Are you thinking about becoming a landlord? Joining the club isn’t easy - there’s a lot to learn. In our buy-to-let guide, you’ll find all the information you need on financing your buy-to-let purchase, the tax implications and your responsibilities as a landlord.


Buy-to-Let Mortgages Explained

A buy-to-let mortgage is a mortgage you secure on a property you intend to rent out. 

You can make a hefty profit as an investor of a buy-to-let property, you just need to make sure you plan appropriately and weigh up the income with the costs. It’s also fundamental that you seek tax advice before you take the plunge.


Getting a Buy-to-Let Mortgage

Speaking to a broker like John Charcol is the easiest way to ensure you get the right buy-to-let mortgage for your situation.

How Do Buy-to-Let Mortgage Lenders Assess How Much You Can Borrow?

Lenders use a rental affordability calculation to determine how much you can borrow and whether they think your buy-to-let mortgage is viable. When assessing your affordability, buy-to-let mortgage lenders will base your loan on the expected rental income of your property. Some lenders can take personal income into account as well to support this application. This is called “top-slicing”.

Stress Test

For basic rate taxpayers, lenders require that the monthly rental income be at least equal to 125% of the monthly mortgage payments on an interest-only basis using a stress test at a nominal rate of around 5%. For a higher rate taxpayer, lenders will often ask that the monthly rental income is at least equal to 145%.

Buy-to-Let Mortgage Deposit

Buy-to-let mortgages typically require a minimum deposit of 20%. The larger your deposit, the greater the range of mortgage products you can choose from and usually the cheaper the rate.

Work out how much you could borrow with our free buy-to-let mortgage calculator


Do You Want Capital Growth or Good Rental Returns?

To assess whether a buy-to-let property is a worthwhile investment, you should look at things like rental yield and potential capital growth. Understanding both will help you figure out what is financially viable.

Rental Yield

Rental yield measures the ongoing return on investment for a property. You should always consider your potential rental yield before purchasing a buy-to-let. Try our rental yield calculator to work out yours.

Capital Growth

Capital growth, also known as capital appreciation, is the amount that the property increases or decreases in value over time. This is normally due to changes in the property market or improvements to the property. Working out your potential capital growth can help you decide what work to do on a buy-to-let and when could be the best time for you to sell.

Example:

  • You purchase a property for: £250,000
  • Its current market value is: £300,000
  • The capital growth is: (£300,000 - 250,000) = £50,000
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Buy-to-Let Mortgage Fees, Costs, Deposit and Tax

What Deposit Is Needed for Buy-to-let?

The minimum deposit required for a buy-to-let mortgage is typically 20% of the property purchase price.

Buy-to-let mortgages can vary greatly and the deals available are subject to many different factors - e.g. how much deposit you can put down, how much you can pay back every month, etc. 

Stamp Duty Land Tax on Buy-to-Let Properties

You pay Stamp Duty Land Tax on properties and land in England and Northern Ireland that cost over a certain amount.

If you purchase a residential property that’s not your main residence - e.g. a second home or a buy-to-let, you pay a 3% surcharge on top of the standard Stamp Duty rates.

Our buy-to-let Stamp Duty calculator will give you a clearer idea of how much Stamp Duty you’ll need to pay when you purchase a buy-to-let property. Or, check out our guide – Stamp Duty on Second Home and Second Property Tax in the UK.

Income Tax on Buy-to-Let Properties

Owners of buy-to-let properties also need to pay Income Tax on rental income. You’re permitted a £1000 allowance, or you can deduct certain expenses. To learn more, see our comprehensive guide on Rental Income and Other UK Landlord Taxes.

Capital Gains Tax 

You pay Capital Gains Tax (CGT) when you sell a property that’s not your main residence. You’re taxed on a portion of the profit – or capital gain – you make from the sale. The amount you’ll pay in CGT will depend on your personal income and the profit.

