How buy to let works, what it costs, how much deposit you need, the stamp duty surcharge, current tax rules, and whether buy to let is still worth it in 2026. A practical guide for anyone considering property investment.
Buy to let involves purchasing a property using a buy to let mortgage and renting it out. You need at least a 25% deposit, pay a 5% stamp duty surcharge, and rental income is taxed at your marginal rate with mortgage interest no longer fully deductible. Whether it is worth it in 2026 depends on your yield, financing costs and tax position.
Buy to let is a property investment strategy in which you purchase a residential property specifically to rent to tenants rather than live in it yourself. The property is financed using a buy to let mortgage, a specialist product designed for investment properties, and the rental income is used to cover the mortgage payments and running costs, with any surplus representing profit.
Returns come from two sources: rental income (yield) and capital growth over time. A property bought for £180,000 and rented for £900 per month generates £10,800 per year in gross rent, a gross yield of 6%. If the property value rises to £220,000 over ten years, the total return includes both the accumulated rental profit and the £40,000 capital gain.
Buy to let mortgages are assessed primarily on the rental income the property will generate, not your personal income. They typically require a larger deposit (25% vs 5% to 10%), carry higher interest rates, and are often arranged on an interest-only basis. Most buy to let mortgages are not regulated by the Financial Conduct Authority.
Interest-only buy to let mortgages, where you pay only the interest each month and repay the original loan at the end of the term, are common in buy to let because they maximise monthly cash flow. At the end of the mortgage term, you either sell the property to repay the loan, remortgage onto a new deal, or switch to repayment.
Buy to let has higher upfront costs than a residential purchase and significant ongoing costs that must be factored into any yield calculation. Many investors underestimate total costs and overestimate net returns.
| Upfront cost | Typical amount | Notes |
|---|---|---|
| Deposit | 25% of purchase price | Minimum for most lenders. Some accept 20% or 15%. |
| Stamp duty | Standard rates + 5% surcharge | On each band. See stamp duty section below. |
| Mortgage arrangement fee | £999 to £2,500+ | Some lenders charge 1% to 2% of the loan amount. |
| Solicitor / conveyancing fees | £1,000 to £2,000 | Plus disbursements (searches, Land Registry). |
| Survey / valuation | £300 to £800 | Lender's valuation plus optional homebuyers or structural survey. |
| Refurbishment / furnishing | Variable | May be required before the first tenancy begins. |
| Ongoing cost | Typical amount | Notes |
|---|---|---|
| Mortgage payments | Depends on loan and rate | Interest-only typical for BTL. Rate varies by LTV and product. |
| Letting agent fees | 8% to 15% of rent (fully managed) | Tenant-find only is cheaper. Agent quality affects void rate. |
| Maintenance and repairs | 10% to 15% of annual rent | Allow more for older properties. Mandatory safety work adds to this. |
| Buildings and landlord insurance | £200 to £600/year | Buildings insurance mandatory. Landlord liability insurance strongly advised. |
| Void periods | 4 to 6 weeks per year | Allow for gaps between tenancies when no rent is received. |
| Gas safety certificate | £60 to £120/year | Legally required annually if gas appliances present. |
| Electrical inspection (EICR) | £150 to £300 every 5 years | Required every 5 years or at change of tenancy. |
| Landlord licensing | £300 to £1,000+ | Required by many local authorities. HMO licensing is mandatory and more expensive. |
| Income tax on profits | 20%, 40% or 45% | At your marginal rate. See tax section below. |
One month's void on a property renting at £900/month costs £900 in lost rent but also represents a full month of mortgage and insurance payments continuing. Investors who budget for 12 months of rent per year and then experience three to four weeks of voids consistently underperform their projections. Always model cash flow with a conservative void allowance before purchasing.
Most buy to let mortgage lenders require a minimum deposit of 25% of the property value. This means an investor purchasing a £200,000 property needs at least £50,000 as a deposit. The remaining £150,000 is borrowed via the buy to let mortgage.
Some specialist lenders will consider 20% or even 15% deposits, but the product range narrows significantly below 25% and mortgage rates are higher. The rental coverage requirement also becomes harder to meet at higher LTV ratios because the mortgage payment is larger relative to the rent.
Most lenders require monthly rent to cover 125% to 145% of the monthly mortgage interest payment at a stressed rate of 5% to 6%. On a £150,000 mortgage at a 5.5% stressed rate, monthly interest is £687.50. At 145% coverage, the lender requires minimum monthly rent of £997. If the target property achieves only £850/month in rent, the deposit must increase until the loan reduces enough to meet the coverage ratio.
Buy to let purchasers pay standard stamp duty land tax rates plus a 5% surcharge on each band. This applies to all additional residential property purchases in England and Northern Ireland. The surcharge rose from 3% to 5% on 31 October 2024.
| Purchase price band | Standard SDLT rate | Buy to let rate (+ 3%) |
|---|---|---|
| Up to £125,000 | 0% | 5% |
| £125,001 to £250,000 | 2% | 7% |
| £250,001 to £925,000 | 5% | 10% |
| £925,001 to £1.5m | 10% | 15% |
| Over £1.5m | 12% | 17% |
Standard SDLT on £200,000: 0% on first £125,000 + 2% on £75,000 = £1,500.
