Buy-to-let at 30, a dirty word, or a hedge against inflation?

In those thirty years a buy-to-let investment beat the S&P 500, returning 22 times the original investment. A recent Sunday Times article argues that the buy-to-let payday is ending.

Comment by Tom Entwistle, LandlordZONE

Thirty years ago this month, a small group of lenders and the Association of Residential Letting Agents (now propertymark) famously launched the buy-to-let mortgage at London’s RAC Club. 

This week the Sunday Times Money section has marked the anniversary by charting “the buy-to-let’s journey from boom to bust”, concluding that buy-to-let property letting has become a dirty word in some quarters.

For the amateur landlord, the article argues the sums no longer add up. No doubt, there is some truth in that. But in my view, it answers the wrong question. For anyone with savings to protect and family wealth to preserve, the real question is not whether letting is as easy as it was in 1996, but where else a family’s wealth is safe when the state owes almost £3 trillion.

In more than 30 years of developing and letting residential and commercial property, I have seen many headwinds the critics describe. I don’t have a quarrel with the facts. My quarrel is with the conclusion, because it looks at buy-to-let in isolation rather than against the investing alternatives available to ordinary people in an economy weighed down by public and private debt.

What the critics do get right

It would be rather foolish to pretend nothing has changed, that all in buy-to-let is coming up roses. Section 24 restricts mortgage interest relief for individual landlords to a basic-rate tax credit. Stamp duty has a 5 per cent surcharge on additional homes, and there’s a 2 per cent additional income tax charge coming on rental income.  

The Renters’ Rights Act, in force since 1 May this year, has ended Section 21 and fixed-term tenancies in England. The new landlord register opens in December, adding additional cost and bureaucracy. And borrowing costs are far higher than they were five years ago.

The recent numbers reflect that. Estate agent Hamptons calculates that buy-to-let has delivered a cumulative return of 41 per cent over the past five years. That’s, against the stock market’s roughly 75 per cent if you take the US S&P 500 index and 73 per cent from the FTSE 100. 

Landlords are also undoubtedly selling properties, and many are selling up, as reported many times on this website. Around 562 rental homes a day have been quoted as leaving the market in the third quarter of 2026. That’s the fastest rate since 2016. Anyone who bought recently at a high loan-to-value with a slim yield will have found the arithmetic uncomfortable.

The 30-year record

But short periods tell us little about an investment’s potential. You need to look to the long term as most landlords hold for decades. Over the full 30 years, Hamptons has calculated that every £1 invested in an average UK buy-to-let in late 1996 had returned £22.30 by 2026. That is the total return combining capital growth with net rental income, after all running costs. 

That narrowly beat the US stock market’s S&P 500 and was well ahead of the FTSE 100 (£8.96) and investing in gold (£7.36). Importantly, nearly two-thirds of that buy-to-let return came from rent rather than rising house prices. This has been an income-led investment, not simply a bet on house prices.

According to the OBR, long-term UK house price inflation is generally projected by long-range historical models to average roughly 2.5 per year over multi-decade horizons. There have always been some periods well above or below this rate. If this rate of progress continues as it did over the last 100 years, it would push average property values past £500,000 over a 30-year span. 

Buy-to-let borrowers have also proved reliable. Paragon Bank’s anniversary report, “30 Years of Buy-to-Let”, finds that the proportion of buy-to-let mortgages in arrears has always been lower than for owner-occupiers in every year since records began, bar just one. 

The market now stands at 1.92 million buy-to-let loans worth £311.6 billion in total. You need to treat these reports from Hamptons and Paragon with some caution, as both have a commercial interest in buy-to-let’s reputation, and averages conceal wide variations, but the long-run evidence is hard to dismiss.

A nation in debt

The case for property today rests less on its past than on the state of the public finances. Public sector net debt stood at a provisional £2,985.5 billion at the end of August 2026, according to the Office for National Statistics. And that’s not counting the equally enormous unfunded off-balance sheet liabilities such as pensions. About 93.8% of GDP is recorded as the national debt, a level not seen since the early 1960s. 

