A third of Britons want to own a buy-to-let... but is it still a good idea?

A third of Britons aspire to own a buy-to-let property according to a new survey, despite rising taxes, tougher regulations and reports the market is in decline.

A survey from the lender Market Financial Solutions found that younger people have the greatest desire to become a landlord.

More than half of those surveyed aged between 18 and 34 said they wanted to own a buy-to-let property in the future, compared to just 14 per cent among those aged 55 or more.

One might argue that an 18-year-old hasn't fully considered the pros and cons of renting out property. Not to mention that a portion of over-55s might not aspire to be a landlord because they already are one.

However, it suggests that there is still an appetite to invest in buy-to-let, despite a perception that it has become less financially rewarding in recent years.

Paresh Raja, chief executive of Market Financial Solutions, says: 'It has become popular over the past decade to bash buy-to-let investing as being increasingly unappealing, but clearly that is far from the case.

'The rise in house prices and borrowing costs, coupled with tighter rules and regulation in the rental market, has undoubtedly caused challenges for both current and prospective landlords.

'I am sure this will have given some people reason to question whether buy-to-let ownership is the right route for them, but these survey results underline the love affair that the UK has with bricks and mortar.'

Raja added that if buy-to-let mortgage rates reduced in the coming months, as is predicted, it might encourage more investors to enter the market.

Buy-to-let has been used by many Britons as way to build wealth, or as an alternative way to fund their retirement.

However, while many landlords have done well in recent decades, the investment case for buy-to-let is being questioned more than ever.

Higher taxes and increased regulation have pounded the sector since 2016.

In October, the Government added a 2 per cent stamp duty surcharge on top of the extra 3 per cent landlords already pay, adding thousands of pounds to the cost of buy-to-let and second home purchases.

Labour's Renters' Rights Bill is also on course to become law later this year. This will put an end to section 21 'no fault' evictions, restrict landlords to one rent increase a year and prohibit the practice of 'rental bidding' alongside a raft of other changes.

Over the last nine years, there has been a net loss roughly 300,000 rental homes, according to analysis by the estate agent Hamptons.

But while there are more investors selling than buying, there are still plenty who continue to see buy-to-let as a sound investment.

They take the view that properties tend to rise in price over the long run, and that rising rents provide for a steady income while they wait.

In the Market Financial Solutions survey, just over half agreed with the statement that 'real estate is a safe and stable asset to invest in.'

The research found that three in every five adults believe property investment is an effective means of building long-term wealth, with 37 per cent saying they would rather invest in property than stocks and shares.

For many investors buy-to-let serves as their pension plan, expanding their portfolio while they're still working and then enjoying the income when they retire.

It did once stack up as a credible alternative to investing in stocks and shares or other assets, although higher taxes on buying and selling have made the margins finer.

The average landlord in England and Wales walked away with an average profit of £103,640 in 2024 when they sold a property, according to recent analysis by Hamptons.

That works out as a 70 per cent gain with the typical investor cashing in on a property after 11 to 12 years.

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Obviously, what a landlord makes on their investment will depend on the value of the home they bought and the location they bought in.

For example, someone who purchased the average property in London in 2009 will have seen the value of their investment more than double since then, according to Land Registry data.

Conversely, the typical landlord in Middlesbrough will have seen their investment grow just 23 per cent on average since 2009 - most of that coming over the last three or four years.

Going forward, it's hard to predict what will happen to house prices and where in the country values will rise the most. At the moment, house prices in the midlands and the north appear to be booming.

Savills is predicting the typical UK home will increase 23.4 per cent by 2029. A £300,000 property today would be worth around £370,000.

However, the problem with buy-to-let is there are high taxes when someone buys and high taxes when they sell.

For a start anyone buying a buy-to-let property will now be hit by a 5 per cent stamp duty surcharge above what a typical home mover would pay.

A landlord buying a £300,000 property would pay £20,000 in stamp duty as an upfront cost.

On top of that, landlords will face conveyancing costs of around £2,500, a survey that will range between £300 and £1,500 depending on the property, and also a mortgage broker if they use one that charges a fee.

They may also pay to furnish and decorate it, pay an agent to find a tenant, and gas and electric engineers to acquire the right safety certificates.

After all that, the 'price' of the property could be £325,000 or more.

If they were to then sell the property they will pay an estate agent fee, about 1.5 per cent of the property's selling price, as well as a solicitor.

When it is sold they will pay 24 per cent capital gains tax on any profit. While they can deduct all the costs involved with buying and selling the property from their capital gains tax bill, it could still be a chunky amount depending on how much the property has appreciated in value.

Buy-to-let properties are generating the highest average rental yields since February 2011, new Paragon Bank figures recently revealed.

It said the average gross rental yield being achieved by landlords as of April 2025 was 7.11 per cent.

