Growing numbers of people are looking at buy to let properties to provide them with both an income and the potential for capital growth, at a time when other savings options aren’t so appealing.

While interest rates have been rising, it’s still impossible to find inflation-beating returns from deposit accounts, and many people like the idea of owning a tangible asset rather than putting their money into other types of investment, such as stocks and shares. According to comparison site Uswitch, there were 211,000 buy to let property purchases made in 2022 and it’s expected that these numbers will continue to rise to 250,000 annual buy to let purchases by 2032.

If you’ve never considered buy to let property before, however, it can feel a little daunting. We are all told that buying a property is one of the biggest financial commitments you will make in your lifetime, so buying somewhere to then put in the hands of someone else can feel especially nerve-wracking.

Here we answer the biggest questions first-time buy to let buyers might have, and explore some of the pros and cons of becoming a landlord.

Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.

What should I consider when purchasing a BTL property?

One of the main things you will want to consider when purchasing a BTL property is whether it will earn you a consistent rental income, maintain its value and won’t cost you a fortune in maintenance. However, finding a property that ticks all these boxes isn’t always straightforward.

A good starting point is to consider what sort of tenants you’re hoping to attract, as this can help narrow down the range of properties you look at.

For example, if you’re keen to let your property to a couple of young professionals, they might be after a property with good transport links, plenty of functional space for working from home, local cafes, restaurants and pubs and supermarkets within walking distance. On the other hand, a family of four may want a property in the catchment area for good schools, with a big kitchen, outside space and lots of storage.

Thinking about this may guide you towards certain properties. If you are considering a buy to let property, it could be worth contacting a local letting agency as they will have a wealth of information about your local rental market and any trends that they have picked up on.

How do you know how much rent to charge on your buy to let property?

The last thing you want to do is to buy a property and find out that you’ve short-changed yourself when it doesn’t provide you with the level of income you were hoping for. When you are looking at properties, it’s really important to check how much rent you will be able to charge.

There are a number of calculators online that can help you work out what you might be able to charge for your property, including those from Open Rent or L&C Mortgages.

You should also calculate the rental yield you might be able to make. The rental yield is a percentage that shows you how much of a return you are making on your investment. You can work this out by multiplying your expected rental income by 12 and then dividing that number by the property’s value. The average rental yield in the UK is 3.63%, according to SevenCapital, and anything over this is considered a high yield. So, if for example, you bought a property for £300,000 and were able to get £1,300 in rent each month, your rental yield would be 5.2%.

How do buy to let mortgages work?

While there are some similarities between a mortgage you might have for your own home and a buy to let mortgage, there are also some significant differences. These include: 

How affordability is assessed and how much can you borrow

Rather than looking at your income and outgoings to see how much you can borrow, buy to let mortgage providers will want to know how much rental income the property is likely to generate as well as other forms of income. Lenders typically look for rental income to be equivalent to at least 125% of your mortgage payments, or sometimes more than this.

If you’d like to see how much you might be able to borrow for a buy to let property, simply enter your expected rental income in our buy to let mortgage calculator to get an estimate.

The criteria for a buy to let mortgage

You may be able to apply for a residential mortgage with just a 5% or 10% deposit but if you want to take out a buy to let mortgage, you’ll usually need a deposit equivalent to at least 20% or 25% of the property value.

How the mortgage is repaid

Unlike standard residential mortgages, most buy to let mortgages are usually arranged on an interest-only basis, which means you only pay back part of the interest you owe each month and none of the capital. At the end of the mortgage term, the property must either be remortgaged again, sold so the capital can be repaid, or you’ll need to have built up enough savings to clear your mortgage.

Buy to let mortgage rates are often higher

Buy to let mortgage rates are usually slightly higher than standard residential mortgage rates. This is because lenders consider this type of mortgage a higher risk than a standard residential mortgage as you might not always be able to find tenants or your tenants could fail to pay their rent on time. The specific rates you’ll be eligible for will depend on the size of the deposit you’ve got to put down. As a general rule, the bigger the deposit, the better the buy to let mortgage rates you’ll have access to.

Arrangement fees for buy to let mortgages also tend to be higher than on residential mortgages

They are often expressed as a percentage of the mortgage value rather than a flat fee. When choosing a mortgage, make sure you factor arrangement fees into your sums rather than focusing purely on the headline mortgage rate alone, as they can substantially bump up the overall cost. For example, if you wanted to take out a £150,000 buy to let mortgage with a 1.5% arrangement fee, the fee would set you back £2,250.

Bear in mind as well that your buying costs will be higher when you purchase a buy to let property, there are usually additional taxes that you’ll need to pay on top of the standard rates, which range from 3% and 6% depending on where you live in the UK and what type of property you’re buying. Find out more in our guide Stamp Duty explained.

