BTL Returns Trail Equities in 20 of 25 UK Regions: Why London Landlords Should Switch to Serviced Accommodation

The Numbers Are In, and They're Not Pretty for Traditional Landlords

New analysis published this month by Letting Agent Today has confirmed what many London landlords have quietly suspected: buy-to-let total returns now trail equities in 20 of 25 UK regions. That's a dramatic shift from just a few years ago, when property held its own against the stock market in most parts of the country.

For London landlords specifically, the picture is nuanced. Capital appreciation in prime postcodes still carries weight, but when you factor in rising mortgage costs, tightening regulation, and the erosion of tax relief, the net total return on a traditional BTL is increasingly hard to justify. If your property portfolio is underperforming the S&P 500 or even a simple FTSE tracker fund, there's an uncomfortable question on the table: why are you still holding?

The good news? You don't have to sell. You just need to rethink how your property earns.

What's Driving the BTL Returns Gap?

Several forces are squeezing the traditional landlord model simultaneously:

• Section 24 tax changes mean higher-rate taxpayers can no longer deduct mortgage interest from rental income, pushing effective tax rates up dramatically.
• Regulatory costs continue to climb, from EPC upgrades to licensing fees and the upcoming Renters Reform Act provisions.
• Interest rates, while stabilising, remain well above the near-zero levels that made leveraged BTL so attractive between 2010 and 2021.
• Rental yield compression in London means many landlords in zones 1 to 3 are earning gross yields of just 3 to 4 percent, with net yields often dipping below 2 percent after costs.

Meanwhile, equities have delivered strong total returns through a combination of capital growth and dividends. For a passive investor, putting money into an index fund has simply been more rewarding, with far less hassle.

This doesn't mean property is dead. It means the traditional rental model is struggling to compete. And that's an important distinction.

Serviced Accommodation: A Smarter Way to Earn From the Same Bricks

Serviced accommodation, sometimes called short-term lets or holiday lets, involves renting your property on a nightly or weekly basis to guests rather than locking into a long-term AST. Think Airbnb, Booking.com, and corporate travel platforms.

In London, the model works exceptionally well for the right properties. Here's why.

Higher Revenue Per Night

A one-bedroom flat in zones 1 to 3 might generate £1,500 to £1,800 per month on a long-term tenancy. The same flat, professionally managed as a short-term let, can generate £3,000 to £5,000 per month depending on location, seasonality, and guest demand. Even accounting for void periods and running costs, the net income is often double what traditional BTL delivers.

Favourable Tax Treatment

Furnished Holiday Lets (FHL) have historically enjoyed capital allowances and other benefits. While HMRC has tightened some of these advantages recently, short-term lets still offer legitimate deductions for furnishings, professional management fees, cleaning, and consumables that significantly reduce your taxable profit. Speak to your accountant about the current position, because the savings can be substantial.

Flexibility and Control

With a long-term tenant, your property is tied up for 12 months or more. With serviced accommodation, you retain the ability to use the property yourself, adjust pricing in real time, and pivot your strategy if the market shifts. That flexibility has real value in uncertain times.

What London Landlords Need to Know Before Making the Switch

Serviced accommodation isn't a magic wand. There are genuine considerations and potential pitfalls to navigate.

The 90-Day Rule

In most London boroughs, you're limited to 90 nights of short-term letting per calendar year unless you obtain planning permission for a change of use. This is a hard legal limit, and breaching it can result in enforcement action. Some landlords apply for planning consent to operate year-round, and many succeed, particularly in areas with strong tourism demand. Others use a hybrid model, combining short-term lets for peak periods with medium-term corporate lets to fill the rest of the calendar. A good management partner will help you structure this correctly.

Setup and Furnishing Costs

Your property needs to be guest-ready, which means quality furniture, professional photography, hotel-standard linens, and a well-stocked kitchen. The upfront investment typically runs between £3,000 and £10,000 depending on the size and current condition of the property, but it pays for itself quickly when nightly rates are two to three times higher than monthly rent.

Operational Complexity

This is where many landlords stumble. Running a successful short-term let requires dynamic pricing, multi-platform listing management, guest communication, professional cleaning between stays, maintenance coordination, and review management. Done well, it's a hospitality business. Done poorly, it leads to bad reviews, vacant nights, and frustration.

This is exactly why companies like Airhosts exist. The operational complexity that makes DIY short-term letting stressful is precisely what a professional management company handles end to end.

Why Professional Management Changes the Equation Entirely

Let's be honest. Most London landlords didn't get into property to become hotel operators. The appeal of BTL was always the relative passivity: find a tenant, collect rent, let the asset appreciate. Serviced accommodation offers significantly better returns, but only if the operations run smoothly.

When you partner with a specialist like Airhosts, the complexity disappears. You get the upside of short-term letting, including higher yields, property flexibility, and better total returns, without the day-to-day burden. Airhosts handles everything from listing optimisation and dynamic pricing to guest vetting, professional housekeeping, and 24/7 support. Your property earns more, and you do less.

For landlords watching their BTL returns fall further behind equities, this is the most direct route to closing that gap without liquidating your property assets.

The Bottom Line for London Landlords

The data is clear. Traditional buy-to-let is losing the returns race in most of the UK, and London's high property values make the yield compression even more painful. But the solution isn't necessarily to sell. It's to operate smarter.

Serviced accommodation lets you unlock significantly higher income from the property you already own. And with a professional management partner handling the heavy lifting, you get to enjoy those returns without turning your investment into a second job.

If your London property is underperforming and you're ready to see what it could really earn, get in touch with Airhosts today. We'll give you an honest, no-obligation income projection for your property and show you exactly how the switch works. Because in 2026, settling for below-market returns isn't a strategy. It's a choice you don't have to make.