London Buy-to-Let vs Short-Term Let 2026: Which Pays More?
- UpperKey
- May 14
- 7 min read
If you're wondering is buy to let still worth it in 2026, the numbers suggest it might be. The average gross yield in the UK stands at 7.2%, up from 7% in 2025 and well above the pre-pandemic level of 5.8%. UK rents are up 36% since 2020, and this makes buy to let property an attractive option for many investors. But buying a holiday let presents an interesting alternative. The average turnover for a UK holiday let was £24,500 in 2023, higher than the typical buy-to-let income of around £8,256. So is buy-to-let a good investment, or should you think about short-term rentals instead? We'll break down the income potential and costs, along with tax implications, to help you determine is property still a good investment for your situation.
Table of Contents
Income Potential: Buy-to-Let vs Short-Term Rentals in London
Average Monthly Returns from Long-Term Tenancies
Buy to let property in London generates monthly rents around £2,837 on average. Rental yields range from 5-6% across most areas, though this varies by location. East Ham delivers yields above 6% with monthly rents exceeding £2,000. Stratford offers 5.8% yields with average rents of £2,236 monthly. Tottenham and Abbey Wood match this at 5.8% with monthly rents of £2,212 and £1,926 respectively.
The stability appeals to many investors. You receive consistent monthly payments without worrying about frequent vacancies. Annual tax planning and budgeting become straightforward. Void periods occur nowhere near as frequently as in short-term markets.
Short-Term Let Revenue: Daily Rates and Occupancy
Short-term rentals command average daily rates of £200.13 in London. Occupancy sits at 43.2%, translating to roughly 270 nights booked annually. This generates average annual revenue of £22,314.
Properties in prime locations near landmarks command premium rates. Short-term rentals bring 30% more in returns compared to long-term tenancies. Top-performing properties achieve monthly revenues of £6,288 or higher, while median properties generate around £1,797 monthly.
Annual Income Comparison: £18,000 vs £28,000
A standard buy to let property earning £2,000 monthly produces approximately £24,000 annually before costs. Short-term lets at median performance levels deliver around £21,564 yearly, while well-managed properties surpass £28,000 annually.
Seasonal Fluctuations in Short-Term Bookings
July marks the peak revenue month for short-term rentals. Monthly earnings climb to £3,879 and occupancy reaches 54.9%. February presents the lowest earnings period. Slow months see revenue drop to £1,911 with occupancy falling to 34%. This variability makes is buy-to let a good investment for those preferring predictable income over potentially higher but fluctuating returns.
Running Costs and Expenses Breakdown
Operational costs separate profitable ventures from financial drains. Management fees represent your largest ongoing expense, and the difference between rental types proves substantial.
Property Management Fees: 8-10% vs 15-20%
Buy to let property management costs 8-15% of monthly rent plus VAT for full service. Short-term rental companies charge 15-25% of booking revenue. A property that generates £2,000 monthly through long-term tenancy will cost you £160-£300 in management fees. The same property earning £2,000 in short-term bookings incurs £300-£500 in management costs.
Utilities, Council Tax, and Service Charges
Long-term tenancies pass utility costs to tenants. Short-term lets require you to cover all heating and utility bills, as guest rates include these. Properties available for short-term letting 140+ days yearly and let 70+ days qualify for business rates instead of council tax. Small Business Rate Relief may reduce this to zero, depending on rateable value. Leasehold properties face additional service charges for communal areas and building insurance.
Cleaning and Maintenance: Frequency and Costs
A holiday let means cleaning after every guest departure. Expect £50-150 per turnover, which comes to about £7,400 annually for active properties. Buy to let maintenance averages up to £1,000 yearly for recurring safety testing and minor repairs. Budget 1% of property value annually for repairs. Landlords must invest up to £10,000 to reach EPC rating C by October 2030.
