The financial structure: deposit, mortgage, costs
Buying a second residential property to rent out means taking a buy-to-let mortgage, which differs from a residential mortgage in three important ways. First, the maximum LTV is lower — typically 75%, occasionally 80%. Second, affordability is based on the property's expected rental income, not your salary. Third, BTL mortgages are typically interest-only as the default, with capital repaid by either property sale or refinancing at the end of the term.
On a £200,000 BTL purchase, a typical deal structure looks like: £50,000 deposit (25%), £150,000 BTL mortgage at around 5.50% interest-only, monthly interest cost of £687. Add £11,500 stamp duty, £1,500 legal fees, £400 survey, £1,500 BTL mortgage arrangement fee — total upfront cash requirement around £64,900 before any allowance for refurbishment.
If the property rents at £1,150 a month, gross monthly income is £1,150. After the mortgage (£687), letting agent (typically 10%+VAT = £138), insurance (£25), maintenance reserve (£100), and gas safety/EICR amortised (£20), net monthly profit is around £180. Annualised that's £2,160 — a 3.3% cash-on-cash return on the £64,900 invested, before any tax. Capital growth comes on top.
Stamp duty surcharge: unavoidable but recoverable in some cases
The 5% additional rate surcharge applies to any property purchase where you'll own more than one residential property at the end of the day of completion. It's calculated across the entire purchase price — not just the amount above a threshold — at a flat 5% rate on top of standard stamp duty.
Worked example: a £200,000 BTL purchase pays £1,500 standard stamp duty (5% on the £30,000 above the £170,000 threshold... wait, let me recalculate. Standard 2026 SDLT on £200k: 0% on first £125k, 2% on £125k–£250k = £1,500. Plus 5% surcharge on £200,000 = £10,000. Total £11,500.
The surcharge is not refundable in most BTL scenarios. The main exception is let-to-buy — where you remortgage your old home onto BTL and sell it within 36 months of buying the new main residence, you can reclaim the surcharge paid on the new home.
Personal name versus limited company
This is the single most important structural decision for any UK property investor in 2026. The choice is driven primarily by tax efficiency, with secondary considerations around financing cost and operational complexity.
Under Section 24 (introduced 2017–2020), personal-name landlords cannot deduct mortgage interest as an expense against rental income. Instead, they receive a 20% tax credit on mortgage interest. The practical effect: higher-rate taxpayers (40%+) pay more tax on their rental profit than they would have done pre-2017. Basic-rate taxpayers (20%) are largely unaffected.
Limited company landlords (typically using an SPV — Special Purpose Vehicle) are not subject to Section 24. The company deducts mortgage interest as a normal business expense and pays corporation tax (currently 19%–25% depending on profit level) on the net rental profit. For higher-rate taxpayers building portfolios, limited company is often dramatically more tax efficient.
The trade-off is operational: limited company BTL mortgages typically have slightly higher rates (0.20%–0.50% above personal-name equivalents), arrangement fees are higher, lender choice is narrower, and you incur the cost of running a company (accounts, corporation tax returns, Companies House filings — typically £800–£1,500 a year).
Rough rule of thumb: portfolios of 1–2 properties for basic-rate taxpayers often suit personal name; anything larger or for higher-rate taxpayers often suits limited company. Always take tailored tax advice before committing.
Realistic yield expectations
Gross rental yield is annual rent divided by purchase price. Most UK landlords target 5%–8% gross. London and the South East typically deliver 3.5%–5.5% (lower yield, stronger capital growth historically). The Midlands and North often deliver 7%–9% yields (higher cashflow, more modest capital appreciation).
Net yield — after costs but before tax — is materially lower. Letting agent fees (10%–15% for full management), insurance (£250–£400 a year), gas safety and electrical certificates (£100 a year amortised), maintenance reserves (typically 10% of rent), and void periods (assume 1 month a year on average) all eat into gross yield. A 7% gross yield often becomes a 4%–5% net yield before tax.
Capital growth historically averages 4%–6% per year over 10+ year periods in the UK, though this varies enormously by region and decade. Total returns (cash yield plus capital growth) on a leveraged BTL can be substantial — but so can the downside in a price correction.
The operational reality
Owning a rental property is not passive. You're responsible (or your letting agent is, on your behalf) for: finding and vetting tenants, drafting and signing tenancy agreements, registering deposits with a TDS scheme, providing the legally required gas safety certificate, EICR, EPC and Right to Rent checks, responding to maintenance issues within reasonable timescales, conducting periodic inspections, dealing with rent arrears and (rarely) eviction proceedings, and managing the property through tenant changeovers.
Full letting agent management costs 10%–15% of rent plus VAT. Tenant-find-only services cost a one-off fee of around 50%–75% of the first month's rent. Self-managing saves the agent fee but requires you to be reachable, knowledgeable and reasonably local.
The 2024–2026 regulatory changes — the Renters Reform Bill provisions, new EPC standards for rentals, and ongoing tax changes — have made the operational side meaningfully more demanding than it was a decade ago. Many casual landlords have exited the market for this reason. Those who remain tend to either professionalise (build a substantial portfolio and treat it as a business) or use a letting agent to handle the regulatory load.
Common first-time landlord mistakes
Three mistakes recur. The first is underestimating costs and overestimating yield — buying on a 7% headline gross yield without modelling the realistic 4%–5% net yield after costs. The second is choosing personal name ownership without considering Section 24 implications, then finding the tax bill is much higher than expected. The third is buying in an unfamiliar area chasing yield — a 9% yield in a town you've never been to often comes with tenant management challenges that erode the headline number.
The best first BTL purchases tend to be: a property you can drive to within an hour, in an area you know well, with a yield that's modest but reliable, structured in the right tax wrapper for your circumstances, and bought with enough deposit to weather rate rises and void periods.
Your home may be repossessed if you do not keep up repayments on your mortgage. First Rung Now is not FCA authorised or regulated; we introduce consumers to FCA-regulated mortgage brokers. Nothing in this article is financial or tax advice.