With the 5% BTL surcharge: 5% on £125,000 (£6,250) + 7% on £75,000 (£5,250) = £11,500 total.
The surcharge adds £10,000 compared to an owner-occupier purchasing the same property. This must be funded from savings alongside the deposit, it cannot be added to the mortgage.
Scotland uses Land and Buildings Transaction Tax (LBTT) with a 6% additional dwelling supplement. Wales uses Land Transaction Tax (LTT) with a 4% higher rates surcharge. The surcharge is not recoverable when the property is sold, it is a one-off acquisition cost that reduces the effective return on investment. Confirm current rates with HMRC before budgeting, as rates change.
Tax is the area where buy to let has changed most significantly since 2017. The Section 24 changes removed the ability for individual landlords to deduct mortgage interest from rental income before calculating tax. This single change has materially reduced returns for higher rate taxpayers.
Under the old rules, a higher rate taxpayer with £12,000 in rent and £7,000 in mortgage interest paid tax on £5,000 of profit. Under the current rules, they pay tax on £12,000 of income, with only a 20% tax credit on the mortgage interest applied afterwards.
Rental income is added to all other income and taxed at the marginal rate, 20% for basic rate taxpayers, 40% for higher rate, 45% for additional rate. Allowable deductions from rental income include: letting agent fees, maintenance and repairs, insurance, accountancy fees, ground rent, and a void period allowance. Mortgage interest is not deductible, a 20% tax credit is applied instead.
When a buy to let property is sold, capital gains tax (CGT) applies to the profit. The CGT rates for residential property in 2026 are 18% for basic rate taxpayers and 24% for higher rate taxpayers on the gain above the annual CGT allowance (£3,000 in 2026/27). Private residence relief does not apply to properties that were never your main home.
Purchasing buy to let property through a limited company allows mortgage interest to be deducted as a business expense, avoiding the Section 24 restriction. Corporation tax (25% for profits above £250,000, 19% for smaller companies) is often lower than personal higher rate income tax. However, extracting profits from the company creates additional tax liability, and limited company buy to let mortgages typically carry higher rates. Whether a company structure is beneficial depends on your individual tax position and portfolio size. Always take accountancy advice before deciding. Our limited company buy-to-let mortgage guide covers the lending side of that decision.
The honest answer is: it depends on the numbers. Buy to let is not a blanket good or bad investment, it is a financial calculation that produces different outcomes depending on yield, financing costs, tax position, and location. If you already hold several properties, our portfolio landlord guide covers how lenders assess multiple mortgages together.
| Arguments for | Arguments against |
|---|---|
| Rental demand remains structurally strong in most UK cities | Higher mortgage rates (5%+ for BTL) have compressed net yields significantly |
| Long-term capital growth in most areas has outperformed other assets | Section 24 tax changes penalise higher rate taxpayers holding property personally |
| Tangible asset with direct control over the investment | 5% stamp duty surcharge is a significant upfront cost that takes years to recover |
| Leverage amplifies returns in rising markets | Leverage also amplifies losses in falling markets or where voids are prolonged |
| Limited company structure available to improve tax efficiency | Regulatory burden on landlords has increased (licensing, EPC requirements, tenant protections) |
| Rental income can supplement salary or pension | Illiquid, cannot exit quickly without selling costs and CGT liability |
Buy to let tends to produce the strongest net returns for investors who: buy in high-yield Northern cities or student towns (6%+ gross yield), have a 30% to 40% deposit to keep mortgage costs manageable, are basic rate taxpayers or investing through a limited company, take a 10 to 15 year view rather than expecting short-term gains, and use professional letting agents to minimise voids and maintenance surprises. For investors buying in London and the South East with 25% deposits at current mortgage rates, the numbers often do not stack up unless there is a strong case for capital growth.
Call 01422 354011 or use the form below. We check rental coverage ratios, compare lenders and confirm the mortgage position before you commit to a purchase.
Get Buy-to-Let Mortgage AdviceReviews reflect individual client experiences and do not guarantee outcomes.
As a whole-of-market mortgage broker, we check rental coverage ratios across lenders, identify the most appropriate product for your circumstances and manage the application from start to offer.
Initial discussion free. A broker fee of £299 is payable if you choose to proceed following a formal mortgage offer. This fee is non-refundable once charged. We may also receive commission from the lender. Your property may be repossessed if you do not keep up repayments on your mortgage. Most buy to let mortgages are not regulated by the Financial Conduct Authority.
Get Buy-to-Let Mortgage AdviceGeneral information: This article is for general guidance only and does not constitute regulated mortgage, financial, tax or legal advice. Tax rules are subject to change. Always seek advice from a qualified accountant before making investment decisions.
Regulatory status: Woodhall Mortgages is authorised and regulated by the Financial Conduct Authority (FRN 762513). As a whole-of-market mortgage broker, we consider mortgages from across the market, subject to lender criteria and product availability. Most buy to let mortgages are not regulated by the FCA.
Broker fee: A broker fee of £299 is payable if you choose to proceed following a formal mortgage offer. This fee is non-refundable once charged. We may also receive commission from the lender.
Your property may be repossessed if you do not keep up repayments on your mortgage.
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