Mortgage Interest and Financing Expenses
Buy-to-let mortgage rates climbed substantially in 2026. Two-year fixed rates reached 5.40%, the highest in a year. Five-year rates hit 5.91%, the highest in two years. Borrowing costs rose £1,100 annually on a £250,000 loan with a 25-year term.
Insurance Requirements for Each Rental Type
Standard homeowner's insurance doesn't cover paying guests. Short-term lets require specialist insurance that addresses frequent occupancy turnover. Buy to let properties need landlord-specific building and contents insurance.
London-Specific Regulations and Compliance
Regulatory frameworks shape profitability for both rental models. The rules governing short-term lets prove more restrictive than traditional buy to let property requirements.
90-Night Rule for Short-Term Lets in Greater London
The Deregulation Act 2015 permits short-term letting for up to 90 nights annually without planning permission. This applies to properties where you remain liable for council tax. If you exceed this threshold, it represents a material change of use and requires formal planning approval. Westminster City Council investigated 2,712 properties for illegal short-term letting as of March 2026. Enforcement notices can result in fines up to £20,000.
Planning Permission Requirements
If you let beyond 90 nights, you need planning permission from your local council. Councils refuse applications due to housing supply concerns. Tower Hamlets and other boroughs enforce violations through their planning departments.
Buy to Let Property Licensing Schemes
60% of London boroughs implemented selective licensing schemes as of November 2025. Licensing requirements vary by borough. Some extend borough-wide while others target specific streets. If you operate without required licenses, you face civil penalties and potential rent repayment orders.
EPC Rating Standards for Rental Properties
Both rental types require minimum EPC rating E. You cannot let properties rated F or G. Proposed regulations will mandate rating C by 2030 for all privately rented properties.
Tax Treatment and Profitability Analysis
Tax implications ended up determining whether buy to let property or short-term rentals deliver superior returns. Recent legislative changes altered the map.
Income Tax on Rental Earnings
Holiday let profits face taxation at standard income tax rates of 20%, 40%, or 45%. The furnished holiday lettings regime ended in April 2025. Mortgage interest restriction now applies universally and limits relief to a 20% tax reducer if you have additional properties rather than full deductions.
Stamp Duty: 5% Surcharge on Additional Properties
Additional properties incur a 5% surcharge above standard rates from October 2024. Properties up to £125,000 face 5% rates from April 2025, while those between £125,001-£250,000 attract 7%. A £300,000 property generates £20,000 in total SDLT.
Capital Gains Tax When Selling
Basic rate taxpayers pay 18% CGT on rental property gains. Higher rate payers face 24%. The annual allowance stands at £3,000. You can deduct stamp duty, legal fees and improvement costs. Payment and reporting must occur within 60 days of completion.
Furnished Holiday Lettings Tax Benefits
Former FHL advantages disappeared from April 2025. Previous benefits included capital allowances and CGT reliefs, but these no longer apply.
Net Profit Calculation: Which Actually Pays More
Short-term lets outperform traditional tenancies. A studio generates £13,300 net annually through long-term letting versus £24,750 via short-term arrangements, representing an 86% increase. One-bedroom properties deliver £17,200 versus £30,400 respectively, a 77% gain.