Buy-to-Let Insurance

Most buy-to-let mortgage lenders won’t lend to you unless you have buildings insurance in place. It’s important that you select insurance with your long-term plan in mind. If you think you’ll extend your property portfolio in the future, you might find it useful to take out a policy that allows you to add additional properties later. Thinking ahead when you take out your policy will help make sure you don’t limit yourself later on.

It’s the tenant’s responsibility to take out contents insurance but it’s a good idea for you, the landlord, to remind them - or have the lettings agent remind them - to do this.

Survey Fees

Survey fees can include everything from the cost of a simple property valuation to a full structural survey. The necessary level of investigation into your property will depend on your lender, your preferences, the mortgage you’re applying for and the type of property you’re purchasing. A standard valuation will confirm the value, give a rental assessment and a judgement on whether the property is suitable security for lending. A homebuyer’s report will give all the same stuff that you get on a valuation as well as a report on the actual state of the property.

Maintenance Fees

Landlords are responsible for the upkeep of the property, as well as managing the rental income. This can become hectic. You may want to consider hiring a lettings agent to manage the property for you, especially if you’re often juggling multiple investments/properties.

Take into account that lettings agents tend to charge a percentage of the rental income plus VAT. Nonetheless, they can seriously reduce some of the day-to-day hassles associated with buy-to-let investments.

Make sure you keep on top of all buy-to-let tax changes and fee changes.


Best Areas for a Buy-to-Let Property

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Finding the best area to purchase a buy-to-let property depends on your budget, plan and location.

When figuring out where you should buy, you can:

  • Visit the area you’re interested in and talk to estate agents about the area
  • Use the UK House Price Index to find average house prices across the UK or in particular regions
  • Look at statistics – the Government publish statistics on rental prices each month, so you can estimate how much rental income your property will likely generate

You should consider:

  • Demand for rental properties in the area you’re looking to buy
  • The kinds of tenants in the area – you can do this by looking at what institutions are nearby – e.g. a university suggests there will be tenants, schools suggest families with children
  • Type of properties in area - flats, houses
  • How far the property is from your home or office - unless you intend to be completely hands-off when it comes to managing the property, it makes sense to buy a property you can easily get to - either in the case of an emergency or simply to fulfil your responsibilities as a landlord

How to Choose the Right Buy-to-Let Property

We’ve outlined some tips below to help you choose the right buy-to-let property. 

Talk to a Local Estate Agent

Local estate agents will be able to direct you towards suitable properties, give you valuable information about the local rental market and help you narrow down your search. 

Set a Budget

Your budget will often determine the types of properties available to you and their locations. Take some time to work out what you can afford and what you can realistically earn from rental income. This will give you a clearer point of reference for when you research the house prices and rental rates in the areas where you plan to buy.

Factor in Your Mortgage

Include the cost of your buy-to-let mortgage in your financial calculations. Most landlords take out a buy-to-let mortgage to fund their investment, which means they have to budget for a deposit – this is usually at least 20% of the purchase price. Find out more about different mortgage types in our guide.

Check Your Financial Forecast

Make sure you have the financial capacity to pay for any unexpected costs. It’s best practice to budget for periods when the property might be empty, like when you’re in-between tenants.

Appeal to a Specific Type of Tenant

Think about the type of tenant you want to attract. Families will want to live close to schools, while young professionals will focus on the distance to and from transport hubs. If you want to rent your property to students, consider investing in properties close to university campuses.


Buy-to-Let Cost-Saving Advice and Other Tips

  • Advertise on letting portals like Rightmove, Zoopla and On the Market. They give you the means to easily self-manage your property which can sometimes help you save more money than if you used a letting agent
  • Speak to a broker about limited company buy-to-lets – these can sometimes offer tax reliefs and benefits to higher rate taxpayers
  • Self-manage your property instead of using a letting agent – you’ll have more control over things like tenant fees. Find out more below

Self-Managing Your Property

Self-managing your property can help ensure a long-lasting, friendly and professional relationship between you and your tenants.