As recently as 2007/08 the national debt was around 35 per cent. Servicing that debt is costing roughly £109 billion in 2025/26, about 8 per cent of all public spending, and the bond markets are demanding steadily more interest. In early September the Debt Management Office sold a new 30-year gilt at a yield of about 5.8 per cent, reportedly the highest level of any gilt sale since the office was set up in 1998.

Governments facing debts on this scale have few options. They could default, which would be unthinkable for a major economy like the UK; they could instigate deep spending cuts, which under this government are politically difficult, or they can raise taxes. But taxes are already at historically high levels and reaching the limit of their revenue-generating ability. History suggests the government will take the path of least resistance. 

Inflating away debt

After the Second World War, Britain reduced its enormous debt burden largely by allowing inflation to run ahead of interest rates. Economists Carmen Reinhart and Belen Sbrancia have estimated that for the UK and the US this “liquidation” of debt through negative real interest rates was worth, on average, 3–4 per cent of GDP per year. They found this means of debt liquidation worked best alongside moderate but steady inflation, which need not be especially high.

The effect is already visible in the official figures. The ICAEW has noted that inflation, by raising the size of the economy in cash terms, helps to shrink the debt ratio, but there’s always the danger that the currency is devalued against other currencies.  

I am not predicting runaway inflation, and I’m not predicting a financial crisis, but what I am saying is there is a greater than 0 per cent chance these will happen. I do think, therefore, it is prudent to assume that, over the long term, the pound in your pocket will buy less and less and that ordinary savers will bear much of the cost.

What that means for cash

CPI inflation rose to 3.1 per cent in August, and the Bank of England expects it to rise further over the coming quarters. The Monetary Policy Committee held the bank rate at 3.75 per cent in September, with three of its nine members voting for an increase. They expect rates to rise next time.

Just consider a higher-rate taxpayer earning a nominal 4 per cent on an average savings account. After 40 per cent tax, the net return is 2.4 per cent, well below the current rate of inflation. In real terms, this person’s savings are shrinking before they spend a penny. Over 30 years, consumer prices have more than doubled, so money left on deposit since 1996 has lost over half its purchasing power.

Why property?

Residential property has three qualities that cash lacks in an inflationary economy. First, rents tend to keep pace with incomes and prices. The ONS reports that average UK private rents rose 3.8 per cent to £1,400 a month in the year to August 2026. This was slightly ahead of inflation, and by 5.8 per cent in the North East and North West.

Second, mortgage debt is a fixed amount in nominal pounds. As inflation erodes the value of money, it erodes the real value of your buy-to-let loan, while the rent, and over time, the property value, will almost certainly rise. 

Consider a landlord with a £150,000 interest-only mortgage. After 20 years of a low 3 per cent rate of annual inflation, the balance outstanding is still £150,000. But in real terms (after taking inflation into account) the debt is worth only around £83,000. Even without the rental income, the landlord has benefitted considerably by inflating away its debt.

Interest only with mortgage fixed rates

Hamptons reports that 99 per cent of buy-to-let lending is now on fixed rates, compared with 26 per cent in 1996. In that sense, a landlord with sensible borrowing uses inflation to reduce debt, just as the government does.

The third point is that bricks and mortar are a real asset. Land cannot be printed like the government-printed money, and a well-chosen property can be passed down the generations, subject to sensible tax planning.

No investment is completely risk-free, of course. UK house prices rose just 1.4 per cent in the year to July 2026, a fall in real terms. And the current high gilt yields keep mortgage rates elevated, plus borrowing can magnify losses as well as gains. 

But, in the long run, inflation will almost certainly correct that, especially if the government / Bank of England lets prices rip. To prove the point, according to the Nationwide Building Society, the average UK house price has risen from £1,884 in 1953 to £274,930 in the 1st quarter of 2026. 

