Buy-to-let remains one of the UK's most popular long-term investments, but the regulatory and tax environment in 2026 is the most complex it has ever been. New investors must understand mortgage requirements, yield calculations, Section 24 tax restrictions, and the Renters' Rights Act 2025 framework before committing capital.
Buy-to-let mortgages
- Minimum 25% deposit; best rates at 40%+ LTV
- Rental income must cover 125–145% of monthly mortgage interest (ICR test)
- Many lenders require minimum personal income of £25,000–£35,000
- Limited company (SPV) mortgages available for tax efficiency, different product range and rates
Calculating yield
- Gross yield: annual rent ÷ purchase price × 100
- Net yield: (annual rent − annual costs) ÷ purchase price × 100
- Costs: mortgage interest, insurance, agent fees, maintenance, void periods, licensing
- Target gross yield in UK market: 5–7% (2026). Northern cities typically outperform southern commuter belt
Section 24 and tax
- Mortgage interest relief restricted to 20% tax credit regardless of income tax rate (Section 24, Finance Act 2015)
- Higher-rate taxpayers cannot deduct full mortgage interest, significant impact on net yield
- Rental profit taxed at marginal income tax rate after allowable expenses
- Many multi-property landlords use limited companies to retain full interest deduction at corporation tax rates
- CGT on sale: 24% residential property rate above annual CGT allowance (£3,000 in 2026)
Renters' Rights Act 2025, new framework
- No fixed-term tenancies from 1 May 2026, all new lets must use Periodic Assured Tenancy Agreements
- Section 21 abolished, possession only via Section 8 grounds
- Ground 8 (mandatory): 3+ months' arrears at notice and hearing date
- Rent increases via Section 13 only: one per 12 months, 2 months' notice
- Pet requests: must respond in writing within 42 days; no blanket refusal