What deposit do I need for a buy-to-let mortgage?

Most buy-to-let lenders require a minimum 25% deposit. Some specialist lenders accept 20%. The rental income also needs to meet the lender's Interest Coverage Ratio (ICR) — typically 125–145% of the monthly mortgage payment. Buy-to-let mortgages are generally not available to first-time buyers as their primary mortgage, though some lenders make exceptions.

What is Section 24 and how does it affect buy-to-let profitability?

Section 24 restricts tax relief on finance costs. Since April 2020, landlords cannot deduct mortgage interest as an expense. Instead, they receive a 20% tax credit on finance costs. For higher rate taxpayers (40%), this significantly reduces after-tax returns because they pay 40% tax on income that includes the mortgage interest, then only recover 20% of it via the credit. The effective tax rate on the finance cost element is 20% for higher rate taxpayers (40% tax minus 20% credit).

What is the stamp duty surcharge for buy-to-let?

Buy-to-let and second home purchases in England pay standard SDLT plus a 5% additional dwelling surcharge (increased from 3% in October 2024) on every band. This is applied to the full purchase price on each band. On a £200,000 property the standard SDLT is £1,500, the 5% surcharge adds £10,000, for a total of £11,500. This upfront cost significantly affects your overall return.

What are my legal obligations as a landlord?

Key landlord legal obligations include: annual gas safety check (Gas Safety Certificate), electrical inspection every 5 years (EICR), providing a valid EPC rated E or above, protecting tenants' deposits in a government-approved scheme within 30 days, providing prescribed information to tenants, complying with the Housing Health and Safety Rating System (HHSRS), providing a copy of the How to Rent guide, and giving proper notice before entering the property. From 2025, landlords must also comply with the requirements of the Renters' Rights Act.

Should I buy a BTL property through a limited company?

Buying through a limited company means mortgage interest is deductible as a business expense (Section 24 does not apply to limited companies). This can be advantageous for higher rate taxpayers. However, BTL mortgages through limited companies are generally more expensive and less widely available. You also pay Corporation Tax on profits, and there are additional costs if you extract profits via salary or dividends. For landlords with existing properties, transferring them to a company triggers SDLT and CGT. Professional tax advice is essential before making this decision.

Buy-to-Let Explained: Costs, Yields and Tax 2026/27

Q: Is buy-to-let still profitable in 2026?

BTL can still be profitable in 2026, but profitability depends heavily on the area, purchase price, mortgage rate and your tax position. Higher rate taxpayers have seen returns squeezed significantly by Section 24. Landlords in high-yield northern cities with interest-only mortgages at competitive rates can still achieve positive cash flow. London landlords with high-LTV repayment mortgages are most likely to have negative monthly cash flow. Always model the numbers carefully before investing.

📅 Updated: June 2026 📖 Tax year: 2026/27 ⏱ 13 min read

What is Buy-to-Let?

Buy-to-let (BTL) means purchasing a residential property with the intention of letting it to tenants rather than living in it yourself. You earn rental income from the tenants, and over the longer term you may also benefit from capital appreciation (the property increasing in value).

Buy-to-let is a common investment strategy in the UK, though it has become significantly more complex from a tax perspective since 2016. There are currently around 2.65 million buy-to-let landlords in England alone.

Is BTL Right for You?

Buy-to-let is not a passive investment. Before committing, consider:

Capital requirement: You need a minimum 25% deposit plus buying costs (SDLT surcharge, legal fees, survey). On a £200,000 property, expect to invest £60,000–£75,000 upfront.
Tax position: If you are a higher or additional rate taxpayer, Section 24 significantly reduces after-tax returns. Model the numbers carefully at your marginal rate.
Time commitment: Managing tenants, repairs and compliance is time-consuming. Using a letting agent reduces this but reduces returns.
Risk tolerance: Void periods, difficult tenants, unexpected repairs and falling property values all pose real risks. Property is illiquid — you cannot quickly sell a portion if you need cash.
Alternatives: In 2026, a Stocks and Shares ISA, REITs, or diversified investment portfolio may offer comparable returns with greater liquidity and less complexity.

How BTL Mortgages Work

Buy-to-let mortgages are fundamentally different from residential mortgages in several important ways:

Deposit requirements

Most lenders require a minimum 25% deposit on a buy-to-let property. A 75% loan-to-value (LTV) is the standard. Some specialist products allow 80% LTV (20% deposit), but at higher rates and with stricter income requirements.

