Historically, buying property has been seen as one of the best ways to invest your money. Steadily rising property prices and rental income, coupled with rock-bottom interest rates, have typically brought great returns for investors who have managed to get their foot on the property ladder. But with changes in buy-to-let rules and higher interest rates, is that still the case?
The Changing Landscape of Property Investment
Vix Leyton, a consumer finance expert at the finance app thinkmoney, notes: "Property has long been seen as the gold standard of investing. But just because it is traditional does not mean it is always the best choice for everyone. Property can still be a strong investment, but it is not a shortcut to easy money – there are ongoing costs, responsibilities, and the occasional surprise bill." She adds that the challenge for landlords is not just the mortgage but the growing list of rules and standards they must meet.
Understanding the Costs
James McCaffrey, a spokesperson for credit broker TotallyMoney, explains that it has become more difficult for landlords to generate a profit from buy-to-let investments in recent years. He advises doing thorough research on costs involved. "You can no longer deduct mortgage interest as an expense, while stamp duty on second homes has been hiked, and property income taxes will increase from April 2027 – all of which can add thousands to your costs." He also notes that higher interest rates have driven up borrowing costs, and rates could keep rising this year. He recommends shopping around and using an independent broker to find the best mortgage offer.
Letting Agent Fees
While some landlords manage properties themselves to save money, many hire letting agents. McCaffrey says: "Letting agents can help you with the day-to-day management of your property, finding tenants, taking care of repairs and collecting rent – but it comes at a cost, and you might find yourself paying them 15% of the income generated." Leyton adds that letting agents are great for peace of mind, especially if you do not live nearby or want to avoid late-night calls about broken boilers.
Buy-to-Let Mortgages
If you plan to rent out a property, you will typically need a buy-to-let mortgage, which has stricter rules. Leyton explains that most lenders require at least a 25% deposit, significantly higher than for a residential mortgage, plus savings for stamp duty, legal fees, and a financial buffer for repairs or missed rent. "That can easily mean tens of thousands of pounds before you even get the keys," she warns. "It is not just about getting on the ladder, it is about being able to stay there comfortably if something goes wrong."
The Hard Work Involved
Buying property to rent out can involve a lot of work, both paperwork and physical repairs. Chartered financial planner Claire Walsh, managing director of Midsummer Wealth, says: "Property has long appealed to UK investors, driven by strong historical price growth. But in today's environment, it is harder to view it as a straightforward or universally attractive investment." She points out that property price rises are not guaranteed, there can be interest rate increases, and periods without rental income. "Buy-to-let is far from passive. Landlords must deal with maintenance, regulation and tenant issues, or pay managing agents, which can significantly reduce returns. Many landlords are now reassessing their position, with some exiting the market altogether amid rising costs and increased regulation."
Short-Term Lets
Some investors are drawn to short-term lets through platforms like Airbnb, especially in tourist hotspots. Leyton says: "Nightly rates can look more attractive than traditional rent, but this approach needs a lot more hands-on care and is less predictable, with income rising and falling depending on demand, seasonality, and local rules." She explains that many councils now require registration or planning approval for short-term lets, and recent tax changes have reduced financial advantages. "It is important to check the small print before assuming it will be a simple way to boost returns."
Liquidity Concerns
Lee DeRedder, a financial planner at Shackleton Advisers, notes that while property investment can offer lucrative growth, it ties up money that is not easily accessible. "Property can be an illiquid asset, making it difficult to sell in a short period of time, which can cause issues if you need cash in a hurry."
Alternative: Investing in Property via the Stock Market
DeRedder highlights Real Estate Investment Trusts (REITs) as a way to invest in property without buying physical assets. "One of the fundamental rules of investing is diversification – not putting all your eggs in one basket – to reduce different risks. REITs offer a different way of gaining exposure to property by allowing an investor to invest in property via the stock market. However, this is a specialist area, and I would always recommend speaking with a professional adviser if this is something you are considering."
Spreading Your Investment Risks
Walsh points out that property ties a large amount of capital in a single asset, unlike diversified portfolios that spread risk across equities, bonds, commodities, or commercial property. "These investments are much more liquid, allowing access to funds within days rather than months, and can be held in tax-efficient wrappers such as ISAs and pensions, depending on individual circumstances." She adds: "While property is often seen as 'safe' and investments as 'risky', risk exists in all asset classes. There is no one-size-fits-all, but financial advice can help individuals identify the most appropriate approach for their circumstances."
Leyton concludes: "For many people, investing regularly into a pension or a stocks and shares ISA can be a more flexible and lower-cost starting point. Those options let your money grow over time without the hassle of managing tenants or dealing with repairs, and you can start with much smaller amounts. You also spread your risk rather than putting everything into one property in one location."
