“Rent of £1,500 a month is £18,000 a year — that’s a great return on a £50,000 deposit.” It’s the calculation almost every first-time landlord does at some point, and it’s almost entirely useless, because it treats gross rent as if it were profit and the deposit as if it were the only money at stake.
It also mixes up two different measures. Rental yield is normally measured against the value or purchase price of the property, not against the deposit. The return on the landlord’s own cash is a different calculation again, and only becomes meaningful once financing, acquisition costs and the genuine running expenses have been taken out.
Between £18,000 of annual rent and whatever actually lands in a landlord’s pocket sits a mortgage, tax, repairs, void periods, management, insurance, compliance and a purchase-tax bill that can run into five figures before a single tenant moves in.
The honest answer to “is buy-to-let still worth it?” isn’t yes or no. Some properties, bought at some prices and financed in some ways, still produce a convincing investment case. Others can carry an impressive-looking advertised yield and barely produce any cash at all.
The useful question is whether this particular property, at this particular price, with this particular financing, still works once reality is put into the calculation.
Last checked: 15 September 2026.
Where the market actually sits
Buy-to-let financing and rental yields both moved in a somewhat landlord-friendlier direction through the first part of 2026 than during the most difficult period of higher borrowing costs.
UK Finance recorded the average gross buy-to-let rental yield across the UK at 7.21% in the first quarter of 2026, up from 6.93% a year earlier. Over the same period, the average interest rate across new buy-to-let loans fell to 4.71%, 0.29 percentage points below a year earlier. The industry’s average interest-cover ratio also improved to 221%. The latest figures are published in UK Finance’s buy-to-let lending data.
Those movements help. They do not restore the economics of the ultra-cheap mortgage years, and they tell you almost nothing about whether an individual property is attractive.
A national average also hides enormous variation. Lower property values can produce relatively high gross yields in some markets, while expensive areas can produce much lower yields even where monthly rents themselves are substantial. Property type, tenant demand and local supply can matter as much as region.
The market backdrop therefore tells you the conditions you’re investing into. It doesn’t tell you whether to buy the property in front of you.
Why the headline calculation misleads
Gross yield is useful, but only as the beginning of the analysis.
If a £250,000 property produces £16,800 of annual rent, its gross yield is:
£16,800 ÷ £250,000 = 6.72%.
That number is useful for comparing similar properties quickly. It tells you how much rent the asset produces relative to its price.
It does not tell you how much money the landlord makes.
The rent still has to absorb mortgage interest, periods without a tenant, repairs and maintenance, insurance, agent costs where applicable, safety and regulatory expenditure, leasehold charges where relevant and tax. The landlord may also have committed substantially more cash than the deposit once purchase taxes and setup expenditure are included.
The next stage is therefore not to ask whether 6.72% is a “good yield” in isolation. It is to ask what survives beneath it.
A £250,000 deal that looks reasonable — until you stress it
Take an illustrative £250,000 buy-to-let in England producing rent of £1,400 a month, or £16,800 a year.
Assume a 25% deposit and an interest-only mortgage for the remaining £187,500. To keep the financing assumption anchored to the current market rather than choosing an unusually cheap or expensive product, use UK Finance’s Q1 2026 average new-loan rate of 4.71%.
For the running costs below, the figures are deliberately illustrative rather than market averages. Their purpose is to show the calculation a buyer needs to perform on the actual property.
| Deal screen | Illustrative figure |
|---|---|
| Purchase price | £250,000 |
| Annual rent | £16,800 |
| Headline gross yield | 6.72% |
| 25% deposit | £62,500 |
| Additional-property SDLT in England | £15,000 |
| Mortgage | £187,500 |
| Interest at 4.71% | £8,831 a year |
| Management at illustrative 12% of rent | £2,016 |
| Maintenance allowance | £1,500 |
| Insurance/compliance allowance | £600 |
| One month’s rent allowed for void | £1,400 |
| Cash left before tax | about £2,453 a year |
| Equivalent monthly cash flow before tax | about £204 |
The current additional-property SDLT rates used in that example are published in HMRC’s residential property rate guidance. A £250,000 additional property currently attracts £15,000 of SDLT in England and Northern Ireland.