Interest Coverage Ratio (ICR)

Lenders assess affordability primarily on the rental income, not just your personal income. The rental income must typically cover 125–145% of the monthly interest payment. With a stress-tested rate (often 5–5.5% regardless of the actual product rate), lenders calculate whether the rent is sufficient. This is known as the Interest Coverage Ratio.

Interest-only vs repayment

Most buy-to-let mortgages are taken on an interest-only basis. Your monthly payment only covers the interest — the loan balance does not reduce. This maximises monthly cash flow but means you need a repayment strategy (typically selling the property). Repayment BTL mortgages are available but less common and result in lower cash flow during the mortgage term.

Rates

Buy-to-let mortgage rates are generally 0.5–1% higher than equivalent residential rates. As of mid-2026, two-year fixed BTL rates from major lenders are available from approximately 4.5–5.5% depending on LTV and lender. Always compare the total cost including arrangement fees, not just the headline rate.

Personal income requirements

Some lenders also require a minimum personal income (often £25,000–£35,000) to be considered. First-time buyers face additional restrictions — many lenders will not offer a BTL mortgage to someone who does not already have or have had a residential mortgage.

Yields and Returns

Metric	Formula	UK average (2026)
Gross yield	(Annual Rent ÷ Property Value) × 100	4.5–6%
Net yield	((Annual Rent − Costs) ÷ Property Value) × 100	3–5%
Cash-on-cash ROI	(Annual Cash Flow ÷ Deposit) × 100	Varies widely

High-yield areas (gross 6%+): Glasgow, Liverpool, Manchester, Bradford, Stoke-on-Trent, Hull.

Medium-yield areas (gross 4–5.5%): Birmingham, Leeds, Sheffield, Bristol, Cardiff.

Low-yield areas (gross below 4%): Most London postcodes, Surrey, parts of the Home Counties.

All the Costs Involved

Upfront costs (one-off)

Stamp Duty Land Tax — standard SDLT plus 5% additional dwelling surcharge (see below)
Legal / conveyancing fees — £1,500–£3,000 for a standard BTL purchase
Survey — lender's valuation (often included in mortgage fee) plus a homebuyer's report: £400–£800
Mortgage arrangement fee — £0–£2,000 depending on the product
Refurbishment — if required before letting

Annual ongoing costs

Letting agent fees — full management: 8–12% of monthly rent. Tenant-find only: 1–2 weeks' rent
Landlord insurance — buildings + contents + public liability: £200–£500/year
Maintenance and repairs — budget 0.5–1% of property value per year
Gas Safety Certificate — annual legal requirement: £60–£100
Electrical Installation Condition Report (EICR) — every 5 years: £150–£300
EPC — every 10 years (must be rating E or above): £80–£150
Void periods — budget 2–4 weeks of lost rent per year
Accountancy fees — £150–£500/year for self-assessment return
Ground rent and service charge — for leasehold properties

Income Tax on Rental Profits

Rental profits are added to your other income and taxed at your marginal rate: 20%, 40% or 45%. Your rental profit is calculated as: gross rental income minus allowable expenses (excluding finance costs).

Allowable expenses include letting agent fees, landlord insurance, repairs and maintenance, safety certificates, advertising, legal fees (for tenancy agreements and eviction), and accountancy fees. Capital improvements and mortgage repayments are not deductible.

Section 24: The Finance Cost Restriction

The Section 24 rules are one of the most important tax changes affecting UK landlords. Fully in force since April 2020, they mean:

You cannot deduct mortgage interest as an expense against rental income
You pay Income Tax on the rental profit before deducting finance costs
You receive a 20% tax credit on total finance costs

For higher rate taxpayers, this creates a situation where you can pay income tax on money you do not actually have — your mortgage interest is income as far as HMRC is concerned, but you never receive it (it goes straight to the lender).

Limited company exception: Section 24 does not apply to properties held through limited companies. A limited company can still deduct finance costs as a business expense. This is one reason some landlords have incorporated their portfolios — though this involves its own costs and complexity.

