Landlords are exiting the buy-to-let market in growing numbers, citing a combination of soaring costs and tax increases that have made property investment unprofitable. Helen Dixon, who owns a two-bedroom ex-council flat in Newcastle bought for £70,000 in 2021 and rented for £650 a month, is putting the property on the market after a tenant left it requiring extensive repairs. Despite owning the property outright without a mortgage, she says the costs of managing it left little profit. After letting agents took their commission, she received £570 a month, but service charges ranging from £250 to £600 a year, home insurance at just under £200 annually, and repair bills including £230 for replacing cooker hobs and £150 for a plumber visit to fix a dripping tap, made the venture uneconomical.
The tax burden has worsened significantly. From April next year, landlords will face a 4 percentage point increase in tax rates on rental income following decisions announced across recent Budgets. Basic-rate taxpayers will pay 20 per cent to 24 per cent, higher-rate taxpayers will move from 40 per cent to 44 per cent, and additional-rate taxpayers will rise from 45 per cent to 49 per cent. Additionally, landlords will receive only a 20 per cent tax credit on mortgage interest costs, rising to 24 per cent in April, rather than full offset against their tax bill.
Mortgage costs have become prohibitive for many landlords with outstanding loans. The average rate on a buy-to-let mortgage is 5.84 per cent this month, according to Moneyfacts, the highest level since January 2024, compared to below 2.5 per cent five years ago. Mark Imray, another landlord planning to sell his portfolio as fixed-rate deals expire, illustrates the challenge with one property: a two-bedroom home in the East Midlands renting for £900 a month. With a £110,000 interest-only mortgage at 5 per cent, the monthly interest cost is £458, leaving £442 profit before tax. However, as a higher-rate taxpayer, he currently pays £268.33 in tax monthly, leaving £173.34, which will fall to £155.67 from April once tax rises take effect.
Beyond mortgages and taxes, landlords face mounting regulatory and maintenance costs. Compliance expenses including gas safety certificates costing between £30 and £250, electrical inspections between £100 and £400 every five years, and selective council licensing fees up to £1,000 per property, add substantial burdens. All landlords in England must pay £65 annually to register on a new national database. This is Money calculated that compliance costs alone average around £685 per year, rising to £750 with the database fee. Letting agents typically charge 10 per cent plus VAT of rental income, around £108 monthly on a £900 rent, plus additional tenancy fees estimated at £1,250 per changeover. General advice suggests budgeting 1 per cent of property value annually for repairs, though major work such as boiler replacement at £2,500 to £4,000 can eliminate years of accumulated profit.
For savers and borrowers in the UK, the exodus of landlords from buy-to-let investing could reduce rental property availability and potentially increase pressure on rents. About two million landlords in Britain own properties with mortgages. The combination of higher borrowing costs, stricter tax treatment, and regulatory requirements means that even properties generating rental income struggle to deliver returns after expenses, fundamentally changing the investment case for residential lettings.