Landlords can still achieve profits despite rising costs in 2026

Landlords can still achieve profits despite rising costs in 2026

Buy-to-let remains a viable investment in 2026, but landlords must carefully manage costs, choose properties with strong tenant demand, and seek expert financial and legal advice to maintain profitability in a challenging market.

Landlords across the UK continue to find opportunities for profit in the private rented sector, despite rising costs and regulatory pressures. According to industry experts, buy-to-let remains one of the few asset classes offering ongoing rental income combined with potential capital growth. However, success requires a long-term approach, thorough market understanding, and prudent financial planning.

Allison Thompson, Chief Lettings Officer at Leaders lettings agency, emphasises that profitability hinges on purchasing properties in areas with strong and sustained tenant demand. This demand varies by location and tenant type, from students to professionals or families. Landlords must therefore align their investment with local market conditions to ensure consistent occupancy and rental income that covers all costs.

Key factors for maintaining profitability in buy-to-let

Landlords must fully understand the costs involved in running a rental property. Initial outlays include deposits, professional fees such as legal and mortgage costs, stamp duty (which remains higher for buy-to-let properties in England), and expenses to bring the property up to rental standards, including safety compliance and furnishing.

Ongoing costs are equally important to budget for. These include landlord insurance, agent fees for letting and property management, routine maintenance, periodic repairs, and an allowance for void periods—typically around 3% of rental income. A deposit of at least 25% to 30% is recommended to secure financing that supports a rent level covering these expenses and tax liabilities, while still generating income.

Mortgage financing remains a strategic tool for landlords. While mortgage payments reduce monthly profits, leveraging borrowed capital can amplify returns through capital appreciation. For example, investing in multiple properties with smaller deposits can diversify income streams and increase overall portfolio growth. Given that buy-to-let mortgages have distinct criteria, working with a regulated mortgage broker is advised to secure the best terms.

Tax and legal considerations

Property investment involves complex tax rules, making specialist advice essential. Tax and wealth advisers can guide landlords on the most tax-efficient ownership structures, financing options, and income extraction strategies. Planning an exit strategy is also crucial to maximise long-term benefits when selling or transferring properties.

Additionally, landlords with rental income exceeding £50,000 are required to comply with Making Tax Digital (MTD) rules, maintaining digital records and submitting quarterly returns to HMRC. From April next year, the threshold lowers to £30,000, signaling that more landlords will need to adopt MTD-compatible software. Early adoption can ease future compliance burdens.

Current market performance and outlook

Rental growth remains positive in 2026, with Zoopla reporting an average UK rent increase of 2.1% year-on-year. Most rental markets are outperforming this average, driven by persistent supply shortages. Cities like Newcastle, Liverpool, and Leeds have seen rent rises between 3% and 4%, while affordable areas such as Carlisle and Halifax have experienced even higher increases of over 6% and 9% respectively.

Supply constraints remain a key factor, with rental stock still 20% to 30% below pre-pandemic levels across regions. This imbalance supports ongoing rent inflation despite slower wage growth. Zoopla forecasts UK rent growth of 2% to 3% for the full year.

On the capital appreciation front, house prices have stabilised with a modest 1.5% annual increase nationally, and stronger growth in northern regions. Inflation currently runs slightly above property price growth, but with inflation trending downward, landlords can expect combined returns from rental income and capital gains to remain positive in most areas.

Implications for landlords and letting agents

Landlords must maintain a clear understanding of all costs and market conditions to ensure their investments remain profitable. This includes regular review of rental values, property maintenance budgets, and compliance with evolving tax and regulatory requirements. Letting agents play a vital role in advising on tenant demand and managing properties efficiently to minimise void periods and maximise income.

Portfolio landlords should consider diversification and leveraging mortgages strategically to enhance returns. Smaller landlords may find it beneficial to engage professional advice early, particularly regarding tax planning and digital record-keeping under MTD.

What landlords should focus on now

• Assess local tenant demand carefully before purchasing new properties to ensure sustainable rental income.
• Calculate all upfront and ongoing costs realistically, including compliance and safety-related expenses.
• Work with regulated mortgage brokers to secure appropriate financing tailored to buy-to-let investments.
• Seek specialist tax and legal advice to optimise investment structure and comply with Making Tax Digital requirements.
• Monitor market rent levels and property values regularly to adjust strategies accordingly.
• Plan an exit strategy in consultation with advisers to maximise long-term investment outcomes.

Supporting landlords with compliance and management

The Landlord Association (TLA) offers membership that includes access to practical compliance resources and guidance tailored to the evolving requirements of the private rented sector. TLA’s new property management and compliance platform, ORBIT, currently in BETA testing, aims to assist landlords and letting agents in organising property records, managing rental documents, and keeping track of key compliance actions such as safety checks and tenancy documentation.

ORBIT’s developing features include tools to record repairs, inspections, and communications, helping landlords maintain evidence of compliance and prepare for regulatory changes. Exploring TLA membership and ORBIT BETA access can support landlords in navigating the complexities of managing profitable and compliant rental portfolios.

Looking ahead, landlords should stay informed about regulatory developments and market trends to adapt their strategies. Maintaining a long-term perspective and proactive management will be essential for sustaining profitability in the changing rental sector environment.

Sources: Landlord Today