Buy to let Property Investment in London

In this blog, we explore the Buy-to-Let investment property market in London following the many changes this sector has seen over the past decade, and we consider whether it is still worthwhile being a landlord in the capital.

How has the buy-to-let property investment market changed?

Over the past 10 years, the buy-to-let market in London has changed dramatically, including increased regulation, tax changes, property price fluctuations, shifting demand for rental properties, financing and lending, as well as the impact of economic, social and political changes.

So what have the key changes to the industry been?

Increased Regulation and Tax Changes

• Stamp Duty Increase (2016): In 2016, the UK government introduced a 3% stamp duty surcharge on second homes. This had an immediate impact on the profitability of BTL investments, especially for landlords purchasing additional properties.
• Mortgage Interest Tax Relief (2017): The government began phasing out mortgage interest tax relief for landlords in 2017, meaning that they could no longer deduct the full amount of mortgage interest from their taxable income. This increased the tax burden on landlords and reduced overall profitability.
• Tenant Fees Act (2019): The introduction of the Tenant Fees Act, which banned most fees that landlords could charge tenants (such as admin fees), shifted more costs onto landlords.
• Mortgage Interest Tax Relief (2020): Since April 2020, landlords have been subject to a flat-rate tax credit based on 20% of their mortgage interest, affecting landlords who are higher and additional-rate taxpayers. 
• Capital Gains Tax changes (2024): In April 2024, Capital gains tax (CGT) for residential property was cut from 28% to 24% for higher and additional rate taxpayers. While the rate of CGT was increased in the Autumn Budget 2024, this only meant the rates charged on investments and other chargeable assets equalised with those already being paid by the owners of second properties.
• Stamp Duty Increase (2024): In the Labour Government’s Autumn Budget in October 2024, it was announced that the stamp duty for second properties and buy-to-let houses was to rise from 3% to 5%, further impacting profitability and rental yields for landlords.
• The Renters’ Rights Bill (2025): Expected to become law in the Autumn, this new legislation will change the private rented sector, introducing stricter regulations on rent increases, abolishing fixed term tenancies and changing the way buy-to-let landlords can give notice to tenants.

Fluctuating Property Prices and demand

• In the aftermath of the financial crisis in 2008, the London property market, including the BTL sector, experienced strong price growth. The period from 2010 to 2015 saw rapid price appreciation in many boroughs, with house prices reaching their peak in 2015. Over this period, strong rental yields were a key driver for buy-to-let investors.
• Property price growth in London then slowed down, driven by factors such as Brexit uncertainty, affordability constraints, and increased taxation on landlords.
• The COVID-19 pandemic caused further disruption to the property market, including a temporary drop in rents and property values in central London, as people sought more space outside the city during lockdowns. However, suburban and commuter belt areas saw a surge in interest as people moved out of central London.
• In the aftermath of the pandemic, rental prices surged as demand returned to central London, with more people wanting to move back to be closer to their offices, which led to unprecedented levels of rental growth in 2022.

Financing and Lending

• Mortgage Market Changes: Buy-to-let mortgage lending standards tightened, particularly post-2016, with banks and lenders applying stricter affordability checks. The Bank of England also increased its scrutiny of the buy-to-let mortgage sector due to concerns over rising levels of debt in the sector.
• Mortgage Interest Relief: As mortgage interest relief is no longer available, many landlords have seen their profits significantly fall – in particular, higher-rate taxpayers. These changes are particularly challenging for landlords with interest-only mortgages paying higher tax rates. 
• Availability of Products: Despite the increased regulation, the availability of BTL mortgage products has remained relatively high, with more specialised mortgage options available for landlords who want to buy properties in areas of high demand or with potential for capital growth.

Economic, Social and Demographic Changes

• Brexit: The uncertainty surrounding Brexit led to some fluctuations in the property market. However, London’s status as a global financial hub, combined with a lower pound, made it an attractive destination for international buyers, particularly in the luxury market.
• Millennial Renters: Millennials, including international students, have become a significant portion of the rental market in London. This demographic shift has contributed to the continued demand for rental properties in London.

What are the biggest challenges for landlords currently?

While London remains a key market for rental investment due to high levels of demand and high rental values, the landscape has become more challenging for buy to let landlords in recent years, particularly those investing in property in high-value areas of Prime Central London. Today, landlords in London are facing several challenges, many of which have evolved due to changes in regulations, economic factors, and market dynamics discussed above.

Here are some of their most significant challenges:

Increased Regulation and Compliance

• Stricter Tenant Protection Laws: Over the past few years, there have been a growing number of regulations aimed at protecting tenants, such as the Tenant Fees Act (2019), which bans most tenant charges, and imposes stricter safety and energy efficiency regulations. While these laws are designed to protect tenants, they have placed additional compliance burdens on landlords.
• Energy Efficiency Standards: New regulations, such as the minimum energy efficiency standards (MEES), require landlords to ensure their properties have at least an E-rating for energy efficiency. This has led to increased costs for some landlords who must invest in upgrades like insulation, new heating systems or windows to meet these standards, particularly if they have older properties.