Before choosing to self-manage your buy-to-let investment, you should consider whether you:

  • Are available by phone or email
  • Live near to the property
  • Like dealing with tenants
  • Are too busy to respond to calls or emails
  • Can’t easily travel to the property
  • Prefer someone else deals with tenants for you

How a Letting Agent Can Help

Letting agents are a good option if you don’t want to self-manage your property. They’ll usually often varying levels of service, so you can decide how involved you want to be in the management of your buy-to-let property.

You can hire a letting agent to:

  • Find tenants
  • Collect rent and chase rent arrears
  • Service notices
  • Handle deposit disputes
  • Help with tenants issues/queries via phone and email
  • Arrange and attend viewings, inspections, maintenance calls, check-outs
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What Are the Responsibilities of a Landlord?

Being a landlord comes with various responsibilities. We’ve explained a few of the things you should consider, below.

How Do Tenancy Agreements Work?

There are various types of tenancy agreements. The most popular is an assured shorthold tenancy (AST). This type of agreement sets out the legal terms and conditions of a tenancy. ASTs can be fixed term or periodic (week-by-week or month-by-month basis).

ASTs last for a set period, typically 6 - 12 months. An AST details the rent the tenant must pay during the term, who is responsible for repairs, a notice for eviction, when rent is allowed to be increased, the length of the tenancy and the right of the tenant to have their deposit protected. 

Do Landlords Need to Get a Gas Safety Certificate?

As a landlord, it’s a legal requirement to have a gas safety certificate – you’ll need to get in touch with a Gas Safe-registered engineer to carry out a check. You’re legally obliged to get a gas safety check every 12 months and provide a certificate to your tenants. Furthermore, you must have a gas safety inspection within 12 months of installing a new gas appliance in your property.

Do Landlords Need to Carry Out an Electrical Safety Check?

It isn’t a legal requirement to have an official certificate for electrical safety, however there’s legislation in place which outlines your obligations as a landlord to ensure the electrical equipment in your property is safe to use.

Are Landlords Responsible for Smoke Alarms?

Landlords are required oversee the installation of at least one working smoke alarm on every storey of their property. Landlords must also have carbon monoxide detectors in any room containing a solid fuel-burning appliance - e.g. a coal or wood-burning stove. Every time a new tenant moves in, it’s the landlord’s responsibility to make sure all alarms are in working order.

What Is an HMO License?

If you’re letting your property out to 3 or more tenants who form 2 or more "households" which share a kitchen and bathroom, you may need to apply for an HMO license from your local authority. Lenders will likely have different mortgage products for HMOs so you should check with your broker regarding this first.

What Should Landlords Have to Do with Tenants’ Deposits?

As a landlord, you must put your tenants’ deposits in a deposit protection scheme authorised by the Government. The tenancy deposit scheme is designed to protect tenants and landlords by acting as a mediator in the case of a dispute at the end of a tenancy.

Other Landlord Responsibilities

As a landlord, you will also be expected to:

  • Make the property safe for tenants
  • Deal with repairs to the structure and exterior of the property
  • Maintain heating and water systems
  • Ensure furniture meets fire safety regulations
  • Make sure gas and electrics are safe
  • Provide your tenant with the correct paperwork by law
  • Take out buildings insurance on the property

General Buy-to-Let Tips

If you’re aiming to become a landlord, here are some general tips to follow during the process:

  • Choose a modern property

While you can rent out any property, newer properties tend to let quicker and require less maintenance from you.

  • Do your checks

Make sure you check all tenant references and conduct credit checks.

  • Clean thoroughly

After a long tenancy, make sure to clean and redecorate your buy-to-let property.

  • Be cautious with a letting agent

When selecting a letting agent, make sure they are a member of the Association of Residential Letting Agents and the National Approved Lettings Scheme.

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