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Is buy-to-let still a good bet?

11 May 2022

Last December, average rent costs per private rented property broke the £1,000 a month mark to hit £1,060, an 8.3% rise on the same month in 2020. In London, according to Rightmove, rents reached a new record of £2,142 a month.

With more properties bought by landlords than sold in the first quarter of 2022, the first time since 2016, and a persistent shortage of new housing requiring around 230,000 new rental homes to meet the expected growth in demand, seemingly all the conditions are in place for buy-to-let landlords to prosper.

Data from Rightmove found that tenant demand was 32% higher than this time last year, while the number of properties available was 51% lower. The average rental yield across the UK is 5.5%, the highest it has been since 2016 when it was 5.6%.

As the old adage goes, ‘if something seems too good to be true it probably is’ and the reality is that the financial case for being a buy-to-let landlord is more complicated and nuanced. Indeed, there are a number of factors people need to be aware of if they’re letting out property to private tenants or contemplating doing so.

Rental yields

From a financial perspective, the key metric indicating whether buy-to-let is a worthwhile investment is rental yield: the yearly income derived from a property as a percentage of the cost of the property. However, this doesn’t factor in costs associated with a property that reduce the net income. Typically, these include maintenance, insurance and letting agent fees.

Recent research suggests that in terms of rental yields, the financial returns are not as attractive as might first appear. According to a report by one mortgage company, buy-to-let investors’ yields fell to 5.7% in the first quarter of 2022 compared with 6.3% in Q1 2021. In another sign that not everything in the buy-to-let market is thriving, lending to buy-to-let landlords has fallen by 8% since 2016.

A major factor determining rental yield is location. The highest yields can found in the North-East (8.7%), Yorkshire & Humberside, (7.5%) and the North-West (6.7%). Research by UK estate agent Hamptons found that Middlesborough in the North-East, is the country’s favourite location for buy-to-let landlords, with 58% of properties purchased by a landlord in the past six months, generating a rental yield of 8.9%. Other popular spots are Liverpool and Nottingham, which both recorded a rental yield of over 7%.

Lowest yields are in Greater London and the South-East, where high property prices relative to rents are helping to keep returns down. In Q1, a number of regions including the North-West and the East Midlands saw a fall in rental yields.

It is worth noting that landlords, who live a long way from the property they let out are likely to incur additional costs that eat into profits. These include letting agent fees (generally between 10% and 15% of the rent for a full management service) to manage the property and be available to deal with any day-to-day problems.


The taxation regime facing buy-to-let landlords has become tougher in recent years.

The biggest change is that since April 2020 landlords have had to pay tax on their entire rental income and can no longer claim tax relief on mortgage repayments to reduce their tax bill. Also, landlords now have to declare the income on their tax return, potentially pushing some into a higher income tax bracket.

In place of mortgage interest tax relief in April 2020, the government introduced a new 20% tax credit on mortgage interest repayments. So, for example, if a landlord pays £10,000 a year in mortgage interest they will receive a tax credit of £2,000. This is less generous for higher-rate taxpayers, who under the previous rules could receive 40% tax relief on their mortgage interest repayments.

This change is likely to be the main reason behind the record number of buy-to-let companies in the UK, of which 61% have been set up since the withdrawal of mortgage interest tax, which began in 2017.

When transferring a property from private ownership to company ownership, please be aware that there may be capital gains tax and stamp duty implications. Before making any decisions, consulting a professional is strongly advised.

Capital attraction

Although rental income is an important aspect of the financial rationale for being a buy-to-let landlord, it of course is not the only attraction. The buy-to-let property itself is also a financial asset in its own right and one that may appreciate in value. Should this be the case, then capital gains tax may well come into play. Planning the disposal of buy-to-let properties with the guidance of a financial adviser, to ensure that it can be done in a tax-efficient way, is highly advisable, particularly if several properties are involved. Of course, there are no guarantees that property values will go on rising as they have done in recent years, and even if they do, there are likely to be regional and other differences.

In a recent development that will be welcome news for by-to-let landlords, the requirement to report and pay capital gains tax within 30 days of completing the sale of a property has been relaxed to 60 days.

Borrowing to purchase. 

Obtaining a buy-to-let mortgage is likely to require a deposit, with the minimum deposit usually around 25% of the property’s value, although this can be as high as 40%. Recent rises in UK Interest rates have also fed through into higher mortgage repayments for landlords.

Stamp duty

Landlords are liable to pay stamp duty when purchasing a buy-to-let property, with a surcharge when the property is a second home. The amount of stamp duty paid depends on the price of the property. For second properties in the £125,001 to £250,000 price bracket, the standard stamp duty rate is 2%, with an additional buy-to-let levy of 3%. For properties in the £250,001 to £925,000 range the stamp duty rates and buy-to-let levy are 5% and 8% respectively. The above rates apply in Wales, England, and Northern Ireland. Other rules apply in Scotland.


Environmental concerns mean that the current requirement for all buy-to-let properties to have an Energy Performance Certificate (EPC) rating of E or above, could be raised to Band C for all new tenancies by 2025 and all existing tenancies by 2028. This would heap additional costs onto landlords potentially running into thousands of pounds as they make the necessary improvements, such as better insulation, to their properties. The government’s continuing commitment to abolish “no fault evictions” also known as Section 21 evictions, could make it harder to evict tenants, adding to landlords’ costs.

The possible introduction of a Landlord Registration Scheme in England would inevitably mean more paperwork and cost.


From a financial perspective, there are good reasons why being a buy-to-let landlord remains attractive. However, there are a number of clouds on the horizon, not least rising interest rates, and tighter regulation, which could significantly raise landlords’ costs. Less generous rules on mortgage interest repayments and a stamp duty surcharge on second properties have undoubtedly had a negative impact. Taxation planning is important when disposing of buy-to-let properties. Finally, estate agents’ favourite three words: location, location, location should never be ignored.

Important Information

The views expressed by Courtiers in this summary are reached from our own research. Courtiers cannot accept responsibility for any decisions taken as a result of reading this article. Investors are recommended to take independent professional advice before effecting transactions and the prices of stocks, shares and funds, and the income from them can fall. Past performance is not a guide to future returns. Tax treatment depends on individual circumstances and may be subject to change in future. We do not endorse or accept responsibility for website content on any websites other than those operated by Courtiers, which may be accessible via links in this article.

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