Increased Tax Burden

• Mortgage Interest Tax Relief: The phasing out of mortgage interest tax relief for landlords has meant they can no longer deduct the full cost of their mortgage interest from their rental income when calculating their tax. This increases their taxable income and, as a result, their tax liability, reducing profitability for many landlords.
• Higher Stamp Duty for Second Homes: The 5% stamp duty surcharge on second homes and buy-to-let properties means landlords are now facing higher upfront costs when expanding their portfolios.
• Capital Gains Tax: With rising property prices, many landlords face significant capital gains tax liabilities when selling a property, particularly if it has appreciated substantially in value.

Rising Mortgage Costs

• Interest Rate Increases: Since 2022, interest rates have been rising due to the Bank of England’s efforts to combat inflation, directly impacting landlords with mortgages, as their monthly repayments are increasing. For some, this has made buy-to-let investments less profitable, particularly if rental income does not keep pace with mortgage rate hikes.
• Tighter Lending Criteria: Lenders have also become more cautious in their lending practices. Landlords may face higher rates or more stringent requirements for obtaining finance, especially if they have several properties or are looking to expand their portfolio.

Competition from Alternative Rental Options

• Short-Term Lets: Platforms like Airbnb have created competition for rental properties, especially in central London. Some landlords are opting to switch to short-term lets to capitalise on the tourist market, but this comes with its own set of regulatory challenges and risks.
• The Private Rented Sector (PRS): The PRS sector includes large-scale institutional investors or professional property management companies that own and manage large portfolios of rental properties, which creates competition for individual buy to let landlords, as they can often offer tenants properties of a higher standard with additional services and facilities.

Legal Risks and Evictions

• Eviction Ban and Restrictions: Landlords have faced increasing restrictions on evictions. The government temporarily banned evictions during the pandemic, and while the ban has lifted, the eviction process has become lengthier and more complex which can result in a longer wait for landlords to regain possession of their property.
• Section 21 and Reform: The government’s proposed abolition of Section 21 “no-fault” evictions with the Renters’ Rights Bill 205 means landlords will only be able to evict tenants for specific reasons. This increases uncertainty for landlords, as they will have less flexibility when trying to remove tenants who may be causing issues or failing to pay rent.

Is buy-to-let in London still a good investment?

A property investment in London can be highly rewarding, offering a reliable income stream, the potential for long-term capital appreciation and the stability of a tangible asset. However, like any investment, there are risks, so it’s essential for investors to do their research, choose locations wisely and be prepared for the responsibilities that come with property management. For those who are strategic, buy to let investment in London can be a profitable way to build wealth. 

Assessing whether investing in a buy-to-let property is worthwhile will come down to the personal objectives of the investor, but it undoubtedly offers a range of advantages, making it an appealing option for many.  

Here are 10 of the key benefits: 

• Strong Demand for Rental Properties: London has global appeal, with a large population and constant influx of people from around the UK and around the world. This results in a strong, consistent demand for rental properties, particularly in central and well-connected areas. It also attracts a diverse tenant pool, including students, professionals, families and expatriates, reducing the likelihood of prolonged vacancy periods. 
• Growing Rental Values: Rents in London have seen significant growth over the past 10 years, with an overall increase of c.25% in average asking rents. This growth has of course varied across different areas, but Prime Central London continues to experience rising rental values, fuelled by limited supply but strong demand.  
• Long-Term Capital Appreciation: Property values in London generally increase over time, offering investors potential for capital appreciation. While the market does see fluctuations, London’s position as a global financial, cultural and political hub means it has historically been a safe haven for long-term value growth. Current predictions for price growth in Prime central London are 10-15% over the next 5 years.  
• Value Stability: Even during economic downturns, London’s property market tends to show resilience, making it a safe investment compared to other regions where sustained price growth is less guaranteed. 
• Potential for Value-Add Improvements: Investors can add value by renovating or improving a property, such as optimising the space or reconfiguring the layout to best cater to the rental market, which can lead to higher rents or a higher sale price, boosting their yield and profitability.  
• Steady Income: Buy-to-let properties in London provide investors with a reliable stream of rental income. Depending on the area and type of property, rental yields can range from around 3% to 6%, with some high-demand areas offering even higher returns. 
• Tax Benefits: In the UK, buy-to-let investors can claim tax relief on mortgage interest, meaning that the interest paid on your buy-to-let mortgage can be deducted from your rental income before tax. This reduces your overall tax liability, making the investment more financially viable. Investors can also deduct certain costs, such as maintenance, repairs and property management fees, from their rental income, further reducing taxable profits. Speak to a mortgage broker for further advice on the possible tax benefits.  
• Mortgage Availability: Buy-to-let investors often have access to specialised buy-to-let mortgages, with competitive rates and long repayment terms. This allows them to leverage their capital and access more affordable financing options than they might with other types of investments.  
• Flexibility in Financing: Investors can also use equity in existing properties to fund further buy-to-let purchases, providing additional opportunities to grow their portfolio without needing to fully liquidate other assets. 
• Direct Control: Unlike other forms of investment, such as stocks and shares, property investors have direct control over their investment. This includes decisions about property management, setting rents and deciding when to buy or sell. The ability to make strategic choices can increase the overall return on investment.  

