Being a landlord involves more costs than many people expect. Some are upfront. Others are ongoing. And some are easy to overlook until they catch you out.
This guide covers the main costs you need to plan for. It’s not financial advice. Your own costs will depend on your property, your situation, and how you manage your rental. Always speak to a qualified adviser before making decisions.
Buy to let mortgages
If you borrow to buy a rental property, the mortgage is likely to be your biggest cost. Buy to let mortgages are assessed differently from residential ones. The key figures to understand are the deposit, the rate, and the fees.
The deposit
Most buy to let lenders require a minimum deposit of 25%. Some accept 20%, but the rates at lower deposits are usually higher.
On a £250,000 property, a 25% deposit is £62,500. This is a large upfront cost. You’ll also need to budget for Stamp Duty Land Tax on top. The rate depends on the purchase price and whether you already own property. Since 2016, buy to let purchases in England attract a surcharge on top of the standard rate.
Interest rates
Buy to let mortgage rates are usually higher than residential rates. Most buy to let mortgages are interest-only. This keeps monthly payments lower, but you don’t pay down the loan balance over time.
Lenders assess affordability using an Interest Coverage Ratio (ICR). This checks that the expected rental income is high enough to cover the mortgage payments by a set margin, usually 125% to 145%.
Fees
Most buy to let mortgages come with arrangement fees. These range from a few hundred pounds to a percentage of the loan. On a larger mortgage, a percentage fee adds up quickly. Factor this in when comparing products.
You’ll also pay a valuation fee and legal costs when you buy. Remortgaging in the future will bring similar costs again.
Hiring a letting agent
You can manage a rental property yourself. Many landlords do. But a letting agent takes on tasks you may not have time for. There are three main service levels.
Tenant-find, or let-only
The agent finds a tenant and handles the start of the tenancy. You manage the rest yourself. This is the cheapest option. Fees typically range from 6% to 12% of the first year’s rent, or a fixed fee. After that, you’re on your own.
Rent collection
The agent finds the tenant and collects rent each month. You still handle maintenance and any issues with the property. Fees for this service are usually between 8% and 12% of the monthly rent.
Full property management
The agent handles everything. Tenant-find, rent collection, maintenance, inspections, and dealing with any problems. This is the most expensive option, typically 12% to 20% of the monthly rent. But it saves significant time if you have multiple properties or live far from the rental.
Legal and admin costs
There are several legal and administrative costs that come with renting out a property. Some are one-offs. Others recur each year or each tenancy.
Referencing, credit checks, and admin
Before you take on a new tenant, you should carry out reference and credit checks. If you use an agent, this is usually included in their fee. If you manage yourself, you can pay for a referencing service directly. Costs vary but expect to pay between £15 and £40 per applicant.
You’re also legally required to check that tenants have the right to rent in England. Failing to do so can result in a fine.
Deposit Protection Scheme registration
By law, you must protect any tenant deposit in a government-approved scheme within 30 days of receiving it. There are three schemes: the DPS, MyDeposits, and the TDS.
Custodial schemes, where the scheme holds the money, are free. Insured schemes, where you hold the deposit and pay a fee to the scheme, charge a small fee per tenancy. You must also give the tenant the scheme details in writing. Failing to do this can result in a fine of one to three times the deposit amount.
Energy Performance Certificate (EPC)
Every rental property must have a valid EPC. This rates the property’s energy efficiency from A to G. It’s valid for ten years. A new one typically costs between £60 and £120.
Since 2020, privately rented properties in England must have a minimum EPC rating of E. Properties rated F or G cannot legally be let. The government has proposed raising the minimum to C in future, though no confirmed date has been set.
Gas Safety Certificate
If your property has gas, you must have it checked by a Gas Safe registered engineer every year. The certificate must be given to tenants at the start of their tenancy and within 28 days of each annual check. Costs are typically between £60 and £150 per visit, depending on the property and the engineer.
Landlord registration
Landlord registration requirements currently vary by country. In Wales, landlords must register with Rent Smart Wales and may also need a licence if they self-manage. In Scotland, all landlords must register with their local council. Both carry fees.
In England, a national private rented sector landlord register is being introduced as part of Phase 2 of the Renters’ Rights Act. This is expected in late 2026. Landlords in England should plan for this requirement to arrive. For more on the timeline, read our guide on when the Renters’ Rights Act became law.
ICO registration
If you hold personal data about your tenants, you may need to register with the Information Commissioner’s Office (ICO). Most landlords who self-manage fall into this category. The current fee for most small organisations is £40 per year.
Buildings insurance
Standard home insurance usually doesn’t cover a property that’s rented out. You need specialist landlord buildings insurance. Some policies also cover loss of rent if the property becomes uninhabitable. Costs vary widely depending on the property, its location, and the level of cover.
Landlord contents insurance is separate. If you provide furnished accommodation, this covers your furniture and appliances. If the property is unfurnished, it’s less likely to be needed.
Maintenance costs
Properties need ongoing maintenance. Boilers break down. Roof tiles come loose. Appliances stop working. These costs are unpredictable, but they’re certain to arrive at some point.
A rough rule of thumb is to budget around 1% of the property’s value each year for maintenance and repairs. On a £200,000 property, that is £2,000 a year. Some years will cost less. Others will cost more.
Under the Renters’ Rights Act, new build shared ownership properties have a ten-year period where the landlord covers repairs up to £500 per year. But for standard private rentals, landlords are responsible for the structure and exterior of the property, heating and hot water, and sanitation.
When a tenancy ends, you’ll usually face void costs. These are the costs of the property sitting empty while you find a new tenant. You continue to pay the mortgage but earn no rent. You may also spend money on redecoration or repairs between tenancies.
Letting property and income tax
Rental income is taxable. It’s added to your other income and taxed at your marginal rate. Basic rate taxpayers pay 20%. Higher-rate taxpayers pay 40%. Additional rate taxpayers pay 45%.
You can deduct certain allowable expenses from your rental income before calculating your tax bill. These include letting agent fees, maintenance costs, insurance, and some legal fees. You cannot deduct mortgage interest in full. Since 2020, individual landlords receive a 20% tax credit on mortgage interest instead of a full deduction. For higher-rate taxpayers, this results in a higher tax bill than before.
When you sell a rental property, any profit above your original purchase price is subject to Capital Gains Tax (CGT). The rates for residential property are 18% for basic rate taxpayers and 24% for higher rate taxpayers. You can deduct buying and selling costs, and any costs you incurred improving the property.
Tax on rental income is complex. What you can and cannot claim, and how much you pay, depends on your personal circumstances. Always speak to a qualified accountant.
Final thoughts
The costs of being a landlord are real and varied. Mortgage payments, agent fees, compliance costs, maintenance, tax, and voids all eat into your rental income. Planning for them properly is what separates a profitable portfolio from a stressful one.
Before you buy, build a full budget that includes all of these. Make sure the expected rental income still covers your costs with room to spare.
Pepper Money works with specialist brokers who understand buy to let mortgages. You can find a broker through us today.