshold is measured before expenses, so a rising rent roll can put you in scope. It falls to £30,000 in 2027 and £20,000 in 2028.
There is no official benchmark. Many landlords use a gross yield of 5–8% as a rough guide, but this ignores tax and finance costs, which vary widely. The more useful test is your net yield against your costs. Modelling your own figures gives a far clearer answer than any rule of thumb.
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