Our top-tips for first-time buy to let investors

• Property Selection: Selecting the right investment property is crucial in order to help maximise your buy-to-let profits. Whilst this will depend on your individual budget and objectives, it is important to carefully consider the type and location of the property, as these factors will affect variables including the initial investment amount and purchase costs, capital growth potential, rental value and rental demand. For example, the Stamp Duty costs will be less for lower value properties, so first-time investors might want to focus on smaller properties to keep these costs lower. 
• Work with Experienced Professionals: We would advise working with a London property investment advisor, like LCP Private Office, who have an in-depth knowledge of the sales and rental market and many years of experience identifying profitable buy-to-let opportunities for investors. You should also speak to a financial advisor and/or broker for advice on your affordability, mortgage products and the tax implications associated with buy-to-let investment.  
• Understand the Costs Involved: Before embarking on buy-to-let, you should ensure that you are aware of all the costs involved. You will need to provide a higher deposit on a buy-to-let property – typically at least 25% – and mortgage interest rates tend to be higher than residential mortgages. Many lenders will also charge a product fee, and there are the usual property purchase costs, such as surveys and legal fees. You will also need to pay a higher rate of Stamp Duty Land Tax on properties you intend to rent out, which will increase depending on the property value.  

You can also use the government’s Stamp Duty Land Tax calculator to work out how much Stamp Duty you will pay

• Keep on top of Property Maintenance: The cost of property maintenance and repairs can quickly erode profit margins, especially for landlords with multiple properties to manage. It is sensible to stay on top of maintenance issues when they are small to minimise long term damage and ultimately more costs. To manage this, it is vital for investors to ensure they have good property managers to help who conduct regular inspections on their behalf.  
• Consider Renovation: One way to keep property maintenance costs down, as well as attract high quality tenants and maximise your rental returns, is to carry out renovation work, especially for older properties which may have outdated fixtures and fittings. Renovation may also be required to bring the property up to minimum standards required of rental properties.  
• Identify the Right Tenant(s): With the new regulations making it harder to evict tenants which will come into force when the Renters’ Rights Bill becomes law, it is more important than ever to select tenants with care. It is crucial that prospective tenants are properly vetted via stringent referencing, with both financial and personal qualification, and therefore it is prudent to meet tenants in person. Landlords often work with a Letting Agent who can manage this process for them. At LCP, our in-house lettings team secure only the best tenants through our stringent referencing process. We also conduct regular inspections upon renewals, to ensure that the property is being looked after by tenants. 
• Manage Tenant Relationships: To ensure properties remain in good condition, it is crucial to manage tenant relationships and deal with tenant complaints or disputes promptly. The introduction of stricter legal requirements has added a layer of complexity to this, and landlords should ensure they have the correct representation in terms of property management. LCP offer a fully managed Letting and Management service for landlords, ideal for those looking for a hands-off investment, with the comfort that all legal obligations are covered and their rental property is being properly looked after.  

A guide to enhancing your rental yield

• Assess your potential returns in advance: Use our Investment Calculator for an indication of your potential capital and rental returns, mortgage costs, tax and expenditure. 
• Buy a property in an area with capital growth potential, for example buying in areas where values remain at a considerable discount to their 2015 peak. Also consider areas that have or are being regenerated, such as Bayswater, or have regeneration potential, as this can add significant value growth potential. 
• Avoid opting for larger properties where the additional square footage does not equate to a higher rental value – a more efficient unit will likely generate a higher yield. For example, purchasing a smaller, more efficient one-bedroom flat, as opposed to a larger, oversized one-bed which is unlikely to generate more rental income, will likely be better value in terms of the purchase price and come with reduced additional costs, such as Stamp Duty.  
• Consider opportunities to add value to an investment property, such as reconfiguring the layout to allow for an additional bathroom or bedroom.  
• Ensure your rental property is dressed and furnished appropriately for the rental market in which you are competing. This is an important way to attract the right sort of tenants and can enhance your rental returns. 
• There are options to leverage tax-efficient structures, such as purchasing property through a limited company. Always ensure you get advice from your financial advisor to fully understand the considerations.  
• Build a diverse rental property portfolio – consider a mix of different unit types in different areas to ensure you have maximum reach to the widest tenant pool.  
• If your budget allows you to purchase in larger quantities, there can be financial benefits, such as a higher level of discount on a bulk purchase, or reduced Stamp Duty if you are purchasing 6 or more residential units in a single transaction or mixed-use purchase.  

As mentioned above, we strongly recommend working with a buying agent with strong experience of the buy-to-let market in London. At LCP, we have been representing investors for 35 years, sourcing and acquiring properties that rent easily, achieve the highest possible yields and maximise capital returns.