Considering becoming a landlord?

If you are there’s a lot to get your head around, so we’ve teamed up with Upad, the uk’s biggest online letting agent, to produce this guide for everything you’ll need to know when investing in the buy to let market

Buy to let refers to the purchase of a property with the specific intention of renting it out. If you already own a property and you want to start renting it out, you should contact your mortgage broker as you may need to remortgage.

In this guide, you’ll and all the information you need on financing your buy to let purchase, the tax implications, and your obligations as a landlord.

Once you’ve finished reading, we hope that you’ll be able to manage your buy to let purchase with total confidence.

Investing in the property market with a buy-to-let has sometimes been cast as a quick buck...

but successful buy-to-let investing and turning a profit in today’s environment can be anything but. There was a time when property investment was less risky, offered easier returns and was much less regulated. But increased taxes, greater regulation and higher costs mean anyone investing in a buy to let property has to have a plan. 

Being a landlord requires a lot of time as well as money so it’s important to find the right property, understand your long-term goals and have an understanding of your finances to ensure your investment not only suits your budget but your expectations as a landlord too. 

When deciding to become a landlord and you acquire property for buy to let purposes, you should start by looking at what your investment goals are. As rental incomes are on the increase, if you and the right property buy-to-let it can be an excellent way to bring in a high rental yield (through the monthly payments you receive from your tenant), gain capital appreciation (through rising house prices), or even both! 

Our buy to let guide

Typically, when working out the expected return on investment for a buy-to-let property, as a landlord you will look at two things; the rental yield and the capital appreciation. Some landlords will focus on one and not the other, but it is definitely worth having an appreciation of both.

Rental Yield

The term used to describe the return on a property investment from a rental perspective. When investors compare rental properties, they will calculate the rental yields to see which is the most lucrative. To do this, they will divide annual rent by the value of the property, and then multiply the result by 100 to get a percentage return on investment. Finding the right property and the right mortgage can return a rental yield of around 5 – 10% depending on where you’re based.

Here’s an example of how to calculate your rental yield:

Total investment = £210,000

Annual rent = £18,000

Annual costs = £10,000

Net annual income = £8,000

£8,000 / £210,000 = 0.038. 0.038 x 100% = Rental Yield of 3.8%

Capital Appreciation

Capital growth, or capital appreciation, is the value by

which the property goes up over time. The value of a property can also depreciate. The percentage of the original purchase by which the property has increased will represent the return on the investment from a capital growth point of view.

Choosing the right buy to let property

When you’re looking for an investment property it’s important to remember that you won’t be living there so you should be thinking about areas that are good to invest in rather than ones you’d like to live in.

Here are a few other things to consider when buying to let:

Talk to a local estate agent

They’ll be able to tell you about the local rental market and point out some suitable areas and properties.

Look at the rental market in your chosen area

For example, a young professional may look for a smaller property with good transport links whereas a family may look for good schools and safe, green space. It is common for landlords to buy a property in an area they don’t know too well then assuming that they will be able to charge a specific rent amount and have queue of people wanting to live in it. Many private landlords come unstuck or don’t make the money they want to early in their buy-to-let investment career for this reason. Ensure you thoroughly research the demand for rental properties and the average rent in a particular area before you invest.

Consider how much time you have to be a landlord

It isn’t always as easy as sitting back and watching the rent roll in. If you’re doing a day job at the same time as being a landlord, you may want to consider using a letting agent to deal with the majority of tasks associated with your property.

How much effort and money do you want to put into decorating and furnishing your property?

While you want to make your property comfortable, homely and well furnished for your tenants, you should also factor into your budget the fact that tenants often don’t take such good care of a property simply because they have less invested in it themselves.

Can you afford the time and money to buy a ‘fixer upper’?

It can be a good project and the end result can be fruitful but there’s a balance between a ‘buy to let’ and a ‘buy to-let’! Bear in mind that if you buy a property that is uninhabitable (e.g. doesn’t have a working bathroom or kitchen) you may be denied a mortgage.

In this case, you’ll need to use savings, if you have it, or you could apply for a bridging loan to secure the property and do it up before securing a mortgage.

Consider what you can afford

Sounds obvious but buy-to-let mortgages require you to be able to cover the mortgage repayments and other costs comfortably. To assess whether you’re able to do this, lenders will look into the market rental value and your personal  financial standing to see if you can cover repayments even during times when you may be stretched such as periods of no occupancy.

