Although it's no longer a guaranteed way to make money, buy-to-let real estate was once a fantastic investment
Traditionally, one of the most common ways to invest money for the future has been to become a buy-to-let landlord.
The portfolio of properties owned by many buy-to-let (BTL) landlords serves as a source of retirement income.
However, the government's restrictions on landlords and increased costs have made real estate investing less popular in recent years.
The Conservative government of the time increased stamp duty on properties other than your primary residence by 3% in 2016. The present Labour government raised this to 5% in October 2024 on top of the regular stamp duty rates if purchasing a new residential property entails owning multiple properties.
Additionally, higher-rate taxpayers can no longer claim 40 percent or 45 percent tax relief on their mortgage interest payments; instead, they can only claim 20 percent. Utilizing a limited company can circumvent this, but it comes with its own set of complications.
Aside from these adjustments, borrowers now face higher mortgage rates than they did in the ten or so years following the financial crisis because the Bank of England increased interest rates in an effort to counteract excessive inflation. The Bank of England lowered interest rates to 4 percent in August, bringing the cost of borrowing to its lowest level in over two years, despite the fact that rates are currently declining.
Moneyfacts reports that in September, the average interest rate on a two-year fixed buy-to-let mortgage was 4 points 88 percent. Five-year fixed BTL is 5.21 percent on average.
The rates were significantly higher two years ago. Moneyfacts reports that in August 2023, the average interest rate on a two-year fixed buy-to-let mortgage was 6.7 percent, with some mortgages having interest rates closer to 8 percent.
What is a buy-to-let property's return?
NatWest states that a good property rental yield in the UK is between 6 and 8 percent. However, that figure is imprecise and solely based on the purchase price, excluding any legal fees and stamp duty.
Your expected yield begins to decline when you factor in insurance, upkeep and repairs, letting agent fees, and voidsthe periods when the property is vacant and not generating any rental income.
In practice, many landlords discover that their rental income barely generates any additional revenue beyond covering their costs.
Capital growth is undoubtedly a factor, as is the proverb "you can't go wrong with bricks and mortar."
The most recent figures from the Land Registry show that the average price of a home in the United Kingdom increased by 44%, from 186,435 in September 2015 to 269,079 in June 2025.
However, you will be required to pay capital gains tax in addition to the other fees associated with purchasing and selling real estate when you decide to cash in that gain by selling the buy-to-let property. When a landlord sells up, they will have to pay more tax on any profit from rising home prices because the government lowered the capital gains tax-free allowance from 12,300 to 6,000 in April 2023 and then further reduced it to 3,000 in April 2024.
Before your property is put on the market, you must order an energy performance certificate (EPC), which is required for anyone selling a house. These range from 35 to 150 plus VAT; The Advisory, which provides advice on house sales, states that the average price is 75 plus VAT, so let's set your EPC's price at 90.
Between 0.75% and 2.25 percent of the final sale price of your property, plus VAT, is what estate agents charge. Approximately 95% of all home sellers use traditional high street estate agents, and while most of them won't charge you if they don't sell the house, the average fee is about 1.42%, including VAT. This would be 3,823 on the sale of a property valued at 269,079, which is the current average price of a home based on the Land Registry.
The fees for a conveyancing solicitor can range from 550 to 1,000, so let's estimate that the average is 750.
An early repayment charge, which is between 1 and 5 percent of your loan amount, and a mortgage exit fee, which can range from 50 to 300, will also be required if you sell while you are still making mortgage payments.
Additionally, you must account for removal expenses, which will change based on how many items you need to move, whether you pack yourself, how far you're moving, and how easily accessible your home is. You could hire a van and do it yourself to cut down on removal expenses. The price of cleaning, repairs, and redecorating should also be taken into account.
You must pay capital gains tax if you are selling a property that is not your primary residence. This will be determined by the amount that your property has appreciated in value over the course of your ownership. The expenses incurred in purchasing and selling the property, as well as any improvements, can be written off.
Based on a property valued at 269,079, you would pay 750 for conveyancing, 3,823 for estate agent fees, and 90 for your EPC. When mortgage, moving, and decorating costs are taken out of the equation, the average cost of selling a home comes to £4,663.