Regulation is a risk too. My grandparents’ and parents’ had rental properties that were drastically devalued under the old Rent Acts, and I would never have invested under that regime. The Renters’ Rights Act is not rent control, as it was then, but it is a reminder that political risk is always a real threat and must be priced in. 

The case for property rests on (1) its ability to borrow money against the asset, (2) on its short-term rental income, and (3) with sensible loan-to-value, buy-to-let borrowing is a hedge against inflation. 

Buy-to-let isn’t dead – but perhaps casual landlording is

As I argued earlier this year, the landlords who struggle are usually those treating a complex business as a passive investment. It does require some effort on your part, and you need to develop certain skills if you intend to manage tenancies yourself.

Those who thrive run their portfolios in a professional manner. Paragon has observed that more landlords are now managing their portfolios as proper businesses, taking a long-term view and adapting to the changing regulatory environment and tenant expectations.

The rise of company ownership reflects this, and there were a reported 443,272 active buy-to-let companies at the end of 2025. That’s nearly five times the 2016 figure. If you want tax-efficient family wealth transition planning, the Family Investment Company (FIC), the incorporated route, is probably the way to go. 

The benefits of incorporation really come in with a portfolio rather than just one or two properties. Speak to your financial advisor before making any decisions about this.

Tenant selection and safe lets are crucial

In practice, professional landlording means careful tenant selection within the law, meticulous record keeping (in case you need to use the Section 8 possession route), and full compliance with the safety and energy rules. Regular inspections are a must. You also need good records for your regular rent reviews using the new Section 13 procedure. 

Secondly, you must keep your properties up to standard. With fines ranging from £7,000 to £40,000 and unlimited, it's no longer an option to let sub-standard properties.

Some key things to remember

None of this is beyond the ability and skills of the small-scale landlord. It simply demands the effort and organisation the business now requires.

You need to think in decades, and perhaps generations, for effective generational wealth transfer and tax planning. Don’t think in years and your immediate return on investment. 

Keep loan-to-value ratios conservative and stress-free. You should stress test your cash flow against higher interest rates and longer voids. A portfolio, as opposed to a single rental property, spreads risk and therefore derisks your investments as a whole. Grow your portfolio gradually – Rome was not built in a day.

Fix your borrowing costs where it makes sense and have a clear repayment plan for interest-only loans. Inflation favours the borrower as opposed to using your own cash, which in turn allows you to build your portfolio.

Buy your properties at the right price – there are bargains around right now – and for rental demand. Obtain a reasonable yield, and the capital growth will take care of itself. Success in buy-to-let means buying where rental demand supports a decent yield, not just where you think capital growth will result. 

Exercise great caution when selecting your tenants. One bad tenant can ruin your investment return for months if not years. Reference and interview your tenants thoroughly, especially on affordability. Take out rent guarantee insurance and use guarantors when appropriate. 

Keep a complete evidence file for every tenancy you manage, including rent records, correspondence, inspections and safety certificates.

Make sure you keep your rents in line with market levels by reviewing them every year. You will use the new Section 13 procedure. Remember, you need to do good research to produce evidence of genuine market rates in your location in case you are challenged. 

Keep a reserve of cash for tax payments, emergency repairs, void periods and heaven forbid, legal action. 

Get good professional advice on market rates, ownership structure and tax and succession planning.

A final word

Thirty years on, buy-to-let has matured from a casual sideline to a much more professional occupation, even if you are managing to do it alongside your day job. 

Buy-to-let may be a dirty word to a section of the public, or if you expected easy money. But to the patient investor, it is a generational wealth creator and preserver.

No doubt, the easy money has gone. But the underlying logic has, if anything, strengthened. In an economy where the government’s high debt is likely to be eroded by inflation over time.

The question for families is not whether they can afford to own well-run rental property, but whether they can afford not to. Holding cash savings will erode your wealth over time. 

End note: the Renters’ Rights Act, Section 8 and Section 13, apply to the private rented sector in England. The public finance, inflation, rent and mortgage figures quoted are UK-wide. Wales and Scotland operate separate tenancy regimes, and therefore statistics there are different.