Mortgage interest tax relief for individual landlords has changed permanently and the effects are still rippling through the UK housing market. Since April 2020, individual buy-to-let landlords have no longer been able to deduct mortgage interest from rental income before tax. Instead, they receive a basic rate tax credit, a shift that affects cash flow, affordability and long-term planning.
This article explains how mortgage interest tax relief works today, why it matters more in a higher-rate environment, and how the rules differ for individual buy-to-let landlords and residential homeowners. The focus is primarily on individual buy-to-let landlords, with context for homeowners where relevant, so you can understand the wider mortgage landscape.
What Changed Under Section 24
Mortgage interest tax relief used to be straightforward. Individual buy-to-let landlords could deduct all mortgage interest from rental income, meaning tax was paid only on the true profit.
Section 24, first announced in the March 2015 budget and fully implemented by April 2020, removed this deduction for individual landlords. Instead, landlords now receive a tax credit equal to 20% of their mortgage interest costs, regardless of their income tax band [1].
In practical terms, rental income is now taxed before mortgage interest is taken into account. The tax credit is applied after the tax bill is calculated, reducing it by 20% of interest paid.
This change does not apply to:
• Limited companies owning residential property
• Commercial property
• Owner-occupied homes
For individual landlords, however, Section 24 has fundamentally changed how buy-to-let profitability is measured.
Why the Change Matters More in a High-Rate Market
The impact of Section 24 was muted when mortgage rates were very low. As rates have risen, its effect has become more pronounced.
By Q2 2025, the average interest rate on new buy-to-let mortgages was around 5.0% [2]. At the same time, average gross rental yields across the UK were roughly 7.3% [3]. While yields remain higher than borrowing costs, the margin has narrowed compared with the ultra-low-rate period.
Lenders also apply Interest Coverage Ratio (ICR) tests when assessing buy-to-let affordability. The coverage requirement and stressed rate vary by lender, but the aim is to check that rental income can cover mortgage interest even if rates rise [4]. Higher rates mean landlords often need larger deposits and higher rents to meet these tests.
The overall result is a double pressure on individual buy-to-let landlords:
• Higher mortgage interest costs
• Section 24 limits on tax relief on those costs
This combination has forced many landlords to re-evaluate pricing, borrowing levels and ownership structures.
Beyond headline tax bills, Section 24 can also affect landlords indirectly by pushing taxable income higher on paper, even when real cash flow has not increased. This can have knock-on effects, such as reducing eligibility for Child Benefit, triggering the High Income Child Benefit Charge, or pushing landlords into higher tax bands that affect personal allowances. It may also influence borrowing decisions. For some landlords, these secondary impacts matter as much as the tax change itself and are an important part of realistic long-term planning.
Worked Example: Section 24 In Practice
Consider a landlord earning £12,000 in annual rent and paying £7,500 in mortgage interest.
Under the old rules:
• Taxable profit would have been £4,500 (assuming for simplicity for purely illustrative purposes that no other tax-deductible expenses were incurred)
• A taxpayer would pay tax on £4,500
Under Section 24:
• Tax is calculated on the full £12,000
• A tax credit of £1,500 (20% of £7,500) is applied
This results in a significantly higher tax bill, especially for higher-rate tax payers, even though cash flow has not changed.
Buy-To-Let Market Context and Lending Conditions
Despite tax changes and higher rates, buy-to-let lending has shown signs of recovery. In Q4 2024, there were approximately 52,648 new buy-to-let loans worth £9.6 billion [5]. In Q2 2025, lending remained robust at around 49,590 loans totalling £8.8 billion [6].
Rental demand has supported this recovery. Average rents have risen faster than general inflation in many regions, helping landlords meet affordability tests and offset some of the tax impact.
Mortgage arrears remain low by historical standards. Mortgages in arrears accounted for 0.54% of all buy-to-let mortgages outstanding in Q3 2025, compared with 0.97% of all homeowner mortgages outstanding [7]. This suggests that, overall, landlords are still coping with higher costs.
However, the profile of viable individual buy-to-let investments has shifted:
• Larger deposits are now the norm: typically, 25% or more
• Profit margins are tighter, especially for higher-rate taxpayers
• Cash flow matters more than headline yields
The Residential Homeowner Comparison
Mortgage interest tax relief for owner-occupiers has not changed. Homeowners do not pay tax on the rental value of their property, so mortgage interest is not a deductible expense in the same way.
What has changed for homeowners is affordability. FCA guidance limits very high loan to income lending so that lenders do not extend more than 15% of new residential mortgages at loan to income ratios at or greater than 4.5 times income. Combined with higher house prices, this has pushed required deposits higher.
In 2024, the average first-time buyer deposit was £61,090, around 20% of the purchase price. In higher-priced regions, particularly London, deposits can exceed two-and-a-half times annual household income.
While homeowners are not affected by Section 24, they face parallel pressures:
• Higher interest rates
• Stricter affordability tests
• Longer mortgage terms to be able to manage monthly payments
Ownership Structure and Planning Considerations
Section 24 applies only to individual landlords. Limited companies can still deduct mortgage interest as a business expense before calculating corporation tax.
This has led some landlords to consider incorporation. While this can restore full interest deductibility, it introduces other factors:
• Higher mortgage rates and fees for company buy-to-let loans
• Stamp Duty and Capital Gains Tax considerations if transferring existing properties
There is no universal solution. What matters is understanding how the current rules affect net income, not just headline returns.
Many landlords now do detailed modelling to test different scenarios before purchasing or refinancing. Stress-testing for higher rates and void periods has become standard practice.
FAQs
Q. Who does Section 24 apply to?
A. Section 24 applies to individual landlords who own residential buy-to-let property in their personal name. It does not apply to limited companies, commercial property or owner-occupied homes [1].
Q. Can landlords still deduct any mortgage interest?
A. Individual landlords cannot deduct mortgage interest from rental income. Instead, they receive a tax credit equal to 20% of the interest paid, which is applied after tax is calculated [1].
Q. How do lenders assess affordability for buy-to-let mortgages now?
A. Lenders use Interest Coverage Ratio tests. The required coverage and stressed rate can vary by lender [4].
Q. Are buy-to-let landlords more likely to fall into arrears?
A. Not necessarily. Mortgages in arrears accounted for 0.54% of all buy-to-let mortgages outstanding in Q3 2025, compared with 0.97% of all homeowner mortgages outstanding [7].
Q. Should landlords consider using a limited company?
A. A limited company can deduct mortgage interest in full, but this comes with different mortgage terms and administrative burdens. The decision depends on individual circumstances and plans.
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