Comparison Table: London Buy-to-Let vs Short-Term Let 2026
Attribute | Buy-to-Let (Long-Term) | Short-Term Let (Holiday) |
Income Potential | ||
Average Monthly Rent/Revenue | £2,837 (London average) | £1,797 (median) to £6,288+ (top performers) |
Average Annual Income | £24,000 (£2,000/month property) | £21,564 (median) to £28,000+ (well-managed) |
Daily Rate | N/A | £200.13 |
Occupancy Rate | Consistent occupancy with few vacant periods | 43.2% (approx. 270 nights annually) |
Rental Yield | 5-6% (common London range) | 30% more returns vs long-term |
Income Stability | Consistent monthly payments | Seasonal fluctuations (£1,911-£3,879/month) |
Operating Costs | ||
Management Fees | 8-15% of monthly rent plus VAT | 15-25% of booking revenue |
Management Fee (£2,000/month property) | £160-£300 | £300-£500 |
Utilities & Council Tax | Tenants cover utilities | Landlords cover all utilities; Business rates if let 70+ days (might qualify for relief) |
Cleaning Costs | Low | £50-150 per turnover (~£7,400 annually) |
Annual Maintenance | Up to £1,000 (safety testing, minor repairs) | Up to £1,000 plus 1% of property value |
EPC Upgrade Costs (by 2030) | Up to £10,000 to reach rating C | Up to £10,000 to reach rating C |
Financing | ||
2-Year Fixed Mortgage Rate | 5.40% | 5.40% |
5-Year Fixed Mortgage Rate | 5.91% | 5.91% |
Annual Cost Increase (£250k loan) | £1,100 | £1,100 |
Insurance | ||
Insurance Type Required | Landlord building & contents insurance | Specialist short-term let insurance |
Regulations | ||
Night Limit Without Planning Permission | No limit | 90 nights per year (Greater London) |
Planning Permission | None needed | Needed if exceeding 90 nights |
Licensing Requirements | 60% of London boroughs have selective licensing | Same as buy-to-let with added planning restrictions |
Penalty for Non-Compliance | Civil penalties, rent repayment orders | Fines up to £20,000 |
EPC Minimum Rating | Rating E (C by 2030) | Rating E (C by 2030) |
Tax Treatment | ||
Income Tax Rate | 20%, 40%, or 45% | 20%, 40%, or 45% |
Mortgage Interest Relief | 20% tax reducer only | 20% tax reducer only |
Stamp Duty Surcharge | 5% surcharge on additional properties | 5% surcharge on additional properties |
Stamp Duty (£300k property) | £20,000 total | £20,000 total |
Capital Gains Tax | 18% (basic rate) / 24% (higher rate) | 18% (basic rate) / 24% (higher rate) |
CGT Annual Allowance | £3,000 | £3,000 |
Furnished Holiday Lettings Benefits | N/A | Ended April 2025 (no longer available) |
Net Profit Comparison | ||
Studio Net Annual Profit | £13,300 | £24,750 (86% increase) |
One-Bedroom Net Annual Profit | £17,200 | £30,400 (77% increase) |
Key Takeaways
Understanding the financial and regulatory landscape between buy-to-let and short-term rentals in London reveals significant differences that could impact your investment strategy and returns.
• Short-term lets generate 77-86% higher net profits than buy-to-let properties, with studios earning £24,750 vs £13,300 annually
• London's 90-night rule severely limits short-term rentals without planning permission, which councils rarely approve
• Management costs are substantially higher for short-term lets (15-25%) compared to buy-to-let properties (8-15%)
• Buy-to-let offers consistent monthly income while short-term rentals fluctuate seasonally from £1,911 to £3,879 monthly
• Both rental types face identical tax treatment and mortgage rates, with 5% stamp duty surcharge on additional properties
While short-term rentals offer superior financial returns, the regulatory restrictions and operational complexity make buy-to-let more suitable for investors prioritizing stability and passive income over maximum profit potential.
FAQs
Is buy-to-let still worthwhile in 2026?
Yes — average gross yields hit 7.2%, rents up 36% since 2020. Factor in higher mortgage rates (5.40%) before committing.
Are London property prices more affordable in 2026?
Yes — prices are 5% below their 2022 peak and wage growth has outpaced them. Better entry points than in recent years.
Should landlords expect a mass sell-off in 2026?
No — more of a steady reshuffle. Some motivated sellers, but no widespread exit from buy-to-let.
Can London buy-to-let generate good profits?
Yes — yields of 5–6%, average rent £2,837/month. Profitability depends on location, management fees (8–15%), and compliance costs.
How do short-term rentals compare to buy-to-let in London?
Short-term lets earn 77–86% more — £24,750 vs £13,300 annually for a studio. But London's 90-night limit and active management make it more demanding.