Getting a mortgage

Buy to let mortgages differ from residential mortgages. In addition to assessing your affordability, buy to let mortgage lenders will base your loan on the expected rental income of your property.

Lenders will need the rental income to be between 125% and 165% of the interest repayments (not the capital repayments) depending on the lender and your  financial standing. Lenders will conduct a ‘stress test’ to establish if you’ll be able to keep up with repayments, interest  fluctuations and other expenses even when your property is vacant. Do bear in mind that interest rates on buy to let mortgages tend to be higher than residential mortgage rates (typically 3-5%).

The deposits also vary. Where on a residential mortgage, you can start with as little as a 5% deposit, buy to let mortgages typically require a minimum 25% deposit. Some lenders will give you a mortgage with a 15% deposit however, generally, the larger your deposit, the greater range of mortgage products you’ll have to choose from.

You shouldn’t rely on your rental income alone either. As part of the stress test we mentioned earlier, lenders will take a look at your income, expenditure and other existing debt to establish your affordability. Some lenders will require you to earn a minimum amount on top of your rental income.

As with any mortgage, seeking the advice of a broker will help you to understand what’s required of you and which financial route suits your circumstances best.

Other buy to let costs

When you decide to go down the buy to let route, there are some other costs involved in getting started and in being a landlord going forward. These include:

Mortgage fees

In order to set up your mortgage, lenders will often charge a product arrangement

fee. Some will charge this up front whereas others will add it to the total borrowed. Bear in mind that if the charge is added to the borrowed amount, you will pay interest on this and it will cost you more in the long run.

Survey fees

The word ‘survey’ in the world of mortgages can mean anything from a simple valuation all the way up to a full structural survey. The required level of ‘investigation’ into your property will depend on your lender, the mortgage you’re applying for and the property you’re applying for a mortgage on.


When you draw up a rental agreement, you’ll need to include what the landlord is responsible for  fixing. Normally, this includes  fixtures and  fittings and items included in the property such as; the cooker, fridge, boiler and furnishings. You may not be able to predict when something will need  fixing so it’s best to have some cash in reserve as a contingency.

Building insurance

When you come to exchange contracts, your mortgage lender will require you

to have buildings insurance in place. If you think you’ll extend your property portfolio in the future,

you may want to consider taking out a policy that allows you to add properties to it at a later date. At John Charcol, we have a specialist team who can help you and the right policy.

Management fees

We’ve mentioned the advantages of using a letting agent to manage your property. However, you should be prepared to pay their fees. They normally charge a percentage of the rent (+ VAT) so make sure you factor this cost into your budget.

Buy to let property taxes

There are a few taxes associated with buy to let properties. In April 2017, the government began to phase in new tax rules which mean landlords will be hit with a higher tax bill. Here’s how it works:

Stamp Duty

The rate of stamp duty went up in April 2016 and is now set at 3% higher than stamp duty on a residential property. Stamp duty works in the same way as income tax in that a different tax rate is applied to different ‘sections’ of the value of the property. However, there is no

tax free threshold on buy to let properties so you’ll be paying tax all the way up to the top rate (15%) on the portion of a property over £1.5m. Stamp duty can be dif cult to calculate so we’ve made it easier for you.

Visit calculators to work out the stamp duty on your buy to let property in seconds.

Tax relief – Before April 2017, landlords were only taxed on their net rental income i.e. the rental income minus the interest mortgage costs. Post April 2017 however, this ‘tax relief’ will be diminishing by 25% per year until 2020 whereupon landlords will have to pay tax on all of their rental income. Rental income is taxed at the same rates/bands as regular income.

There also used to be a ‘wear and tear’ allowance however, this was replaced in April 2016 by the replacement furniture relief. Where landlords used to be able to claim 10% tax relief irrespective of if they bought new furniture or not, landlords can now only claim for the total value of furniture bought that year. Almost 70% of surveyed Upad landlords said their pro t would be affected by these changes. Make sure you find out how your profits will be affected using Upad’s Tax calculator : [short link to be created].

Capital gains tax

If you sell your buy to let property for more than you bought it for, you’ll have to pay capital gains tax. As of the 2016/17 tax year, there is a tax free threshold of £11,100 and any profit made above this will be taxed at 18% and 28% depending on how much profit you make. If you’ve made a significant development to your property such as an extension, you may be able to offset the cost of those improvements. We can refer you to a tax specialist if you wish to  find out more.

