All results are before tax.

Mortgage interest can be set against rental income for tax purposes. This makes it possible for all the mortgage interest to be tax deductable, reducing the effective cost of borrowing by the tax rate payable. For example a gross mortgage rate of 7% pa equates to a net mortgage rate of around 5.25% after 23% tax relief. Other expenses may also be tax deductable.

The advantage gained from gearing (borrowing against) your property only works if the net yield plus the property growth exceeds the mortgage interest rate after allowing for expenses. A quick way of determining this is to compare the ROI obtained with and without a mortgage. A message appears under the summary to indicate whether a higher return is acheieved with or without borrowing. If gearing is positive, the higher the loan the better. But if the amount borrowed approaches the property value, the return may be excessive and the calculation of Return On Investment will fail (indicated by an error message).

The term should be restricted to less than about 5 years as no account has been taken of increasing rental income, meaning the yield falls as the value of the property rises. The longer the term, the more effect the lowering yield will have with this calculator. But in reality rents are likely to rise with inflation wheareas the mortgage interest will fluctuate around a relatively level figure since the debt it services remains constant. This means the net income should rise by more than inflation. Note that higher yielding properties may well grow at a lower rate.

Please note: This calculator should be used for indicative purposes only and should not be taken as representing advice. Always get a full quotation from your lender or other professional adviser before purchasing a mortgage product.