Demand for rental properties is 60% higher is than pre-pandemic levels, despite a 16% decline last year, and mortgage rates are now stabilising. 

According to the most recent report from UK Finance, in Q1 2025, there were 58,347 new buy-to-let loans advanced in the UK, worth £10.5 billion. This was up 38.6% by number (46.8% by value) compared with the same quarter in the previous year.  

As rental demand remains strong in areas where residents are unable to afford to buy a home, specialist mortgage lenders at Pepper Money have analysed where in the UK is the hotspot for BTL mortgages.

Using ONS data, it analysed 25 of the most populous cities across the UK to reveal which areas offered the best option to take out a buy-to-let mortgage.  

The analysis explored average property prices in local areas compared to rental costs, revealing whether mortgage repayments would outweigh the potential returns in rental income for landlords. 

However, landlords must also consider additional expenses such as maintenance and insurance, which could reduce their overall profits. 

Eight out of the 25 cities analysed were found to generate profits for landlords within the first year. The city of Glasgow could return the biggest ROI, the study suggested, at £3,600. The average annual rent in the city was over £14,700, while mortgage repayments totalled just over £11,100, resulting in a profit of over £3,000 in this popular Scottish city. 

Belfast also proved favourable for landlords seeking a strong investment return. The largest city in Northern Ireland ranked second for potential first-year profits, with £2,856. Belfast had the fourth-lowest average property prices in the study, meaning mortgage costs were more affordable, leading to the city’s profitability. 

Another Scottish city rounded off the top three. Aberdeen could earn landlords around £1,632 in their first year of investment. This well-known university city had the third-lowest average property prices. Annual rental income was just over £10,000, while mortgage repayments were around £8,400.  

The remaining 17 cities analysed were found to result in a loss for landlords during the first year of investment. 

Losses ranged from Hull, where landlords would be down £108, to London, which could set landlords back a staggering £14,000 in the first year. However, as rental prices continue to rise while fixed mortgage rates remain unchanged, these cities are likely to become profitable before a typical five-year fixed mortgage term would end. 

Having analysed the cities where landlords could break even within the first year, Pepper also examined which locations would generate the highest returns over a five-year period, assuming a fixed-rate mortgage and average annual rent increases took place. 

While initially, only eight out of 25 cities would yield a profit in the first year, the five-year projection showed that 19 cities would offer landlords a return on their investment. The average profit across all 25 cities was just over £4,000. 

However, cities such as London, Cardiff, Sheffield, Swansea, Milton Keynes, and York remained unprofitable due to high mortgage costs in relation to rental income. 

In some areas where property prices were lower, the overall investment was still not worthwhile once ongoing mortgage costs were factored in. 

Glasgow and Belfast retained their top rankings for both total rental income and ROI, with Glasgow generating over £29,900 in rent over five years and Belfast close to £25,000. 

Meanwhile, Portsmouth and Manchester overtook Aberdeen in the rankings due to higher rental costs. Portsmouth was placed third, generating over £91,000 in rent and delivering an ROI of £18,971 over the five-year period. 

A study by Pegasus Insights in Q2 on landlord trends revealed that only 8% made a purchase last year. Many landlords remain cautious about the potential impact of the Renters Rights Bill with changes to insurance and capital gains tax. 

As a result, some reports suggest that the current climate may not favour landlords. 

Second-home mortgages often require a larger deposit and may need to be arranged through specialist mortgage lenders. There will also be an increase in Stamp Duty Land Tax (SDLT), typically applied to the purchase of a second property. 

There are also other costs to consider when purchasing a property or maintaining one. Initial letting agent fees, including charges to find suitable tenants, could apply. Repair costs can also significantly reduce rental profits. 

It’s often recommended to budget around 1% per year of the property’s value for maintenance. For example, a property valued at £300,000 could need £3,000 in annual repair costs, leaving only landlords in Glasgow just breaking even in the first year, when looking at the study.