For many years, the idea of being a landlord has been an attractive opportunity for those with extra money to afford to invest in property. Often considered a ‘passive income’, it has been seen as a viable option for first-time landlords or those looking to supplement their income while being fairly low risk. However, rising costs, new taxation, and government policies are making it increasingly difficult to be a landlord at a time when properties are in high demand.
New analysis from Pepper Money and Pegasus Insights reveals the scale of that shift. The average landlord is now carrying £714,000 in borrowing, paying around £25,000 a year in interest alone, before tax, maintenance or compliance costs are taken into account. That equates to roughly £68 a day in interest, or around £8,900 per property.
While the buy-to-let market is becoming more demanding, opportunities remain, particularly for those entering the market with the right financial support and a clear understanding of the costs involved. Smaller portfolio landlords continue to play a vital role, particularly at a local level. They’re more likely to offer longer tenancies, build stable relationships with tenants, and introduce more gradual rent increases. Their decline risks worsening supply shortages in the very communities where demand is highest.
Being a landlord has evolved
According to data from Pegasus, the average landlord in 2026 looks very different. The average landlord in 2026 holds approximately 6.6 properties, with each property valued at £253,000.
Today, landlords are managing far more complex financial positions than they have previously. 42% have at least one interest-only mortgage, with the average landlord holding 2.8 mortgaged properties. This reflects a broader trend of landlords looking to invest in properties and grow their portfolios.
Buy-to-let is no longer a side investment for many but a financial commitment to their future. There’s also a growing trend toward landlords moving to limited company structures. However, it’s still important to recognise that most landlords still operate on a relatively small scale – highlighting that entry to the market remains achievable.
The impact of finance and borrowing
As a new landlord, now more than ever, it’s important to understand the true cost of being a landlord. The profitability of the industry is still strong, with 8 in 10 landlords reporting a profit. The average rental property generates £11,363 annually or around £947 per month in gross rental income. Overall, the average gross rental income from a landlord’s portfolio is £75,000 per annum.
However, while 85% of landlords report a profit, margins are tightening, particularly for those who borrow on their properties. Mortgage interest alone is costing landlords, on average, £25,000 on their properties per year. This essentially is the equivalent of £8,900 per property. At the same time, rent increases while still in effect are less prevalent than in previous years, with only 65% of landlords raising their rents, the lowest level since Q2 2023.
Landlords must also consider many other costs that can strain their income, such as:
- Tax pressures, including the ongoing impact of mortgage interest relief restrictions
- Maintenance and compliance costs
- Letting and management fees
- Voids and periods without rental income
For smaller landlords, these pressures can be harder to absorb. It’s important to know that understanding costs early and structuring finances effectively can make a massive difference to long-term planning and sustainability.
Policy Pressures Building
There are growing pressures within the industry that are likely to further reshape the market, especially for those not financially prepared. A series of regulatory and financial changes has put landlords into the spotlight and will impact future growth if not managed effectively.
Regulation:
Energy efficiency requirements are tightening.
Currently, all rental properties must have a valid Energy Performance Certificate (EPC) rated E or higher, valid for 10 years, before creating a new tenancy. From 2030, all rental properties must have a C rating or above. Failure to comply will mean a £30,000 fine per property. The potential costs per property for those that don’t meet the requirements could be massive.
The Government estimates that landlords will have to pay between £6,100 and £6,800 to comply with the proposals. It has set a maximum cap of £15,000 per property, with an affordability exemption which would lower it to £10,000 and could be applied based on lower rents or council tax band. It’s estimated that over 1.8 million privately rented properties in England alone have an EPC rating of C, leaving landlords with significant and costly updates required.
The Renters’ Rights Act will bring about the most significant changes to the rental market in at least 30 years, with the majority of them taking effect on May 1st, 2026.
It’s expected that, as a result of the new regulations, these changes will reduce flexibility and extend eviction timelines. A ban on rental bidding and restrictions on rental rises may restrict potential income in line with demand, restricting landlords from setting prices.
The removal of no-fault evictions could see the most significant impact, which means that landlords could expect lengthier eviction times and legal costs associated with them, plus extended gaps in rental income. Before the act, the average rent loss per property where someone is being evicted is £12,708 nationally, and this figure could rise exponentially.
Taxation:
Taxation remains a key driver of structural change in the market.
It’s reported that now 1 in 5 landlords have registered as a limited company. This trend may be down to the taxation involved, as limited companies aren’t subject to the taxation that individual landlords are. If you’re classed as an individual landlord, you pay Income Tax (20% – 45%) on rental profits, with mortgage interest restricted to a 20% tax credit. From April 2027, Income Tax rates will change for rental income. Instead of paying normal Income Tax rates on rental income at 20%, 40% and 45%, you will pay slightly higher Property Income Tax rates on rental income at 22%, 42% and 47%.
Limited companies are becoming a more attractive option for landlords, as they instead pay Corporation Tax (19% – 25%) on profits, allowing full mortgage interest deduction. Companies are often more tax-efficient for higher-rate taxpayers and portfolio expansion, while personal ownership is simpler.
However, there are disadvantages; lenders often offer fewer buy-to-let mortgage products to limited companies compared with their offerings to privately owned landlords. As a result, you may find it much more challenging to arrange a mortgage. Interest rates and fees are also typically higher. Alongside these factors, if you need to live off your rental income, you’ll have to pay yourself a salary from the company. You’ll pay income tax to HMRC on that salary.
Together, these factors are raising the bar for landlords, making financial planning and access to the right lending solutions increasingly important
Supporting the Next Generation of Landlords
Despite these challenges, buy-to-let remains a viable route into property investment, particularly for those starting small and building over time. Access to the right mortgage is often the biggest barrier for first-time landlords, especially those with complex or non-standard income. Many find that traditional lending criteria don’t fully reflect their financial position or long-term potential.
Pepper Money is supporting a growing number of first-time and smaller landlords, particularly those who may not meet high street criteria. By taking a more human approach to underwriting, specialist lenders can help new entrants access the market, structure their borrowing more effectively, and build sustainable portfolios over time.
The buy-to-let market has changed. Rising costs, increased regulation, and greater complexity mean that being a landlord today requires more active management than ever. But the fundamentals remain. Demand for rental property continues, and opportunities still exist, particularly for those who approach the market with a clear understanding of costs and the right financial backing.
In today’s environment, success as a landlord is no longer just about choosing the right property; it’s about securing the right support to navigate an increasingly complex landscape and build for the long term.