That means an average £200,000 buy-to-let property bought this year is bagging a return of £14,220 rental income each year before tax and other costs are deducted.

That's a lot more than someone would make by putting money in the top paying savings accounts, which are currently below 5 per cent before tax.

And recent tariff turbulence may also make buy-to-let look attractive as an alternative to investing on the stock market.

Russell Anderson, commercial director of mortgages at Paragon Bank says: 'While the most recent economic instability caused by the threat of Trump's tariffs is understandably impacting business confidence across many sectors, these figures offer tangible evidence that buy-to-let continues to offer strong returns for investors.

'This is particularly true where landlords employ a strategy of targeting properties that offer higher returns, houses of multiple occupancy being the most obvious example, or investing in areas where property is relatively more affordable but benefits from the strong tenant demand we see all over the UK.'

However, landlords will also need to consider costs such as letting agent fees, which are around 10 per cent for management, and separate costs for finding a tenant, checking references and drawing up inventories.

Then there are maintenance costs, for example if the boiler needs fixing or a pipe leaks.

If the landlords has a mortgage, the interest will cut in to profits, too.

While using a mortgage obviously comes with risks - namely having the property repossessed by the lender if you cannot pay - it also offers enormous upside potential for landlords.

That is because, if the property increases in value, the gain belongs to the investor, rather than being shared proportionally with the bank. That is true even if the bank has put up most of the cash.

It means that buy-to-let allows investors to amplify their gains in a way few other investments will.

For example, say someone puts £100,000 into buying a property worth £300,000 and uses a mortgage to make up the difference.

If that property increases in value by 50 per cent over ten years, it then becomes £450,000. But because their initial investment was £100,000, their actual return on the money they put in is 150 per cent.

While this could of course work against them if prices fall, the benefit of using a mortgage is hard to argue against in a market where prices do tend to rise in the long run.

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Of course, the caveat here is that one has to also pay the mortgage each month.

Typical buy-to-let investors using interest-only mortgages, meaning their monthly payments are lower and the rental income should be more than enough to cover the cost. They then sell the property later on to pay back the bank.

While it's too soon to talk of a buy-to-let resurgence, the sector is starting to see some light at the end of the tunnel, according to Jonathan Hopper, chief executive of Garrington Property Finders, thanks in part to mortgage rates falling and rents rising.

'Over the past year, many landlords have sold up - putting some very rentable properties on the market and allowing those still in the game to snap up good properties at an attractive price,' says Hopper.

'Interest rates too have become more favourable for buy-to-let investors. They've made mortgages more affordable, while also reducing the interest that a landlord would get if they left their nest egg in the bank.

'Gradually more are considering how to make their money work harder, and the improving yields offered by buy-to-let mean it's becoming more compelling for astute investors.'

Owning property in a limited company, instead of in your own personal name - a process also known as 'incorporating' - can help landlords improve their buy-to-let returns.

A record breaking 61,517 new buy-to-let limited companies were set up in 2024, according to Hamptons, a 23 per cent increase on what had previously been a record set in 2023.

This is because of the different ways buy-to-lets in companies and buy-to-lets in personal names are taxed.

Owning within a limited company comes with various tax advantages, including the fact that corporation tax - payable in a company structure - is lower than income tax, which is payable for landlords who own properties in their own name.

This allows landlords to build up profit within the company, which they can use it to re-invest towards another property sooner than they might otherwise have done if owning in their own name.

Owning in a limited company also allows property investors to fully offset all of their mortgage interest against their rental income, before paying tax.

This differs from landlords who own property in their own name. They only receive tax relief based on 20 per cent of their mortgage interest payments.

This is less generous for higher rate taxpayers, who previously received a 40 per cent tax relief on mortgage costs before a 2016 rule change.

A higher-rate taxpayer landlord with mortgage interest payments of £500 a month on a property rented out for £1,000 a month now pays tax on the full £1,000, with a 20 per cent rate on the £500 that is being used towards the mortgage.

A landlord who owns in a limited company with mortgage interest payments of £500 a month on a property rented out for £1,000 a month would only pay tax on £500 of that income.

Put simply, it means that whilst individual landlords are effectively taxed on turnover, company landlords are taxed purely on profit.

As a result of these tax benefits, Hamptons estimates that 70-75 per cent of new buy-to-let purchases now go into a company structure, a figure which has steadily grown.

Ultimately, whether there is an advantage to be had or not depends on the landlord's individual circumstances.

For example, lower-rate taxpayers, particularly if they don't have a big mortgage on their buy-to-let, may be better off holding their buy-to-let in their personal name.

Finally there is an added layer of bureaucracy that comes with a company structure. Company accounts must be formally prepared and filed, records maintained, and directors appointed.

This creates more work for landlords choosing the limited company route, and an added cost if they use an accountant.

There is also likely to be added cost for those buying with a mortgage. This is because company mortgages tend to come with higher rates and fees on average.