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On 24 September 1996, the Association of Residential Lettings Agents introduced the first buy-to-let mortgage products, allowing investors to capitalise on rising demand for rental properties following reductions in public housing resulting from the Right to Buy scheme.
Since then, the buy-to-let market has grown significantly, but recent legislative changes are having a negative impact on its profitability.
House price growth and rental income pale in comparison to UK inflation
House prices in the UK have risen sharply, with 8 in 10 homes increasing in value by over 5% in the past five years [1].
So far, so good. But to put these property price increases into context, UK inflation has risen by nearly 26% over the same period [2].
Buy-to-let properties provide rental income, with the average rent in England reaching £1,403 monthly in the year to August 2025 [3]. This, too, has been declining in real terms for much of the country once inflation is taken into account. Plus, property income is subject to Income Tax, the thresholds of which are frozen until 2028.
That said, there have been areas of growth with over 1 million properties appreciating by more than 50%, delivering strong potential real-terms investment returns. The areas that benefitted from this price rise are primarily located in the North and Wales, and the average capital return has been £85,600. By comparison, less than 1% of the London housing stock has grown by over 50% – the higher returns have mostly been at the lower end of the value spectrum.
Landlord profitability is waning
Over the past decade, landlord profitability has been challenged by legislative changes.
These include:
- The reduction of mortgage interest tax relief for buy-to-lets since 2017
- Higher standards for safety and energy efficiency (raising management costs)
- Bans on some additional tenancy fees, such as obtaining references or conducting property inspections.
These factors, alongside increased administrative responsibilities, have made buy-to-let more demanding or expensive, especially if managed by third parties.
Looking ahead, the upcoming Renters’ Rights Bill, expected in early 2026, may ban no-fault evictions and fixed-term tenancies, while strengthening tenant protections on rent increases.
Additionally, rumoured Budget changes could introduce owner-paid Council Tax on properties valued at more than £500,000 and potential National Insurance contributions on rental income – both of which would increase landlord costs.
How IPS can help
Given these evolving challenges, reviewing your investment goals and risk tolerance is essential. We can assess if buy-to-let remains a sensible option within your financial plan or explore alternative investment options aligned with your financial objectives.
Contact your relationship manager today to discuss your investment options.
If you don’t work with us already, please email info@ipscap.com for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. Rumoured changes to HMRC legislation may not come to fruition and IPS Capital LLP accepts no liability for changes that may or may not be made in the future.
The Financial Conduct Authority does not regulate tax planning or buy-to-let (pure) and commercial mortgages. IPS Capital does not provide tax advice or advice on credit or mortgages
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
[1] 17.09.2025 Million home value boom: 1m UK homes see value increases of 50 per cent or more in the last five years, an average gain of £117,400 Zoopla
[2] 09.10.2025 CPI Inflation Calculator Official Data
[3] 17.09.2025 Private rent and house prices, UK: September 2025, Office for National Statistics
