Despite facing several regulatory and financial headwinds, the buy-to-let sector is proving more resilient than many expected in 2025. According to UK Finance, 58,347 new buy-to-let mortgages were approved in Q1 - up 39% year-on-year. More notably, loans for new purchases (rather than remortgages) surged by 61%, totalling 20,500.
That said, new buy-to-let purchases still made up just 9.4% of all sales across Great Britain in Q2 - joint lowest since our records began. But the market hasn’t ground to a halt. In fact, it’s showing signs of adaptation.
Navigating Headwinds
Landlords today are contending with perhaps the most complex operating environment in recent memory. The phasing out of full mortgage interest tax relief, the 5% stamp duty surcharge (up from 3% in late 2024), high mortgage rates, and the looming Renters’ Rights Bill have all added pressure. On top of that, many are weighing up the cost of bringing properties up to new EPC standards.
Yet, despite these challenges, there’s little evidence of a widespread landlord exodus. Just 13.9% of homes sold across Great Britain this year had previously been rented - down from a peak of 16.4% in 2022. That year, landlords were grappling with the loss of full mortgage interest tax relief and taking advantage of a buoyant market to exit. The decline since then suggests that, while some have chosen to leave, most landlords are holding firm - perhaps encouraged by improving yields and a more stable rate environment.
At the same time, falling mortgage rates this year and stronger rental yields are helping to keep the sector afloat. With stock markets wobbling and savings rates on the slide, property remains an attractive option for many investors. Gross yields on new purchases have climbed to an average of 7.1% across England and Wales this year - offering a more compelling case for bricks and mortar.
Incorporation on the Rise
Another notable trend that underlines the resilience of the market is that the number of buy-to-let limited companies continues to climb. A record 33,598 were set up in H1 2025. While incorporation has long been a strategy to mitigate higher personal taxes, the timing is interesting.
Despite the stamp duty surcharge increase in April, incorporations rose 18% year-on-year in May and 21% in June. This suggests landlords aren’t just transferring existing properties - they’re buying new ones through company structures.
Given that these transfers are subject to the stamp duty second home surcharge, you’d expect most transfers to have occurred before stamp duty increased in April. There was a 14% year-on-year uplift in March. However, incorporation numbers rose 18% year-on-year in May and 21% year-on-year in June, suggesting this increase may be driven by landlords making new buy-to-let purchases rather than just transferring properties they already own in personal names.
The Yield Story
Yields are doing a lot of the heavy lifting. Over the past five years, average rents on new lets have risen by 36%. A combination of robust rental growth and relatively flat house prices in some areas has pushed returns higher. A record 23% of buy-to-let purchases this year achieved double-digit yields - up from 17% in 2024 and just 9% in 2016.
To put that into perspective: on a typical buy-to-let costing £500,000, each 1% increase in gross yield equates to an extra £5,000 in annual rental income.
The North East stands out, with new buy-to-lets achieving an average gross yield of 9.3% - well above the national average. These stronger returns offer landlords more breathing room to absorb rising costs, from mortgage payments to maintenance and tax. So far this year, 55% of investor purchases came from outside the North East, the first time investors from outside the region accounted for more than half of buyers.
However, whilst on average, yields are lower in the South of England, they have been rising. In London, the lowest yielding region in the country, the typical yield on a new purchase has risen from 4.1% in 2020 to 5.7% this year. Our 2025 buy-to-let report revealed that generally, predominantly Southern-based portfolios have provided more stability and lower risk over the long-term too.
Looking Ahead
We may have passed the bottom of the buy-to-let market. Several factors support this view.
Firstly, mortgage rates are continuing to fall. While they remain above the ultra-low levels seen in the late 2010s, the recent downward trend is restoring financial viability to many buy-to-let investments. Lower borrowing costs are particularly important in a sector where margins are often tight and leverage is common.
Secondly, the comparative appeal of property is improving. Savings rates have declined, and volatility in global equity markets has left many investors seeking more stable, income-generating assets. With gross yields now averaging 7.1% across England and Wales, property is starting to offer a compelling return relative to other asset classes.
Thirdly, the structural undersupply of rental homes remains unresolved. While rental growth has slowed-rents on newly let properties rose just 0.4% year-on-year in June, the weakest pace since August 2020 - demand continues to outstrip supply in many areas. This imbalance is likely to provide a floor under rents and support yields in the medium term. We expect rents to rise 3.5% in 2026 and 3.0% in 2027.
Finally, investor behaviour is shifting. The rise in limited company incorporations, even after the stamp duty surcharge increase, suggests that landlords are not selling up - they’re actively restructuring and, in some cases, expanding their portfolios. This points to a market that is adapting rather than retreating.
Taken together, these trends suggest that while the buy-to-let sector is unlikely to return to its pre-2016 heyday, it is entering a new phase - leaner, more yield-focused, and increasingly professionalised.
For prospective investors, this may represent a window of opportunity. With house prices forecast to rise over the coming years, we’re likely at or near the peak for yields. As property values climb, yields on new purchases will naturally begin to compress. For those able to secure a property now - while mortgage rates are falling and yields remain elevated - there’s a chance to lock in a stronger return before the market shifts again.
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