Buy-to-let (BTL) is the UK's most popular landlord route — a mortgage that lets you buy a property specifically to rent out. The rules are meaningfully different from a residential mortgage. This guide covers rates, the stress tests, yields that actually work, and the tax rules that shape your real returns.
Why BTL is harder than it was
Two policy shifts reshaped the landlord economics between 2016 and 2025:
- Section 24 (phased 2017–2020): higher-rate landlords can no longer deduct mortgage interest from rental income. Instead they get a flat 20% basic-rate credit — meaning you pay tax on gross rent minus expenses other than interest.
- +5% SDLT surcharge (raised from +3% on 31 Oct 2024): every additional residential property purchase attracts an extra 5 percentage points on top of standard SDLT bands.
Between them, these mean the "capital growth will bail me out" approach no longer stands up — you need a yield that works from day one.
Typical BTL LTVs and rates
ICR — the BTL affordability test
Instead of income-multiple affordability, BTL lenders use the Interest Coverage Ratio: expected rent ÷ monthly interest at a stressed rate. Typical requirements:
| Borrower type | Stress rate | ICR required |
|---|---|---|
| Basic-rate taxpayer | 5.5% | 125% |
| Higher-rate taxpayer | 5.5% | 145% |
| Limited company | 5.5% | 125% |
| 5-year fix | pay rate | 125% |
A higher-rate borrower buying for £200,000 at 75% LTV (£150k mortgage) at 5.5% stress would need rent of £150,000 × 5.5% ÷ 12 × 145% = £997/month just to pass ICR. Real yields matter.
Yields that actually work
Gross rental yield = annual rent ÷ property price. But the number you care about is net yield — after running costs, voids, maintenance and management fees.
| Region | Gross yield | Net yield (after costs) |
|---|---|---|
| Prime Central London | 3.5% | 1.5% |
| Outer London | 4.5% | 2.5% |
| Manchester city centre | 6.5% | 4.5% |
| North-East (Durham, Sunderland) | 8–10% | 5–7% |
| Edinburgh | 5.5% | 3.5% |
| Scottish/NI secondary cities | 7–9% | 4.5–6% |
Ballpark: budget 20–30% of gross rent for costs before you hit net. That includes insurance, gas safety, EICR, maintenance reserve, letting agent (if used — typically 10–15% for fully managed), and a void allowance (4% = 2 weeks/year unoccupied).
Personal name vs limited company
Section 24 makes limited-company ownership structurally more tax-efficient for higher-rate individuals. A company pays Corporation Tax (19–25%) on net rent after fully deducting mortgage interest. You then pay personal tax only on what you extract (dividends/salary).
Trade-offs:
- Ltd-co BTL rates are typically 0.3–0.7% higher than personal
- Company arrangement fees are higher
- Additional admin: Companies House, statutory accounts, director's loan accounts
- Tax-inefficient to move existing personally-held BTL into a company without CGT + SDLT on the transfer
SDLT — the landlord surcharge
Every additional residential purchase attracts +5% on top of standard bands (raised from 3% on 31 Oct 2024). Worked example for a £200,000 BTL:
| Band | Portion | Rate | SDLT |
|---|---|---|---|
| £0 – £125,000 | £125,000 | 5% | £6,250 |
| £125,001 – £200,000 | £75,000 | 7% | £5,250 |
| TOTAL | £11,500 |
Budget 5–7% of purchase price for SDLT alone on a sub-£250k BTL.