Even before legal fees, mortgage fees, survey costs, refurbishment or furnishing, the landlord has therefore committed at least £77,500 of cash through the deposit and SDLT.
The £2,453 of illustrative annual pre-tax cash flow is only about 3.2% of that £77,500, and the true percentage would be lower once the other acquisition costs were included.
That is a very different investment picture from the 6.72% gross yield in the advert.
Now stress the same mortgage to 6.5% rather than 4.71%, without changing anything else. Annual interest rises to about £12,188 and the illustrative property moves to roughly £900 a year of negative cash flow before tax.
Nothing has gone wrong with the tenancy in that scenario. The rent hasn’t fallen, there hasn’t been an exceptional repair and the property hasn’t suffered an extended void. One financing assumption has simply changed.
That is what a useful buy-to-let stress test is meant to expose.
What a deal needs to survive
A property doesn’t need to produce an enormous monthly surplus to be investable, but it should have enough margin that the investment isn’t dependent on everything going right at once.
A landlord should be able to ask what happens if the fixed mortgage period ends at a higher rate, the property is empty for several weeks, the boiler needs replacing or the achievable rent turns out slightly below the agent’s optimistic estimate.
If one fairly ordinary adverse event turns the property from profitable to loss-making, the issue isn’t that buy-to-let is fundamentally broken. It’s that this particular deal was bought with very little margin.
This is also where gross yield can mislead investors into comparing properties incorrectly. A high-yield property with heavy management, repair or service-charge costs can produce worse cash flow than a lower-yield property with cleaner economics.
The number worth knowing after gross yield is therefore not another headline percentage. It’s what remains after the costs the property actually creates.
What it actually costs to get in
The deposit is rarely the full cash requirement.
Buy-to-let mortgages commonly require a materially larger deposit than owner-occupier borrowing, and 25% is a familiar starting point in the market, although individual lender requirements vary.
Purchase tax then sits on top.
England and Northern Ireland apply the higher SDLT rates to qualifying additional residential properties. Scotland uses its Additional Dwelling Supplement alongside LBTT, while Wales applies higher residential LTT rates. The amounts can be large enough to materially change the investment return because, unlike the deposit, transaction tax does not buy additional equity in the property.
Then come the less dramatic but still real costs: legal work, survey or valuation fees, mortgage arrangement costs, potentially broker fees, and whatever has to be spent before the property is genuinely ready to let.
An investor comparing returns against the deposit alone is therefore flattering the investment before the tenancy has even started.
For a meaningful return-on-cash calculation, the denominator should include all the cash required to acquire and prepare the investment, not merely the portion that became equity on completion.
Financing: leverage cuts both ways
Borrowing is one of the reasons property can produce attractive returns on the investor’s own capital. A landlord can control a £250,000 asset without supplying £250,000 of cash, and any rise in the value of that asset applies to the whole property rather than only to the deposit.
The same leverage magnifies the downside.
Mortgage interest is normally one of the largest costs in a financed buy-to-let, and it continues whether or not rent is coming in. A landlord whose calculation only just works at the initial mortgage rate is effectively making a second investment judgement: that refinancing conditions will remain favourable enough for the numbers still to work when the product ends.
Lenders recognise that risk themselves. The Bank of England’s Prudential Regulation Authority expects relevant lenders to assess whether expected rent can cover stressed mortgage interest through an interest coverage ratio, rather than simply asking whether the rent covers today’s payment. The Bank has described 125% as a common minimum benchmark, while tests around 145% have frequently been used for higher-rate taxpayers. The regulatory framework is explained in the Bank of England’s buy-to-let underwriting standards.
A lender approving the mortgage doesn’t mean the property is a good investment, though. It means the loan passes the lender’s risk test.
The investor’s test should be tougher because it is their capital and time that have to justify the return.
Interest-only and repayment mortgages tell slightly different stories
This is another place where cash flow and investment return can be confused.
With an interest-only mortgage, the monthly payment covers interest and the capital balance remains outstanding. That usually produces stronger immediate cash flow, but the mortgage debt does not reduce through normal monthly payments.
With a repayment mortgage, monthly cash flow is lower because part of each mortgage payment repays capital.
