Solicitor fees, surveys, mortgage arrangement fees, etc.
BTL mortgages typically require 25%+ deposit.
Running costs (annual)
Average UK void is 2-4 weeks per year.
Tax
Section 24 means landlords get a 20% tax credit on mortgage interest, not a deduction. Significantly affects higher-rate taxpayers.
Cash-on-cash ROI
0.18%
post-tax annual return on your invested capital (£77,250)
Gross yield
5.76%
rental income vs property price
Net yield
0.07%
after running costs and mortgage interest
Monthly cashflow
£12
post-tax
Item
Amount
Annual gross rent (after voids)
£13,800
Less: running costs
−£3,310
Less: mortgage interest
−£10,313
Pre-tax profit
£178
Less: tax owed
−£36
Post-tax profit
£142
Total investment
£77,250
Break-even rent
£1,181 /mo
Payback period
544.0 yrs
What's a good buy-to-let yield in 2026?
Across the UK, gross rental yields of 5-8% are typical in 2026. London and the South East run lower at 3-5% because high property prices outpace rents, while northern cities — Manchester, Liverpool, Sheffield, Newcastle — frequently produce 6-9%, with HMOs pushing into double-digits in the right markets. Net yields, after running costs and mortgage interest, are usually 1-3 percentage points lower than gross. Cash-on-cash ROI is the most useful metric for a leveraged investor: it measures the post-tax return on the actual capital you deployed (deposit + Stamp Duty + fees) rather than against the headline property price. With Section 24 in force, higher-rate landlords face structurally tighter margins than they did pre-2020, and a deal that looks fine at gross yield can produce a loss after tax. Always model post-tax cashflow before committing — and pair this calculator with our stamp duty calculator and mortgage overpayment calculator for a full picture.
Section 24 explained — why mortgaged BTL is harder for higher-rate taxpayers
From April 2020, mortgage interest is no longer a deductible expense for individual buy-to-let landlords. Instead, landlords receive a flat 20% tax credit on the interest paid. For basic-rate (20%) taxpayers this is roughly neutral. For higher-rate (40%) and additional-rate (45%) taxpayers, it is a genuine tax increase: they pay 40% or 45% on rental profit calculated before deducting interest, but only get a 20% credit back. The practical effect is that mortgaged BTL can be loss-making for higher-rate landlords even when it generates a positive operating profit. Many landlords have moved properties into limited companies, where mortgage interest is still fully deductible against corporation tax (19-25%) — but the transfer triggers Stamp Duty at the additional-property rate and Capital Gains Tax on disposal at market value. Use our capital gains tax calculator to model the CGT cost of transferring or selling.
Costs to factor in beyond the obvious
Beyond the headline mortgage and management fees, BTL investors routinely underestimate: void periods (typically 2-4 weeks per year, longer in slow markets); tenant changeover costs (cleaning, redecorating, referencing, deposit protection admin); annual gas safety check (£80-£120, legally required); 5-yearly EICR electrical inspection (£150-£300); the upcoming EPC C minimum standard for new tenancies; selective and HMO licensing schemes operated by some councils (£500-£1,000+ per property, every 5 years); ground rent and service charge on flats; and major periodic items like boiler replacement, roof repairs, and full repaints between tenancies. A useful rule of thumb is to budget 1% of property value per year for long-term capital maintenance, separate from routine repairs. Many investors underestimate total costs by 20-30%.
Frequently asked questions
What is a good gross yield for buy-to-let in 2026?
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Across the UK, gross yields typically run between 5% and 8% in 2026. London and the South East cluster at 3-5% because high property prices outpace rents, while northern cities such as Manchester, Liverpool, Sheffield and Newcastle commonly produce 6-9%, and HMOs (houses in multiple occupation) can push double-digits in the right student or professional market. A gross yield below 4% rarely makes financial sense once mortgage costs and Section 24 tax treatment are factored in. Net yield (after running costs and interest) is usually 1-3 percentage points lower than gross.
How does Section 24 affect higher-rate landlord profits?
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Section 24, in force since April 2020, significantly reduces higher-rate landlord profits: instead of deducting mortgage interest before calculating tax, individual landlords pay 40% or 45% on gross rental profit and receive only a flat 20% tax credit on the interest. On a property generating £12,000 rent with £8,000 interest, a higher-rate taxpayer's bill rises from roughly £800 to £2,000 under Section 24 — a 150% increase. Holding properties in a limited company avoids Section 24, but company structures carry their own costs and are not suitable for everyone.
Should I buy a buy-to-let through a limited company?
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Limited company ownership avoids Section 24 — the company deducts mortgage interest as a normal business expense, paying corporation tax (19% on profits up to £50,000, 25% above £250,000) on the resulting profit. Many higher-rate taxpayers have moved properties into limited companies for this reason. The downsides: BTL company mortgage rates are typically 0.5-1.0% higher; transferring an existing property into a company triggers Stamp Duty (with 5% additional surcharge) and Capital Gains Tax on disposal at market value; extracting profits via dividends is taxed again at the personal level; and there are extra accounting costs. Limited companies usually win when you plan to hold long-term and reinvest profits.
What are the typical running costs for a UK rental property?
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Common annual costs as a percentage of gross rent: letting agent fees 8-15% (full management) or 5-8% (tenant-find only); maintenance and repairs 8-15%, higher for older property; landlord insurance £200-£500; gas safety check £80-£120 (annual, legally required); EICR electrical check £150-£300 (every 5 years); EPC £60-£120 (every 10 years); ground rent and service charge for flats £500-£3,000+. Add void periods of 2-4 weeks per year, occasional tenant-changeover costs (cleaning, redecorating, referencing), and the EPC C requirement expected to phase in over the next few years for new tenancies. Investors who underbudget by 20-30% are common.
How much deposit do I need for a buy-to-let mortgage?
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Most BTL lenders require at least 25% deposit; the most competitive products usually start at 35-40%. Lenders also stress-test the rent against the mortgage interest using an Interest Cover Ratio (typically 125% for basic-rate borrowers, 145% for higher-rate, at a stressed rate of 5.5-7%). On a £250,000 property at 25% deposit and 5.5% interest-only, you'd need roughly £1,200-£1,400 monthly rent to pass stress tests at higher rate. Limited company mortgages and HMO mortgages often require 30%+. Above the deposit, budget for 5% Stamp Duty surcharge, legal fees (£1,500-£2,500), survey (£400-£1,000) and broker fees.
Is buy-to-let still profitable in 2026?
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It can be, but the margins are tighter than they were pre-2020 thanks to Section 24, the 5% additional-property SDLT surcharge, abolished wear-and-tear allowance, and rising mortgage rates. Cash purchases and basic-rate taxpayers in high-yield regions still see respectable cash-on-cash returns of 5-8%. Higher-rate taxpayers with 75% LTV mortgages in low-yield areas (much of London and the South East) frequently make a loss after tax — many are restructuring into limited companies, selling, or holding for capital growth rather than income. The honest answer: model it carefully with a calculator like this before buying, and don't rely on capital growth alone to justify a negative cashflow.
Calcsmith provides estimates based on the information you enter and the 2026/27 tax bands. Tax rules — particularly Section 24 — interact with your other income, allowances and reliefs in ways this calculator simplifies. Not financial advice; consult a qualified accountant before acting.