Buy to Let

Buy to let is the UK term for buying property to rent out and for the mortgages that finance it. UK lenders and investors screen on rental yield, annual rent divided by price, which is the reciprocal of gross rent multiplier. A 10% gross yield is a GRM of 10; a 5% yield is a GRM of 20.

UK buy to let lenders test affordability with an interest coverage ratio: expected rent must exceed a stressed interest payment by 125 to 145%. Gross yield is the screen that comes before that test, the same role GRM plays in the US.

The reciprocal framing changes the intuition. In the US a lower GRM is better for a buyer; in the UK a higher yield is better, and the two statements are identical. Both markets have drifted the same way: yields of 8 to 10% (GRM 10 to 12.5) were common in cheap UK regions a decade ago and are now rare in the south, the way GRMs of 8 have become rare in large US metros.

Further reading: Buy to Let on Wikipedia.