UK Landlords Are Losing Nearly Half Their Rental Income to Costs

And many still do not realise how exposed they really are

UK landlords are facing a quiet but significant shift in the economics of buy to let. Rising costs are eroding rental income at a pace many did not anticipate, and for some landlords, almost half of their rent is now absorbed before mortgage payments are even considered.

Recent industry analysis suggests that landlords can now spend up to 45 per cent of their rental income on operating costs alone. For many portfolios, this represents a structural change rather than a temporary squeeze.

The issue is not simply that costs are rising. It is that many landlords are still measuring performance using metrics that no longer reflect reality.

Where rental income is really going

Running a rental property in the UK has always involved costs, but the balance has shifted materially over the last few years.

Landlords are now dealing with a combination of:

• Rising service charges on leasehold properties
• Higher maintenance and repair costs
• Increased letting and management fees
• Longer void periods in some areas
• Insurance, compliance, and regulatory costs
• Higher mortgage interest rates at remortgage

Individually, these costs may feel manageable. Combined, they fundamentally change the return profile of a property.

In many cases, landlords who once assumed a comfortable margin are now discovering that operating costs alone consume a substantial portion of their rental income.

Why this catches so many landlords by surprise

The problem is not poor management. It is outdated measurement.

Many landlords still rely on headline yield figures that ignore or underestimate the true cost base of owning and running a rental property.

Gross yield, and even simplified net yield calculations, often fail to account for:

• Service charge increases over time
• Repairs averaged across years rather than viewed annually
• Voids across a full letting cycle
• The cumulative effect of smaller recurring costs

As costs rise gradually, the erosion of returns is easy to miss until cashflow begins to feel tight.

The compounding effect of rising costs

When 40 to 45 per cent of rental income is lost to operating costs before finance, margins become extremely thin.

Once mortgage interest is included, particularly at today’s rates, many landlords find themselves in one of three positions:

• Barely cashflow neutral
• Dependent on future rent increases to remain viable
• Quietly subsidising the property from personal income

A property can still appear to deliver a reasonable yield on paper while producing very little real return in practice.

Why leasehold landlords feel this first

Leasehold landlords are often the first to experience this pressure.

Service charges are unavoidable, difficult to predict, and capable of increasing sharply with little notice. When they rise, they immediately compress net income.

For landlords who have not modelled service charge growth explicitly, this can turn a previously comfortable investment into a marginal one almost overnight.

The metrics that matter in a high cost environment

When such a large share of rental income is absorbed by costs, the most important question is no longer about headline yield.

It is about what remains after everything is paid.

• Monthly cashflow shows whether a property genuinely supports itself
• Cash on cash return shows whether the equity tied up is working hard enough
• Break even interest rate shows how much risk headroom remains

These metrics respond directly to rising costs. Gross yield does not.

Why this matters for decisions today

Landlords are being forced to make more frequent and more complex decisions.

Should leverage be reduced at remortgage?
Does this property still justify the capital tied up in it?
Would selling and reallocating funds deliver a better risk adjusted return?

Answering these questions requires a clear view of real performance, not optimistic assumptions.

When nearly half of rental income is already gone before finance, small changes in costs or interest rates can have an outsized impact.

A quieter shift in buy to let economics

This is not necessarily the end of buy to let, but it is the end of casual assumptions.

Properties that once worked on thin margins now require disciplined analysis. Landlords who understand their true cost base and risk exposure can still make informed decisions. Those who do not may find themselves reacting too late.

The market is no longer forgiving of vague numbers.

Seeing the full picture

Understanding how much of your rent is absorbed by real costs is now the starting point for any serious decision.

If you want to see how operating costs, service charges, voids, and mortgage rates affect your property, RealYield calculates your net return, cashflow, and break even point in one place.