Rental Income Rose 26%. Landlords Kept Less of Every Pound

Good morning,

UK landlords brought in £12.3 billion more rental income than they did five years ago.

Sounds like business is booming, right?

Except after declared expenses, they were left with slightly less. More rent coming in. Less left over.

Lets have a real conversation and what we can learn from this.

Let’s dive in.

In this newsletter, you'll find...

• The tax return nobody reads

• If you remember one thing, make it this

• Feedback

The tax return nobody reads

HMRC has just released its latest Property rental income statistics, covering 2.88 million unincorporated landlords.

This is what landlords actually declared through Self Assessment, not an agent survey.

In 2020–21, they reported £46.69 billion of property income and £22.33 billion of allowable expenses.

By 2024–25, income had climbed 26% to £58.99 billion.

Good news so far.

But expenses jumped 56% to £34.75 billion.

Do the maths and the amount left after those declared costs moved from £24.36 billion to £24.24 billion.

So for every extra £1 of income landlords collected, expenses increased by roughly £1.01.

That is the bit worth paying attention to.

Where did the money go?

The biggest expense was residential finance costs: £12.82 billion, representing 37% of all expenses.

Repairs and maintenance came next at £6.41 billion, followed by other expenses at £4.58 billion and legal, management and professional fees at £4.16 billion.

Insurance and rates added billions more.

Basically, the rent went up. Then the mortgage, repairs, agent and insurer all put their hands out.

Five years ago, landlords retained roughly 52p from every £1 of declared property income before tax. In 2024–25, that had fallen to around 41p.

Not exactly the passive-income dream sold on social media.

There is no “average landlord”

Here is where the numbers get even more interesting.

Only 1.15 million of the 2.88 million landlords claimed residential finance costs. That means roughly 1.73 million claimed none.

So the market is really two markets.

You have leveraged landlords whose returns are being squeezed by interest rates, and landlords without residential finance costs who experience the same rent growth very differently.

Among claimants, the average was roughly £11,148.

The Bank of England’s latest figures show the effective rate on newly drawn mortgages reached 4.45% in July, compared with 3.97% across existing mortgage stock.

Translation?

The full refinancing squeeze has not worked through the market yet.

Why gross yield keeps fooling investors

Gross yield is useful for screening an area. It is terrible at telling you what you will actually keep.

A property producing a 7.8% gross yield can look brilliant until you add mortgage interest, management, maintenance, voids, insurance, compliance and tax.

HMRC’s national figures suggest declared expenses consumed 58.9% of property income in 2024–25.

That does not mean every deal should use 58.9%. A mortgage-free property and a leveraged London flat are very different investments.

But it is a useful warning.

If your spreadsheet assumes costs of 20% because the deal only works at 20%, you have not found a good deal. You have found an optimistic spreadsheet.

One important catch

These numbers do not cover landlords operating through limited companies.

They also do not show profit per property, because HMRC does not tell us how many homes sit behind each tax return. And income after expenses is not taxable profit or cash flow.

So do not read this as “landlords are losing money.”

They are not. The group still had £24.24 billion left after the expenses recorded in this dataset.

The point is that rising rents did not produce rising margins.

If you remember one thing, make it this

Rent growth alone does not make a good investment.

Before buying, start with the rent and subtract every cost you can realistically expect. Then stress-test the mortgage rate, add a proper maintenance allowance and give yourself room for voids.

Gross yield gets a property onto your shortlist.

Before you believe it.

Net cash flow decides whether it deserves your money.

Go back to the last deal you analysed and calculate how many pence you actually keep from every rental pound.

The answer might be less comfortable than the headline yield.