What's driving the cost surge
Residential finance costs totalled £12.82bn in 2024/25, representing 37% of all declared expenses and claimed by 1.15m landlords at an average of £11,148 each. That figure has nearly doubled the £6.41bn repairs and maintenance bill, though repairs remain the most commonly claimed expense category, used by 1.92m landlords at an average of £3,339 per claimant.
The concentration of finance costs reflects both rising interest rates since late 2021 and the growing penalty from Section 24 restrictions, which allow unincorporated landlords only a basic-rate tax credit rather than full expense deduction. Companies retain full mortgage interest relief as a deductible expense, creating a material divergence in post-tax returns for otherwise identical portfolios.
The analysis doesn't break down which other expense categories drove the 56% overall rise. Insurance premiums, compliance costs linked to electrical and gas safety regulations phased in from 2020, and EPC-related works may all contribute, but the data provides no category-level growth rates beyond finance and repairs.
The incorporation calculation
Hello Neighbour's £2,230 annual disadvantage figure assumes a specific mortgage size, interest rate and marginal tax position, none of which were disclosed. The calculation appears to compare the basic-rate tax credit an unincorporated higher-rate taxpayer receives against the full 40% relief a company owner secures through deductible expenses.
The tipping point for incorporation depends on leverage, marginal tax rate, anticipated capital gains on disposal, and administrative overhead. Landlords with substantial mortgage debt and higher-rate tax exposure face the clearest case. Those with lower gearing or properties held in pension wrappers may find the incorporation cost—typically £2,000 to £5,000 per property in stamp duty land tax, legal fees and lost principal private residence relief—hard to justify.
What the data omits
The HMRC figures analysed by Hello Neighbour cover unincorporated landlords only and provide no comparative insight into incorporated landlord expense ratios or profitability over the same period. That limits conclusions about whether pressure is sector-wide or structure-specific. The analysis also makes no adjustment for changes in the landlord base itself—whether the cohort has shifted towards higher-cost or higher-leverage operators as smaller landlords exited.
Phil Shelley, Chair of Hello Neighbour, said: "A sector housing a fifth of the country cannot absorb costs rising at twice the rate of income indefinitely." The "fifth of the country" claim lacks a cited source; the most recent English Private Landlord Survey from 2021 showed 19% of households in the private rented sector, though the proportion varies across UK nations and has likely shifted since.
Hello Neighbour is a proptech lettings platform targeting DIY landlords, giving it a commercial interest in narratives that emphasise cost control and self-management. The data itself is drawn from official HMRC statistics, but the framing and calculations reflect the vendor's position in the market.
Commercial pressure points
Letting agents managing unincorporated portfolios face dual exposure: reduced landlord profitability may depress appetite for maintenance spend that generates referral fees, whilst portfolio exits shrink the recurring revenue base. Incorporation advisers and conveyancers stand to gain from structural transfers, though transaction volumes will depend on whether tax treatment changes or landlords conclude the current penalty is permanent.
Estate agents should watch for instruction patterns that correlate with tax structure. Landlords approaching the higher-rate threshold or holding heavily leveraged portfolios may be most likely to dispose rather than incorporate, particularly if capital values have risen enough to crystallise gains before any future CGT changes.
The expense-to-income ratio widened most sharply in the single year to 2024/25, suggesting momentum rather than plateau. If the trend persists through the next HMRC release—typically published in September—portfolio landlords will face a further decision point ahead of the 2027/28 tax year.