Investing in buy to let

An Investor's Guide to Becoming a Landlord

25 August 2020 Simon Banks Read time: 5 min
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Simon Banks

Being a landlord can be a profitable venture that allows you to provide good-quality homes for renters. If you do it right, it's a win-win situation boosted by the fact interest rates are still low, and your asset can grow in capital appreciation over time.

While it's value increases, you get to enjoy passive income in the short term. But investing in the rental market isn't something you decide to do in the spur of the moment. There's plenty of responsibility involved, and it's likely there will be a few ups and downs along the way (did someone say void periods?).

Yet, buying bricks and mortar with the intention of letting it out is still one of the safest investment bets here in the UK. And if you're thinking of getting into the buy-to-let game, we've put together this guide that gives you the lowdown on everything you need to know about becoming a landlord.

Why invest in the UK rental market?

By 2021, a quarter of the UK is set to rent privately. In London, the numbers are even larger, with 60% primed to rent by 2025. You could say that business is booming if you're a landlord, as demand far outweighs supply.

"to let" sign

Rents have risen by 14.5% since 2011, and big cities like London and Manchester are hotspots for professional renters. Play your cards right, and you'll enjoy passive income in the form of the monthly rental and long-term capital appreciation as the price of the property increases.

Getting your finances is order

Buying a property is likely to be the most expensive thing any of us ever do, unless you happen to own a private plane, yacht and several sports cars, in which case, you should probably be telling us how to invest. Anyway, we digress… investing in property requires going over the financials.

Cash buyer

If you've got money to spare, you're in a great position. It means you can purchase a buy-to-let as a cash buyer, which often leads to getting a fair discount off the asking price as you don't have to wait for mortgage approval or rely on a property chain.

Stamp Duty

Investing in property counts as buying a second home. Initially, all second-home property purchases required you to pay an extra three percent on the Stamp Duty Land Tax. However, between July 2020 and March 31st, there is a stamp duty holiday. This means buy-to-let investors could save money on their stamp duty. It's worth checking a calculator to see how much you could save.


Buy-to-let deposits are typically higher than regular homeowner ones, ranging between 20 and 40%. Most mortgage lenders require a minimum of 25%, which equates to a 75% loan-to-value ratio. That means a home valued at £350k would require a minimum deposit of £87,500.

Buy-to-let mortgage

You will need a buy-to-let mortgage to fund the rest of your rental investment. The majority of buy-to-let mortgages are interest-only, which means you only pay back the interest and none of the amount borrowed. At first, this might seem counterproductive, but the idea is to maximise your short-term income and capitalise on its long-term appreciation.

For example, an interest-only mortgage of £262,500 on a £350k property would probably cost you somewhere in the region of £350 a month in repayments. However, should you opt for a mortgage where you pay back the borrowing, your repayments would be around £1,200 per month.

A realistic rental income on a £350k property is between £1,200 and £1,300 per month. You don't need to be a maths whizz to work out which mortgage repayment option gives you the most income. And if you're worried about never paying it off, you could choose to sell the property after it increases in value. That would see you paying off the mortgage and having a little leftover in your pocket once you've paid capital gains tax.

Speak with a financial advisor

Of course, there is no guarantee the property will increase in value, but given previous house-price trends, the outlook is generally good. Whichever repayment option you choose on your mortgage, having all the facts will help you make an informed decision. We recommend speaking with a financial advisor for expert advice on the financials of property investing.

Finding the right place to invest

Uk buy-to-let properties

Residential homeowners are pretty much rooted to where they want to live when it comes to finding a new home. As a buy-to-let landlord, however, you have the entirety of the UK at your fingertips. There's no particular need to purchase an investment property near where you live, though some landlords may wish to buy closer to home due to personal choice.

Before investing, you'll need to do your research and look at the rental yields in different areas. And just in case you're wondering, yields represent how much rent the property achieves in comparison with its value.

Or, to put simply, a property worth £350k that commands £19,250 per year in rent has a yield of 5.5%. Anything above four percent is seen as a good yield. That's why areas like Manchester are in high rental demand: the northern powerhouse typically enjoys yields of five percent or higher.

London is also a buy-to-let hotspot, though it's becoming increasingly expensive to invest in the capital. While yields in London aren't as good as Manchester, property prices are higher: the average house in London costs a cool £485,000.

Renting out your property

You'll want to get your property on the rental market as soon as you've bought it, and most landlords use a letting agent to market their buy-to-let. If you go down this route, remember that you'll need to pay an agent fee, which will need negotiating before signing any contracts.

Letting agent fees vary, with high-street agents typically taking a commission between 10-15%. Online-only options are cheaper, but they require a more hands-on approach, such as showing potential renters around the property yourself.

You can also choose to have someone professionally manage the property. Property managers take a percentage out of your annual rental income but essentially deal with the renter directly, organising repairs and ensuring a smooth in-life tenancy.

Landlord responsibilities

EPC certificate

Landlords have several responsibilities to their renters, including ensuring the property is safe and in good condition before anyone moves in, as well as throughout the tenancy. Some primary landlord responsibilities include:

  • Check a renter's Right to Rent
  • Getting a valid EPC of at least E for the property
  • A gas safety certificate
  • Supplying working smoke detectors and carbon monoxide alarms
  • Carry out a legionnaires disease test
  • Looking after the renter's deposit and placing it in an official scheme
  • Signing an AST (rental contract) agreement with the renter
  • Paying for issues that arise during the tenancy that are no fault of the renter, such as wear and tear and broke appliances
  • Give reasonable notice before entering the property
  • Get a licence if you want to let out an HMO

Even if you employ the use of a property manager, you will still be responsible for ensuring that everything is in working order and that renters have a safe and habitable place to live. As a landlord, it's vital to comply with your legal responsibilities.

Paying tax

They say three things are guaranteed: life, death and taxes. Unfortunately, that's also true of owning a buy-to-let property. While it's great earning passive income, you'll need to pay tax on your profits. If property investment isn't your only income source, you will pay tax on everything you earn combined. 

You will be able to offset some expenditure against taxes, such as agency fees, replacement costs for furniture and repairs around the buy-to-let. However, it's worth keeping in mind that you are liable to pay tax on your investment. Many landlords use an account so that their buy-to-let taxes are in order.

Riding the buy-to-let train

Investing in property can be exciting as you embark on a new journey. And that's what it is: a journey. Buy-to-let properties succeed when you play the long game, keeping them for a sustained period of time as they generate rental income and grow in appreciation.

There's still money to be made in the rental market, and you have the added bonus of providing fantastic homes for hard-working renters. If you're a savvy landlord, you can make the renting game work for everyone involved.

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