BTL Landlords Are Releasing 60% More Equity for Upgrades, But the Renters' Rights Act Is Eating the Returns

London Landlords Are Spending Big on Upgrades. Are They Getting Their Money Back?

New data from Paragon Bank reveals that buy-to-let landlords released 60% more equity for property improvements in the first quarter of 2026 compared to a year ago. That is a staggering jump, and it tells a clear story: London landlords are being forced to invest serious capital into their properties just to stay compliant and competitive.

But here is the uncomfortable question that very few advisers are asking. If you are pouring tens of thousands of pounds into upgrading a rental property, does it actually make financial sense to put it straight back onto the assured shorthold tenancy market?

For a growing number of London landlords, the answer is no. And the Renters' Rights Act is a big part of the reason why.

Why Landlords Are Spending More Than Ever

The surge in equity release is not driven by ambition. It is driven by necessity. The regulatory landscape for private landlords in England has shifted dramatically. Between the Renters' Rights Act, incoming EPC requirements, and tighter local authority enforcement, landlords face a long and expensive list of upgrades just to remain legally compliant.

We are talking about new boilers, insulation, rewiring, damp remediation, window replacements, kitchen and bathroom refurbishments, and sometimes full reconfiguration of layouts to meet modern standards. For a typical London two-bed flat, that can easily run to £25,000 or more.

The logic behind releasing equity is sound on the surface. Your property has appreciated, so you borrow against that growth to fund the improvements. The problem is what happens next.

The Renters' Rights Act Has Changed the Maths

Under the old system, a landlord who invested heavily in a property could justify a meaningful rent increase. You could market the newly refurbished flat at a higher price, attract stronger tenants, and let the market set the rate through competitive bidding.

The Renters' Rights Act has closed off both of those routes.

First, in-tenancy rent increases are now limited to once per year and must be broadly in line with market rates. In most London boroughs, that means annual increases of around 2 to 3%. If you have just spent £30,000 on a full refurbishment, you are looking at years before that investment pays for itself through incremental rent growth.

Second, the Act's bidding ban prevents landlords from accepting offers above the advertised rent. So even if your property is now significantly better than comparable listings, you cannot let the market reward you for it. You advertise at what you believe the market rate is, and that is your ceiling.

For landlords carrying the additional debt from equity release, these constraints create a genuine squeeze. Your costs have gone up, your borrowing has increased, but your ability to generate higher returns from the same property has been capped by legislation.

The Case for Repositioning Into Serviced Accommodation

This is where the conversation needs to shift. If you have already committed the capital to upgrade your property to a high standard, why would you return it to the lowest yielding segment of the rental market?

Serviced accommodation and corporate lets operate in a completely different pricing environment. A well-presented one-bed flat in zones 1 to 3 that might achieve £1,800 per month on an AST can realistically generate £3,000 to £5,000 per month as a serviced apartment, depending on location, seasonality, and occupancy rates.

The economics are transformative. Instead of waiting a decade to recoup your refurbishment costs through marginal rent increases, you can recover your investment within 12 to 18 months through significantly higher nightly and weekly rates.

How Serviced Accommodation Works in Practice

At its core, serviced accommodation means offering fully furnished, ready to move in properties on a short-term basis. Guests book for anything from a few nights to several months. The property is listed on platforms like Airbnb, Booking.com, and specialist corporate housing sites.

Your property needs to be furnished to hotel standard, with quality linens, a functional kitchen, fast Wi-Fi, and a clean, contemporary design. This is exactly the kind of finish that many landlords are already investing in through their current round of improvements.

The key advantages include:

• Higher gross yields. London serviced accommodation typically generates 30 to 100% more revenue than equivalent AST rentals.
• No rent caps. Your pricing is dynamic and responds to demand, not restricted by the Renters' Rights Act.
• No bidding ban. Guests pay the listed rate, and you can adjust that rate daily based on market conditions.
• Flexibility. You retain the ability to use your property, sell it vacant, or pivot back to long-term letting if your circumstances change.

What Landlords Need to Watch For

Serviced accommodation is not without its complexities, and it is important to go in with your eyes open.

London's 90-day rule limits short-term lets on platforms like Airbnb to 90 nights per calendar year unless you have specific planning permission. However, this restriction does not apply to stays of 90 nights or longer, and corporate lets, relocation stays, and medium-term bookings are not subject to the cap. A smart operator works within these boundaries by blending short stays with longer corporate bookings to maintain year-round occupancy.

You will also need to consider council tax implications, business rates thresholds, insurance, and compliance with fire safety regulations. Guest management, cleaning, key exchange, and maintenance all require consistent attention.

This is where many landlords hesitate, and understandably so. Running a serviced accommodation business is genuinely more involved than collecting rent on an AST once a month.

Why Professional Management Changes Everything

The difference between serviced accommodation as a stressful side project and serviced accommodation as a hands-off income stream comes down to one thing: who is managing it.

At Airhosts, we manage every aspect of the short-term let operation for London landlords. From professional photography and dynamic pricing to guest communication, cleaning, linen management, and 24/7 support, we handle the complexity so you do not have to.

What makes this particularly relevant right now is the timing. If you have already released equity and completed a high-quality refurbishment, your property is essentially ready to perform as serviced accommodation. The hard work and the capital outlay are behind you. The question is simply whether you want a 4 to 5% net yield on an AST, or a significantly stronger return through professionally managed short-term lets.

Our clients across London consistently outperform the traditional rental market. Properties managed by Airhosts benefit from optimised listings across multiple platforms, data-driven pricing that captures peak demand, and operational excellence that keeps occupancy high and reviews strong.

The Bottom Line for London Landlords

The Paragon Bank data confirms what many of us in the industry already knew. London landlords are investing heavily in their properties because they have no choice. But the Renters' Rights Act has made it almost impossible to earn those returns back through the traditional AST market.

If you have spent the money, spent the time, and brought your property up to a high standard, do not settle for capped returns and legislative restrictions. Reposition into serviced accommodation and let the market actually reward your investment.

Airhosts makes the transition simple. We handle the operations, you enjoy the income. Get in touch today for a free property appraisal and find out exactly what your upgraded London property could be earning as a professionally managed short-term let.