Buy-to-let costs soar twice as fast as rental income

The cost of running a buy-to-let property now consumes almost 60p of every £1 landlords receive in rent, as rising expenses continue to squeeze the private rented sector.

Analysis of the latest HMRC figures by lettings platform Hello Neighbour shows unincorporated landlords declared £34.75bn in allowable expenses against £58.99bn of rental income in 2024-25.

Five years earlier, buy-to-let landlords reported £22.33bn of expenses against income of £46.69bn. That means costs have jumped 56% while rental income has risen by 26%.

As a result, the proportion of rental income consumed by expenses has climbed from 47.8% to 58.9% in five years.

The squeeze continued during the latest financial year. Total landlord expenses increased 11%, while HMRC described property income as “fairly consistent”.

Average rental income per landlord reached £20,500 in 2024-25, the highest level in the five-year period. Average declared expenses climbed to £13,700.

Finance costs have emerged as the largest single expense. Residential finance costs reached £12.82bn, accounting for 37% of all expenses and twice the amount spent on repairs and maintenance.

Around 1.15 million landlords claimed finance costs, averaging £11,148 each.

Repairs and maintenance also accounted for a substantial share of landlords’ expenditure. Some 1.92 million landlords – 66% of the landlord population – claimed a combined £6.41bn.

That equates to an average of £3,339 per landlord, according to Hello Neighbour’s calculations based on HMRC data.

The figures exclude capital improvements such as new kitchens, extensions and most energy-efficiency work.

Buy-to-let landlords also face further property-related expenditure in the coming years. Privately rented homes in England will need to achieve EPC C or secure an exemption by October 2030, while the reformed Decent Homes Standard is due to apply to the sector from 2035.

The analysis also highlights the impact of Section 24 on mortgaged landlords.

Since April 2020, individual landlords have been unable to deduct residential finance costs when calculating taxable rental profits. Instead, they receive a basic-rate tax reduction worth 20% of those costs.

Companies remain outside the restriction and can continue to deduct finance costs in full.

Phil Shelley, chair of Hello Neighbour, commented: “A sector housing a fifth of the country cannot absorb costs rising at twice the rate of income indefinitely. Landlords are being asked to fund upgrades the country wants through a tax system that treats them worse than a company holding the identical building. Policy needs a second setting that helps compliant landlords meet the standards rather than only penalising the minority who do not.”