Guide · Mortgages & Property
Buy-to-Let in 2026: Does the Maths Still Work?
Between Section 24 and the stamp duty surcharge, buy-to-let has become significantly harder to make work on paper. Here is how to check whether your deal actually stacks up.
What has changed since 2017
Buy-to-let used to be straightforward: rent income minus mortgage interest minus costs = profit. That changed with two major interventions:
- Section 24 (2017–2020) — Removed mortgage interest as a deductible expense for individual landlords. Replaced with a 20% tax credit on interest paid. Higher-rate taxpayers now pay 40% tax on gross rent but only receive 20% relief — meaning they effectively pay tax on their mortgage interest costs.
- Stamp duty surcharge (2016, raised 2024) — Additional residential properties now attract a 5% SDLT surcharge in England on top of standard rates. On a £200,000 property, that is an extra £10,000 upfront.
- Higher mortgage rates (2022–present) — Rates that sat near 2% for a decade rose sharply. Buy-to-let mortgages now typically cost 4–5.5%, often turning previously cash-flow positive properties negative.
Gross yield vs net yield vs cash flow
Three numbers matter, and confusing them is the most common mistake:
| Metric | What it measures | How to calculate |
|---|---|---|
| Gross yield | Income before any costs | Annual rent ÷ purchase price × 100 |
| Net yield | Income after running costs | (Annual rent − costs) ÷ purchase price × 100 |
| Cash flow | Monthly surplus after mortgage | Monthly rent − mortgage − costs |
Gross yield is a useful screening metric. Net yield tells you whether the investment makes economic sense. Cash flow tells you whether you can afford it month to month.
Worked example: £220,000 property, 5% gross yield
A property purchased for £220,000 renting at £917/month (£11,000/year) generates a gross yield of 5%. Here is the full picture after costs and tax for a higher-rate taxpayer with a 75% LTV buy-to-let mortgage at 4.8%:
| Item | Amount |
|---|---|
| Gross rent | £11,000 |
| Letting agent (10%) | −£1,100 |
| Maintenance & insurance | −£1,100 |
| Mortgage interest (annual) | −£7,920 |
| Taxable profit (S.24 rules) | £8,800 |
| Income tax at 40% | −£3,520 |
| S.24 tax credit (20% of interest) | +£1,584 |
| Net tax payable | −£1,936 |
| Cash flow after mortgage & tax | −£956/yr |
This property loses money on a cash-flow basis at current rates. Capital appreciation may still make it worthwhile — but that is speculative, not calculable.
When buy-to-let still works
Despite the headwinds, buy-to-let can still produce positive returns in 2026:
- Higher-yield properties — 7%+ gross yields in northern cities can survive Section 24 and still produce positive cash flow, especially with larger deposits (lower mortgage interest).
- Larger deposits — Reducing LTV from 75% to 60% cuts mortgage interest dramatically and can flip a property from negative to positive cash flow.
- Limited company ownership — Companies can still deduct mortgage interest in full. For higher-rate taxpayers with a long-term portfolio, Ltd company structures can significantly improve the numbers.
- Basic-rate taxpayers — Section 24's sting is smaller because the 20% credit matches the 20% income tax rate, leaving the effective position closer to what it was pre-2017.
Frequently asked questions
What is gross rental yield?
Gross yield is annual rental income divided by the property purchase price, expressed as a percentage. For example, a property bought for £200,000 renting at £900/month has a gross yield of (£10,800 ÷ £200,000) = 5.4%. Gross yield ignores all costs — it is a quick comparison metric, not a measure of profitability.
What is a good rental yield in 2026?
A gross yield of 6%+ is generally considered strong for UK buy-to-let in 2026. Yields vary sharply by region — northern cities like Manchester and Leeds often offer 7–9%, while London yields are frequently 3–4%. Net yield (after costs) will typically be 1.5–2.5 percentage points lower than gross.
What is Section 24 and how does it affect landlords?
Section 24 (phased in 2017–2020) removed the ability for individual landlords to deduct mortgage interest as an expense. Instead, landlords get a 20% tax credit on mortgage interest. Higher-rate taxpayers are hit hardest: they pay 40% tax on rental income before the credit, but only get 20% relief — effectively paying tax on their mortgage interest costs.
How much is the buy-to-let stamp duty surcharge?
Additional residential properties (including buy-to-let) attract a 5% SDLT surcharge on top of standard rates in England and Northern Ireland (from October 2024). Scotland and Wales have equivalent surcharges. On a £250,000 property, this adds £12,500 to your upfront cost and materially affects the break-even timeline.