Capital Gains Tax on Sale

When you sell a buy-to-let property, CGT applies at residential property rates:

18% — basic rate taxpayer (gains fall within the basic rate band)
24% — higher/additional rate taxpayer
Annual exempt amount: £3,000 per person in 2026/27

Your gain is: sale price − original purchase price − allowable costs (SDLT paid, legal fees on purchase and sale, capital improvements). You must report and pay within 30 days of completion.

Stamp Duty Surcharge

Buy-to-let purchases in England pay standard SDLT rates plus a 5% additional dwelling surcharge on every band (raised from 3% in October 2024):

Band	Standard rate	BTL/additional dwelling
£0–£125,000	0%	5%
£125,001–£250,000	2%	7%
£250,001–£925,000	5%	10%
£925,001–£1.5m	10%	15%
Over £1.5m	12%	17%

Landlord Legal Responsibilities

Key legal obligations for landlords in England from 2026 (including Renters' Rights Act 2025 requirements):

Annual Gas Safety Certificate (Gas Safe registered engineer)
Electrical Installation Condition Report every 5 years
EPC rated E or above (requirement to upgrade to C for new tenancies anticipated)
Register tenants' deposits in a government-approved scheme within 30 days of receipt
Provide prescribed information to tenants within 30 days
Provide the How to Rent guide
Comply with HHSRS (Housing Health and Safety Rating System)
Give 24 hours' notice before entering the property (except emergencies)
Under the Renters' Rights Act 2025: no section 21 'no-fault' evictions; all tenancies become periodic; a new landlord register is being introduced

Worked Example

Higher Rate Taxpayer, £200,000 BTL Property

Purchase details: £200,000 property, £50,000 deposit (25%), £150,000 interest-only mortgage at 5%.

Monthly interest payment (£150,000 × 5% ÷ 12)	£625
Monthly rent	£950
Annual landlord costs (agent, insurance, maintenance, voids)	£2,400
Annual interest charge	£7,500
Taxable rental profit (rent − expenses, excl. interest)	£9,000
Income Tax at 40%	£3,600
Finance cost tax credit (20% of £7,500)	−£1,500
Net tax	£2,100
Annual cash flow (rent − interest − costs − tax)	£900
ROI on £50,000 deposit	1.8%

The headline figures look reasonable (5.7% gross yield) but the after-tax cash return is modest. Capital appreciation is the main driver of return for this investor.

Model Your BTL Returns

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Frequently Asked Questions

Most lenders require a minimum 25% deposit (75% LTV). Some specialist products allow 20% but rates are higher and availability limited. The rental income also needs to meet the lender's Interest Coverage Ratio — typically the rent must be 125–145% of the monthly mortgage interest payment, stress-tested at 5–5.5% regardless of the actual product rate.

Section 24 restricts tax relief on mortgage interest. You cannot deduct finance costs as an expense. Instead, you receive a 20% tax credit. For basic rate taxpayers this is cost-neutral. For higher rate (40%) taxpayers, effective tax on the finance cost element is 20% (40% tax minus 20% credit), significantly squeezing returns compared to the pre-2017 rules.

An additional 5% surcharge applies to all bands for buy-to-let and second home purchases in England (raised from 3% in October 2024). On a £200,000 property: standard SDLT is £1,500, the surcharge adds £10,000, for a total of £11,500. Always factor this into your initial investment calculations.

It can be — but profitability depends heavily on location, mortgage rate, your tax position and how hands-on you are. High-yield northern cities with interest-only mortgages can still deliver positive cash flow. London investors often face negative cash flow and rely on capital appreciation for their return. Higher rate taxpayers have had returns significantly squeezed by Section 24. Always model the after-tax numbers before investing.

Key requirements include: annual Gas Safety Certificate, 5-yearly electrical inspection (EICR), EPC rated E or above, protecting deposits in a government scheme within 30 days, providing the How to Rent guide, and giving 24 hours' notice before entry. Under the Renters' Rights Act 2025, section 21 no-fault evictions have been abolished and all tenancies are now periodic. A new landlord register is being introduced.

A limited company is not subject to Section 24 — mortgage interest is fully deductible. This can significantly improve after-tax returns for higher rate taxpayers. However, BTL mortgages through limited companies are more expensive, less widely available, and extracting profits via salary or dividends has its own tax implications. Transferring existing properties to a company triggers SDLT and CGT. Take professional tax advice before deciding.

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