Inheritance tax

If you have inherited a buy to let property, inheritance tax applies. As an individual, there’s a tax free threshold of £325,000 and you’ll be taxed at 40% for any value above the threshold. If you inherit the property and you’re married or in a civil partnership, you and your partner have individual thresholds meaning you only pay tax on the value over a £650,000 threshold.

Setting up as a limited company

There are some tax benefits to setting yourself up as a limited company. Download our guide for more details on Landlords as Limited Companies.

Buy-to-let cost saving advice from Upad -the uk’s largest online letting agent

 A Upad survey revealed more than 35% of tenants paid between £100-£300 in fees and over 20% paid £400+.

High fees may put off potential tenants so make sure to enquire with your agent about up-front and renewal fees charged to tenants. If you choose to self-manage, you can greatly reduce these costs to attract tenants.

Almost 24% of tenants in a Upad survey said they would pay more if they could keep pets in the property, and 18% would pay more for a garden. You can’t magic a garden out of thin air, but consider relaxing your policy on the common ‘No pets’ rule.

92% of tenants search online for their next home, make sure you’re getting your property on the UK’s largest lettings portals - Rightmove (who have a 77% market share) and Zoopla. You can potentially save money by self managing your property and advertising your property on these platforms.

Buy to let

Using a letting agency

Generally speaking, only landlords with a portfolio of properties are able to use rent from those properties as their only source of income. As such, many landlords have ‘day jobs’ not to mention other personal commitments that need their attention. This is where using a letting agent is advantageous.

That said, estate agents are an extra expense as they’ll normally charge you a percentage of your rental income (+ VAT) to manage the property. Once you’ve read the list of things they can do for you, you may think they’re worth the price but if you think you can take on the work yourself, you could save some money by going it alone.

Letting agents can help you with

  • Advertising your property via a range of channels (primarily online)
  • Finding suitable tenants
  • Referencing those tenants
  • Preparing legal documents (e.g. rental agreements)
  • Collecting rent and paying you your share
  • Arranging an inventory check
  • Acting as a mediator to resolve disputes
  • Organising maintenance

Your obligations as a landlord

It’s your responsibility as a landlord to ensure that your property is safe for your tenants. It’s also your responsibility to ensure your property is energy efficient and that you’re holding your tenants’ deposit legally. Here’s what you’re specifically responsible for by law:

Gas safety certificate

It’s a legal requirement to have a gas safety certificate and you’ll need to get in touch with a Gas Safe registered engineer to carry out a check. Legally, you must get a gas safety check carried out every 12 months and provide a certificate to your tenants. Furthermore, you must have a gas safety inspection within 12 months of a new gas appliance being installed in your property.

Electrical safety check

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

Smoke alarms

Since 2015, landlords have been required to have at least one smoke alarm on every storey of their property(ies). Landlords must also have carbon monoxide detectors in any room containing a solid fuel burning appliance e.g. a coal  re or wood burning stove. Every time a new tenant moves in, it is the landlord’s responsibility to make sure all alarms are in working order.

Energy Performance Certificate

If you’re letting – your property out to three or more tenants who form two or more ‘households’ who share a kitchen and bathroom, you may need an HMO license from your local authority. Other conditions apply so check in-multiple-occupancy for more details. 

House in Multiple Occupancy (HMO) license

If you’re letting – your property out to three or more tenants who form two or more ‘households’ who share a kitchen and bathroom, you may need an HMO license from your local authority. Other conditions apply so check in-multiple-occupancy for more details. 


You must put your deposits in a government authorised, deposit protection scheme. 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.

Self managing your property: Upad insights

In a Upad tenant survey, 81% of tenants wanted to meet their landlord directly before moving in. Consider self-managing, to ensure a long-lasting, friendly and professional landlord/tenant relationship.

Before choosing to self-manage, you’ll need to ask yourself the following questions:

Do you have the time?

If you work a full-time job and a busy family and social life, it may not be possible to manage a buy-to-let yourself. That said, many tenancies run smoothly and if you can be available by phone and email- it doesn’t need to be a problem.

Do you live a long distance

from the property? If you can’t attend viewings, inspections or maintenance calls because of the travel distance it may not be economical to do everything yourself. You could ensure you have a list of trusted tradespeople in the local area, to attend when you cannot.

Do you like dealing directly with people? 

If you’re not so much of a people person and prefer to have a hands-off approach, you’re better off hiring a managing agent.

Buy to let
You are currently offline. Some pages or content may fail to load.