That capital repayment is not the same thing as an operating loss. It increases the investor’s equity in the property.
A repayment property can therefore show weaker spendable monthly cash flow while simultaneously increasing the owner’s net equity faster than an otherwise identical interest-only property.
For someone deciding whether they can live with the monthly cash requirement, cash flow matters.
For someone deciding whether the investment is building net wealth, mortgage principal reduction matters too.
The two shouldn’t be casually combined into one profitability figure.
The running costs that erode the yield
A rental property generates costs whether or not it’s currently occupied.
Routine maintenance and occasional larger repairs are unavoidable over a sufficiently long holding period. Landlord insurance has to be maintained. Safety and compliance requirements create both direct costs and administrative work. Many landlords use a letting or managing agent, exchanging some of their rental income for less day-to-day involvement.
Leasehold property can introduce another layer through service charges, major works and sometimes estate charges. Those costs can make an apartment with an apparently attractive rental yield materially less attractive than a freehold house producing slightly less rent.
Voids matter as well. Budgeting on twelve months’ perfect rent every year creates an assumption that becomes increasingly unrealistic over a long investment period. Even a good property with good tenants eventually experiences turnover, maintenance between tenancies or some other interruption.
None of these costs is individually an argument against investing.
The error is treating them as exceptional when assessing whether the deal works.
Tax changes what’s actually left
For an individual landlord owning residential property personally, the tax calculation does not simply take rental income, deduct all the mortgage interest and tax whatever remains.
The restriction on residential finance costs has been fully in place since April 2020. Mortgage interest and certain other finance costs are no longer deducted from residential property income in the normal way when calculating an individual’s taxable rental profit. Instead, relief is generally given through a basic-rate tax reduction, subject to statutory limits. HMRC explains the calculation in its residential landlord finance-cost guidance.
That can matter especially for higher and additional-rate taxpayers because the taxable property profit can be substantially higher than the cash profit after mortgage interest.
A property owned through a company is taxed differently: corporate finance costs fall under the corporation-tax loan-relationship rules rather than the individual landlord restriction. That does not mean a limited company is automatically the better way to own buy-to-let. Corporation Tax, extracting money from the company, mortgage pricing, administration, acquisition taxes and eventual sale all need comparing together. Ownership structure is a separate tax decision rather than a shortcut around one unattractive rule.
The former Furnished Holiday Lettings tax regime also ceased to apply for Income Tax and Capital Gains Tax from 6 April 2025. Holiday-let income is now broadly brought into the ordinary property-income system rather than receiving the former FHL advantages, although HMRC’s legislation includes transitional arrangements for some existing positions. The current treatment is explained in HMRC’s FHL repeal guidance.
There is also an administrative change already affecting some landlords. Making Tax Digital for Income Tax applies from 6 April 2026 where an individual’s qualifying gross income from self-employment and property exceeds £50,000. It is the qualifying business and property income before expenses that matters for this threshold, not salary or investment income generally. The threshold is due to extend to qualifying income above £30,000 from April 2027. HMRC’s Making Tax Digital guidance sets out the requirements.
None of this tells one landlord exactly what tax they’ll pay. It does tell prospective investors not to use an old spreadsheet based on the pre-2020 mortgage-interest rules.
Capital growth: real, but not guaranteed
Capital appreciation is one of the reasons property investors accept relatively modest current cash yields. If a £250,000 property eventually becomes worth £300,000, the landlord has benefited from a £50,000 increase in asset value alongside whatever rental return was earned during ownership.
That potential is real.
It is not guaranteed.
UK property values have risen substantially over long periods, but individual markets and periods can behave very differently. Prices can stagnate for years, fall in nominal terms, or rise more slowly than inflation. A property that only becomes attractive when a generous capital-growth assumption is inserted into the spreadsheet is not fundamentally a strong rental investment; it is a property-price bet carrying rental income alongside it.
Exit costs matter here too.
An eventual sale can involve estate-agent and legal costs, and an individual selling a buy-to-let at a gain can face Capital Gains Tax. HMRC’s current property-sale guidance confirms that buy-to-let gains can be taxable, while taxable disposals of UK residential property generally have to be reported and any CGT due paid within 60 days of completion.
