What is the future of the buy-to-let market in the UK?

Higher interest rates, unfavourable tax changes and a shaky housing market have been hitting buy-to-let investors where it hurts.

So, with the current 'crisis' in mind, does it have a future?

The old maxim ‘an Englishman’s home is his castle’ still holds true today, with homeownership a key financial priority for most Britons.

Such is the nation’s fondness for bricks and mortar that many choose to own multiple houses. Offering the prospect of a regular income and lucrative growth potential, property is commonly used as a pension and investment vehicle.

This explains the popularity of buy-to-let mortgages. Since the first product hit the shelves in the mid-1990s, millions have borrowed money to build property portfolios, in many cases enjoying lucrative returns.

But the market’s future is looking increasingly fragile. The combination of an uncertain economic outlook and several unfavourable tax changes in the past few years is lessening the attraction of property as an investment proposition.

Here, we analyse whether the buy-to-let market is running out of steam.

What does the current buy-to-let market look like?

Figures underline just how popular buy-to-let has become; the market now comprises 2.82 million landlords, collectively owning a reported £1.6 trillion in property assets.

If you were one of the lucky ones who bought properties in the 90s, you’re probably sitting on some juicy returns right now. Perhaps you’ve already realised them.

While property has always proved a solid long-term investment, the past quarter of a century has been particularly fertile. The average home has doubled in price, even after factoring in inflation.

And even though prices aren’t currently skyrocketing, they are still slowly ticking upwards as we head into 2026.

After a period of strong growth, the rental market is slowly cooling. The average rent has increased 2.4% in the past year, according to Zoopla, the slowest rate of growth in four years.

What does the future hold for buy-to-let?

Interest rates now look like they will continue on a downward trajectory. At the time of writing, the Bank of England base rate stands at 4%, falling from a peak of 5.25%.

During 2026, most experts expect interest rates to continue falling - they could reach 3.25% by the end of 2026, according to KPMG. However, interest rate changes are already largely priced in by lenders, so they won’t have a big impact on mortgage rates.

House price growth is expected to slow in 2026. Savills has recently downgraded its forecast, predicting house prices will increase by only 2% in 2026.

How have tax changes affected buy-to-let?

While tax isn’t the only consideration when eyeing an investment opportunity, it can make a sizeable dent in any potential growth and income.

The tax treatment of buy-to-let has become increasingly unfavourable in recent years. So, what’s changed?

Tax on rental income

Changes announced in the 2025 Autumn Budget are set to reduce rental income profitability, leading to higher taxes for landlords.

From April 2027, tax on rental profits will be charged at a higher rate than other income.

Basic-rate taxpayers will pay 22% income tax on rental profits, while higher and additional-rate taxpayers will pay 42% and 47% tax.

High value council tax surcharge (Mansion tax)

If you own a property worth £2 million or more, you’ll have to pay a new high value council tax surcharge from April 2028.

Dubbed a ‘mansion tax,’ the tax will be charged in bands based on the home value as follows:

• £2 million to £2.5 million: £2,500 per year

• £2.5 million to £3.5 million: £3,500 per year

• £3.5 million to £5 million: £5,000 per year

• £5 million: £7,500 per year

The Valuation Office Agency will revalue high value homes to work out which homes are worth more than £2 million.

Capital gains tax (CGT)

Currently, the rate of CGT on residential property is 24% if you pay the higher or additional rate of income tax or 18% if you are still a basic rate taxpayer once your taxable capital gain is taken into account.

This is the same as the rates charged on gains on investments and other chargeable assets, which were equalised with property rates in the Autumn Budget in 2024.

The rate charged on property gains was reduced from 28% to 24% in April 2024.

But while that was good news for landlords, it followed successive reductions to the CGT allowance, which has fallen from £12,300 in 2022/23 to £3,000, increasing CGT bills for those who pay the tax.

Learn more: Can I avoid capital gains tax on my buy-to-let property?

Replacement relief

Until April 2016, you could claim 10% from net rents to cover the ‘wear and tear’ of furnishings and fittings without needing to provide receipts.

But this was scrapped and succeeded by the less favourable replacement relief.

In order to claim, you now must provide itemised receipts - for instance, showing the cost of new carpets - if you wish to offset the costs against your tax bill.

Mortgage interest tax relief

Funding a property purchase through buy-to-let previously came with other tax perks.

Prior to April 2020, you could offset mortgage costs against your tax bill at your marginal rate of tax. So, if you were a 40% taxpayer, you could claim relief at this rate.

However, this was replaced with a 20% tax credit regardless of the rate of tax you pay.

This significantly reduced the relief rate available to landlords who pay the higher or additional rate of tax, who would have previously been able to claim 40% or 45% relief.

One way around this is to set up your buy-to-let dealings through a limited company, where all mortgage payments are deemed an allowable business expense.

There are other things to consider here, and you should take expert advice from an accountant before taking action.

Stamp duty

Buy-to-let lenders need to factor in the cost of stamp duty.

In addition to the standard rate of stamp duty, people buying a second property need to pay a surcharge. This started at 3% but increased to 5% in October 2024.

That now means a landlord would pay £15,000 more in stamp duty  on a £300,000 property than a buyer purchasing their own home.

Get expert buy-to-let advice

If you’re a buy-to-let landlord, you may wonder what to do next. You’re probably asking yourself key questions, such as whether to lock into a fixed rate or use capital to reduce some of your outstanding loans.

Whatever your situation, Unbiased can connect you to an expert who can help.

Click below to speak to a regulated mortgage broker who can help you make the right decisions with your buy-to-let property portfolio.