What is the performance of real estate in the last two decades?
Let's now examine what you could have earned from real estate during the previous two decades. Before expenses and taxes, you will have a capital growth of 122,444 if the value of your property has increased from 146,635 in September 2005 to 269,079 in June 2025.
According to calculations by wealth manager Quilter, the tax owed after selling the property would be 27,451 for an individual making £30,000 annually with a 3,000 capital gains annual exempt amount.
Assuming a chargeable gain of 119,444 (after the annual exempt amount), 20,270 of the gain is taxed at the basic rate of 18 percent, or 3,649. Additionally, 99,174 of the gain is taxed at the 24 percent rate, or 23,802.
In addition to the potential for capital growth in the years between purchasing and selling a property, a BTL's benefit is the rental income.
Quilter calculated estimated rental income over the previous 20 years for BFIA.
Using a gross rental yield of 5% on the purchase price of 146,635 in 2005, you would receive 7,331 point 75 annually. The total gross rent earned over a 20-year period is 146,635.00. The net rental income over 20 years is 102,645 after deducting 30% for voids, maintenance, insurance, and letting agent fees.
The total result of property investments over the last two decades is as follows.
90,331 is the capital gain after taxes and expenses.
Add 102.645 to the net rental income.
20 years total return: 193,000.
What has the stock market done in the last two decades?
All of that is in contrast to investing about £100,000 in the stock market in 2005.
According to Quilters' calculations, the value of UK stocks has increased by approximately four times over the last 20 years, while that of global stocks has increased by eight times. That is predicated on the MSCI All Country World Index and the MSCI UK Index, respectively.
Stocks have proven to be a better investment than constructing a rental portfolio when considering only financial returns.
An investor's investment would now be worth 408,900 if they had invested £100,000 in the MSCI UK Index 20 years ago instead of purchasing a rental home. And that's before taxes. The MSCI All Country World Index would yield a staggering 796,200 for the same investment.
Once more, however, this will not always be the case. If you sell your property at the right time and its value soars, you may realize that you've made a much bigger profit.
On the other hand, you risk suffering a terrible loss if you choose to sell your stocks at the wrong moment.
Naturally, capital gains tax also applies to investments unless you have placed them in a tax-free wrapper, like an Isa or Sipp.
Another factor to think about is the amount of work. It is up to you how much effort you put into investing. While choosing stocks is difficult and requires extensive research, investing in an FTSE 100 tracker requires the least amount of work possible.
Even though you delegate a large portion of your daily operations to a letting agent, being a buy-to-let landlord can still be very labor-intensive. A landlord is legally responsible for a number of things, including gas and electrical safety certificates and even rules about what furniture you can use.
Additionally, failing to thoroughly screen your tenant and discovering that they lack the "right to rent" in the UK could result in five years in prison or an uncapped fine.
Although the stock market is not without its volatility, the average over the last 20 years has shown that stocks are a better investment despite the risk.
According to Jonathan Raymond, investment manager at Quilter Cheviot, "buy-to-let has produced decent returns over the last 20 years, but the data indicates that the stock marketespecially global equitieshas outperformed it.
The same investment in global equities could have increased to almost 800,000, but real estate only yielded a total return of about 193,000. That is a noticeable difference that demonstrates the strength of diversification and compounding over time.
Brick and mortar still appeals to a lot of investors, though. You can see, touch, and in certain situations, even live in real estate. For some people, that familiarity and sense of control are very valuable.
However, it also entails a more active investment, with continuous obligations, expenses, and vulnerability to changes in laws and regulations. While buy-to-let also presents the possibility of increasing returns through leverage, with mortgage borrowing magnifying gains, it also entails continuous expenses and risks, especially with regard to interest payments and rate volatility.
In contrast, stocks provide a more tax-efficient and passive option, particularly when utilizing ISAs or pensions. However, they also face difficulties of their own.
Global stocks saw multiple declines of 20 percent or more during the same 20-year period, including a significant 50 percent decline during the 200809 financial crisis. According to Raymond, investors who want to persevere during times of volatility must have a strong constitution and a long-term perspective.
It ultimately boils down to your individual preferences, level of risk tolerance, and desired level of investment management involvement.
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