How do you work out which buy to let mortgage is right for you?

Much like a residential mortgage, the right buy to let mortgage will vary from person to person and will depend on your individual situation.

It’s worth thinking about what your aims are with your investment property. If your aim is to generate a steady income, but you aren’t too worried about capital growth then an interest-only mortgage could be an attractive option. If you want to pay down your mortgage over time and your rental income will cover higher monthly payments, then a repayment mortgage could be a better option for you.

Whatever option you choose, make sure that you do your own research and are fully comfortable with all of the features of the mortgage product before agreeing to anything.

Our free mortgage comparison service allows you to compare buy to let deals from the whole of the market.

What are the options for managing your buy to let property?

The two main options you have as a landlord are to either manage your property yourself or to use a managing or lettings agent. Each has its own advantages and disadvantages, as well as different costs.

Using a managing agent

Most managing agents will offer two tiers of services – a let-only service, where the agent will find a tenant, organise contracts and move the tenant in before handing the reins back to the landlord, or a fully managed service where the landlord passes all responsibilities over to the agent.

The main advantages of these options is reduced involvement, so you don’t have to deal with the day to day nitty gritty of being a landlord. However, you have less control over who your tenants are, and the cost is obviously higher than managing it yourself.

If you want to use a managing agent, then it’s worthwhile making sure that they belong to a professional trade body or association such as Safeagent or Propertymark.

Managing the property yourself

The cheaper option is to manage the property yourself. This option is a lot more hands on and you will need to manage all elements of the property, including advertising the property, finding tenants and managing them throughout their tenancy.

The major advantages of this option are having greater control over who your tenants are and the cost is far lower than using a managing agent. Of course, the time requirements of managing the property yourself are considerable and it is a big responsibility, particularly if your property needs consistent maintenance.

How do you manage the tenant deposit process?

As the landlord, you are legally required to place your tenant’s deposit in one of the three government-approved tenancy deposit protection schemes. Each of the deposit protection schemes work in slightly different ways, and include: 

  • Deposit Protection Service – all landlords are able to use this service to hold a deposit in a bank account, with no charges applied to the tenant or the landlord for using it. At the end of the tenancy, the money is returned to the tenant.

  • MyDeposits – this scheme works slightly differently to the above, working as an insurance-based scheme. The landlord or agent holds the tenant’s deposit, and pays fees towards an insurance scheme that will pay out if there is a wrongful failure to repay the deposit, which essentially means that the tenant doesn’t have to pay if their deposit is wrongfully withheld. Not every landlord will be eligible for this service, however, as it requires you to be part of a trade body to access certain services.

  • Tenancy Deposit Scheme – this is another insurance-based scheme that works in the same way as MyDeposits.

If you don’t use one of these schemes to protect your tenant’s deposit then you could lose some of your rights as a landlord.

What sort of maintenance costs can you expect?

Most UK landlords spend an average of £765 a year on maintenance costs according to Platinum Property Partners, but this number can easily start climbing. The exact figure you will need to pay is hard to pinpoint and a number of factors are likely to affect your costs, including the age of your property, its condition and how well your tenants look after it.

While generally, the day-to-day maintenance responsibilities sit with your tenants (for example, changing lightbulbs, cleaning, mowing lawns etc), there are some minimum maintenance activities that you will need to carry out. It is your responsibility to ensure that the property is safe for tenants and that it is kept in generally good repair. You must therefore:

  • Carry out checks every 12 months on electrical, gas and fire safety systems and ensure any maintenance that might be required is completed as soon as possible. Any electrical equipment you’ve provided in the property must be safely installed, signed off and maintained by a professional – the frequency of these checks will depend on the items and the level of usage, but should be visually inspected on a regular basis.
  • Fit and test smoke and carbon monoxide alarms. You must also make sure you abide by any fire safety regulations for the building type.
  • Maintain the structure and exterior of the building, including all elements such as windows, doors, the roof, driveway and so on.
  • Make sure the common areas are kept in a good state of repair.
  • Fix any plumbing issues, including any problems with sinks, baths, showers, pipes or drains.
  • Regularly check any ventilation systems are in good working order.
  • Keep chimneys in a good state of repair.
  • Ensure the heating, including hot water, the boiler, and gas pipes are all kept in good working order.
  • Provide an Energy Performance Certificate for the property. These last for 10 years and will need to be provided each time you rent out your property to a new tenant.
  • Protect your tenant’s deposit in a government-approved scheme (see above).
  • Check your tenant has the right to rent your property if it’s in England – you need to do this check for the named tenants and for anyone aged 18 and over living in the property, even if they aren’t named on the lease agreement. See for more information on this.
  • Give your tenant a copy of the government’s How to rent checklist when they start renting from you.
  • Pay the right taxes on any income you make from your rental property – It’s more than likely that you will need to pay income tax and possibly National Insurance for the income you get from your property. See the section below for more detail on this.

