Buy-to-Let Calculator UK

Understanding Buy-to-Let Investment Returns

Buy-to-let investing in the UK has undergone significant changes in recent years, with tax adjustments, regulatory requirements, and shifting market conditions all affecting returns. Before committing capital to a rental property, it is essential to understand the key metrics that determine whether an investment is financially viable. Rental yield is the primary measure of investment performance, but it tells only part of the story. Cash flow, capital growth potential, total costs of ownership, and tax implications all factor into the true return on your investment.

Gross rental yield is calculated by dividing the annual rental income by the property purchase price, expressed as a percentage. A property purchased for £250,000 generating £1,100 per month in rent (£13,200 annually) has a gross yield of 5.3%. This is a useful headline figure for comparing properties, but it does not account for the significant costs of being a landlord. Net yield, which deducts running costs from the rental income before calculating the percentage, gives a more realistic picture. Our calculator uses a standard 15% expense assumption, but your actual costs will depend on your specific circumstances.

Buy-to-Let Mortgage Requirements in 2026

BTL mortgages differ from residential mortgages in several important ways. Most lenders require a minimum deposit of 25%, giving a maximum LTV of 75%, though some products are available at 80% LTV with higher rates. Interest rates on BTL mortgages are typically 0.5% to 1.5% higher than equivalent residential products, reflecting the perceived higher risk. As of 2026, BTL fixed rates typically range from 5.0% to 6.5% depending on LTV and lender.

Lenders assess BTL mortgage applications primarily on rental coverage rather than personal income, though most require a minimum personal income of £25,000 per year. The standard rental coverage requirement is that the expected rental income must be at least 125% of the monthly mortgage payment at a stress-tested rate of typically 5.5%. This means if your monthly mortgage payment is £800, the rental income must be at least £1,000. Some lenders require 145% coverage, particularly for higher-rate taxpayers. Our calculator shows the monthly mortgage payment based on an interest-only basis, which is how most BTL mortgages are structured.

Costs of Being a Buy-to-Let Landlord

The 15% expense assumption in our calculator is a conservative starting point, but real-world landlord costs can vary significantly. Key expenses include letting agent fees (typically 8-12% of monthly rent for full management, or a one-off fee equivalent to one month's rent for tenant finding only), maintenance and repairs (budgeting 1% of property value annually is a common rule of thumb), buildings insurance (£150-£400 per year), landlord insurance (£150-£300 per year), gas safety certificates (£60-£80 annually), electrical safety checks (£200-£300 every five years), and void periods where the property sits empty between tenants.

Landlords must also account for the 3% stamp duty surcharge on additional properties, which significantly increases the upfront cost of investment. For a £250,000 property, the standard SDLT would be zero (below the nil-rate threshold), but with the additional property surcharge, you would owe £7,500. This cost should be factored into your return calculations and investment timeline. Additionally, since April 2020, mortgage interest can no longer be deducted from rental income for tax purposes. Instead, landlords receive a 20% tax credit on mortgage interest payments, which has reduced returns for higher-rate taxpayers.

What Makes a Good Buy-to-Let Investment?

Location remains the single most important factor in buy-to-let investing. Properties in areas with strong rental demand, good transport links, proximity to employment centres or universities, and limited new housing supply tend to perform best. Gross yields above 6% are generally considered strong, while yields below 4% may not generate positive cash flow after mortgage costs and expenses. Northern English cities, parts of the Midlands, and certain Scottish cities typically offer higher yields than London and the South East, where capital growth potential may compensate for lower rental returns.

Property type matters too. Smaller properties such as one and two-bedroom flats tend to achieve higher yields than larger family homes, as the rent-to-price ratio is more favourable. Houses in Multiple Occupation (HMOs), where individual rooms are let to separate tenants, can achieve yields of 8-12% or more but require additional licensing, management, and compliance with more stringent regulations. Purpose-built student accommodation and serviced accommodation are other higher-yield strategies that come with their own complexities and considerations.

Tax Considerations for UK Landlords

Understanding the tax implications of buy-to-let ownership is crucial for calculating true investment returns. Rental income is subject to income tax at your marginal rate (20%, 40%, or 45%). Allowable expenses including letting agent fees, maintenance, insurance, accountancy fees, and certain other costs can be deducted from rental income before tax. The mortgage interest tax credit at 20% partially offsets interest costs but provides less benefit for higher-rate taxpayers than the previous full interest deduction system.

When you eventually sell a buy-to-let property, you will be liable for Capital Gains Tax (CGT) on any profit after deducting your annual CGT allowance (currently £3,000). The CGT rate on residential property is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. A CGT payment on account must be made to HMRC within 60 days of completion. Strategic planning around CGT, including the use of annual allowances, transferring between spouses, and timing of sales, can significantly reduce your tax liability when exiting an investment.