The gross increase in the property’s value is therefore not necessarily the amount the investor ultimately keeps.
A proper long-term return calculation should look at the investment from cash in at purchase to cash out at sale, not stop at an estimated future valuation.
The cost that doesn’t show up on a spreadsheet: time
Owning a rental property is not genuinely passive simply because an agent collects the rent.
Someone still has to decide whether to approve repairs, deal with larger expenditure, review insurance and financing, ensure the agent is performing properly and make decisions when a tenancy, contractor or property does not behave as expected.
Self-management increases the time requirement significantly. Full management reduces it, but also takes another slice of the gross rent.
Neither option is inherently better. What matters is whether the investor has honestly valued the choice.
A property producing £2,000 or £3,000 of annual cash profit can look quite different if it also creates repeated problems and significant owner involvement. The return has to compensate for the capital invested, the risks taken and the work the investment creates.
What the money could otherwise be doing
Every pound committed to a deposit, additional-property tax, refurbishment and reserve fund has an opportunity cost.
That same capital could potentially remain liquid, be contributed to a pension, invested through an ISA, spread across diversified investments or used elsewhere in the investor’s finances.
Property has characteristics those alternatives do not: the ability to use substantial leverage, direct control over the asset, rental income and exposure to a specific local housing market.
It also has disadvantages they may not: concentration in one large asset, high transaction costs, illiquidity, ongoing management and considerable regulatory responsibility.
That is why “buy-to-let versus leaving the money in the bank” is often the wrong comparison.
The fair question is what return this property is expected to produce for the capital, risk, illiquidity and time involved, compared with realistic alternatives available to the same investor.
So what does a property need to pass?
The worked £250,000 example is useful because it shows that a respectable gross yield is not enough on its own.
Before a deal deserves further consideration, an investor should be able to make it work without relying on perfect occupancy, permanently cheap refinancing or guaranteed house-price growth. There should be enough margin for normal ownership to be imperfect.
That does not mean every property must produce a huge monthly surplus. An investor deliberately using a repayment mortgage may accept lower immediate cash flow in exchange for reducing debt. Another investor may value long-term capital growth more heavily than current income.
But the economic trade-off should be deliberate.
If the rental return is weak, the investor should know they are primarily relying on capital appreciation.
If cash flow is the objective, the property should genuinely produce it after realistic operating and financing costs.
If leverage is doing most of the work, the deal should remain tolerable when that leverage becomes more expensive.
And if the expected return on the full cash invested is modest, it should still be attractive enough to justify choosing a concentrated, illiquid and actively managed property investment over the alternatives.
The honest conclusion
Buy-to-let is not dead as an investment category, and it is not automatically profitable either. Both claims are too simple to be useful.
The national market has become somewhat more favourable to landlords than it was at the height of the recent mortgage-rate shock: average new BTL borrowing costs have eased and gross yields have risen. But those averages do not rescue a poor individual purchase.
A specific property needs to survive a much less glamorous calculation: the full cash required to acquire it; the real rent likely to be collected rather than the best-case advertised number; normal running costs and voids; financing at today’s rate and at a plausible future stress rate; the tax treatment that applies to the actual owner; and an exit calculation that doesn’t assume capital growth is either guaranteed or free of tax and selling costs.
The first worked example in this article began as a 6.72% gross-yield property.
Under one reasonable set of illustrative costs it produced only about £204 a month before tax, on at least £77,500 of deposit and SDLT, and moved into negative cash flow when the mortgage rate was stressed to 6.5%.
That doesn’t prove the property is a bad investment. It proves that the 6.72% headline was never enough information to decide.
That is the standard every buy-to-let deal should meet: if the investment only looks attractive before the real costs are put in, it doesn’t yet stack up.
This article provides general information about the economics of residential property investment and is not personalised financial, mortgage, legal or tax advice. Rental yields, mortgage rates, purchase taxes, tax treatment and running costs vary between properties, borrowers and UK jurisdictions and can change. Worked figures in this article are illustrative unless stated otherwise. Model the actual numbers for a specific property and obtain appropriate professional advice before committing to an investment.