Furnished or unfurnished?

Whether you let your property furnished or unfurnished is entirely up to you, but it’s important to remember that if you opt for furnished, you will need to ensure that certain items are fire-resistant, and conform to 1988 fire regulations.

These items include any upholstered items, such as sofas, chairs, or beds as well as children’s or nursery furniture. You need to make sure that all items you provide meet the right standard and have their fire-resistant labels still attached. Of course, over time labels may fall off or become damaged, and if this is the case, you may need to either replace the furniture or get it retested.

Do I need to think about insurance?

Yes, if you have a mortgage on a property, you are legally obliged to have buildings insurance on your buy to let property, and, even if you are lucky enough to not have a mortgage, it’s still a good idea to consider it. Buildings insurance covers the physical structure of your property and is designed to pay out enough for repairs or to rebuild your property if it’s damaged or destroyed. Policies will usually include things like outhouses such as garages and sheds, as well as fences, pipes, cables and drains up to a certain limit, but always check the small print carefully before buying.

In addition to buildings insurance you may also want to consider the following insurances:

  • Contents insurance – particularly if you are providing a furnished property, it’s worth considering contents insurance. Even if you are providing an unfurnished property, contents insurance still usually covers things like curtains, carpets, white goods etc, so it’s worthwhile considering anyway.
  • Landlords insurance – this is a specialist type of insurance that provides cover for things like, loss of rent, contents, property damage and claims made against you if someone is injured. It might also cover things like rent guarantee for any unpaid rent, home emergency cover for things like boiler breakdowns and key care insurance for if your tenant’s keys are lost, stolen or broken.

Find our more about how home insurance works in our article Your essential guide to home insurance.

What are void periods and do I need to worry about them?

Void periods are the times when you do not have any tenants in your property. They are something that most landlords will experience at some point, but prolonged void periods can be a real worry as you won’t have any rental income coming in to cover your mortgage costs or other outgoings.

Although there’s no way to guarantee you won’t have a void period, you can help reduce the chances of this happening by fostering good relationships with your tenants, keeping rent at the right levels, and maintaining your property to high standards. On top of these points, some types of landlord insurance will cover your property if it isn’t occupied, so it’s worth considering this if a month or two of lost rental income could cause you financial issues.

Get expert buy-to-let advice

If you’d like to discuss your options with a buy-to-let expert, why not speak to an independent mortgage broker with Unbiased? Every adviser you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice. Your first consultation is free.

Get expert advice

What are the tax implications of owning a buy to let property?

Rental income is taxed in the same way as any other income, so the amount you’ll pay will depend on the level of rental income you receive (after deductible costs, such as maintenance and repair costs, letting agent fees, council tax and landlords’ insurance) and how much other income you bring from your work or other sources.

Depending on which tax band your combined income falls into, you’ll either pay no tax, or you’ll be a basic, higher or additional rate taxpayer and must pay income tax at 20%, 40% or 45% respectively. The first £1,000 of your rental income is known as your property allowance and this is tax-free.

If you make more than £6,725 a year in profit from your property, then you will be considered to be running a business and will need to pay Class 2 National Insurance.

Certain expenses are deductible from the tax you pay if they are incurred solely for the purposes of renting and maintaining the property. These include the cost of insurance policies, repairs, and cleaning.

It’s also worth noting that if you sell the property and make a profit that exceeds your current annual allowance, you will have to pay capital gains tax (CGT). In the 2023/24 tax year, the CGT allowance stands at £6,000. If you’re a basic-rate taxpayer and your income is £50,000 or less a year, you’ll pay capital gains tax at a rate of 18% on any profits above your allowance, rising to 28% if you’re a higher-rate taxpayer with an income above this amount.

Between mortgage repayments and tax bills, making a profit through letting a property can be a challenge, and changes to how taxation works have made it even harder.

Landlords used to be able to deduct mortgage interest in full from their rental income before being liable to tax, which meant that higher-rate taxpayers benefited from significant tax relief on their profits. However, the amount of mortgage interest tax relief that can be claimed has been gradually reduced over time, and now stands at a flat tax credit of 20% on mortgage interest.

Setting up a limited company to hold your buy to let property in as changes the way you are taxed, but there are several downsides to this approach so it’s vital to seek professional financial advice if you’re considering taking this route. Have a look at our article Should I own my buy to let property through a limited company? for more information on how this works.

Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.

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