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Buy to Let Property Advice: 10 Essential Tips

Martha Lott

Written by Reviewed by Graham Norwood

21st Sep 2021 (Last updated on 29th Sep 2021) 6 minute read

Buy-to-let can be a successful investment as well as a way to earn a monthly income, but it’s important to understand the costs and potential risks involved before you commit.

If you’re buying a house to rent out, you will need a buy-to-let mortgage to start. There are also other costs involved such as mortgage fees, solicitor fees and surveying costs.

We work with property experts to bring you up to date industry advice. In this article, we share 10 tips featuring the best buy-to-let advice to help you learn what to expect.

10 Buy to Let Tips
  1. 1. Understand How Buy-to-Let Works
  2. 2. Know the Criteria
  3. 3. Research the Buy-to-Let Market
  4. 4. Research Where to Buy and Target Tenants
  5. 5. Compare Buy-to-Let Mortgages
  6. 6. Understanding Buy-to-Let and Tax
  7. 7. Think About Other Costs Involved
  8. 8. Understand the Legal Process
  9. 9. Consider the Pros and Cons
  10. 10. Compare Insurances
  11. Next Steps of Buying a House

1. Understand How Buy-to-Let Works

Most of the time you’ll need a buy-to-let mortgage to purchase a buy-to-let property.

With a buy-to-let mortgage, you pay only the interest each month, so at the end of the term, you’ll need to pay off the principal loan in full, as opposed to paying off some of the ‘principal’ loan and a little of the interest each month with traditional mortgages.

Buy-to-let mortgages come with high financial risks and you must have a regular income of over £25,000 to be accepted for this type of mortgage. A buy-to-let mortgage is mainly for:

  • Seasoned investors
  • New landlords looking to begin a career
  • Portfolio landlords

2. Know the Criteria

Buy-to-let mortgages are suitable for investors and landlords who want to buy a property to let out to tenants. Many mortgage lenders view these mortgages as high risk, therefore the criteria is tighter for who can apply.

The criteria for a buy-to-let mortgage:

  • You earn over £25,000
  • You're 45 or younger. Many lenders will have an age limit for when the mortgage term ends.
  • You have owned your home for 6 months, whether that's with a mortgage or without.
  • The property you're buying is in the UK.
  • You have a good credit score.
  • You are a landlord who will invest in property.

3. Research the Buy-to-Let Market

It’s important to do your research before committing to buying any property as buy-to-let properties come with a high-risk potential if you don’t understand the market. Understand the areas with a property market that’s consistent and avoid areas that are dropping in price.

Whilst cheap property sounds ideal, you have to think long term if you plan to sell the property and risk losing money on your investment. If an area is doing well at the moment in terms of price, remember it can also easily drop at any time.

4. Research Where to Buy and Target Tenants

It might be tempting to buy cheap property to rent out, but there’s usually a reason for its price. If you come across a property that is affordable and is within your budget, you should research the area and explore the area at different times of day to find out if it will work for you.

Think about who you’d like to rent your property out to. Are young professionals, families or students your target tenant? Research where these types of tenants typically live and what facilities and amenities they’d like to live near.

It’s recommended to buy property in an area you’re familiar with so you’re not jumping into something you might regret.

5. Compare Buy-to-Let Mortgages

It’s important to weigh up your mortgage options and shop around first. Mortgage interest rates will vary depending on the amount you borrow, how much rental income you expect from the property and the different type of mortgage you choose.

If the property value was £250,000 and you have a 40% deposit, TSB can offer an interest-only buy-to-let mortgage deal of 1.44% interest fixed for 2 years and 4.1% after this period. This mortgage comes with a £995 arrangement fee too. The arrangement fee for this type of mortgage is typically anywhere between £995-£3,500.

It’s also recommended to hire a mortgage broker or adviser to help you search for the best buy-to-let mortgage deal. Mortgage brokers will have access to the best rates for most mortgages that aren’t accessible without the help of an adviser. They might charge a fee for their service, but sometimes the service can be free.

6. Understanding Buy-to-Let and Tax

If you invest in a buy-to-let property, you will be subject to paying taxes.

Income Tax

You’ll be earning an income from your buy-to-let property, therefore will have to pay income tax. From April 2020, tax relief was set to the basic rate of income tax of 20%. Landlords are no longer able to reduce their tax bill by paying off mortgage payments with their income, instead, relief will be awarded by a reduction in tax liability.

The new rule has worked out less generously for higher taxpayers who would have received 40% tax relief previously.

Capital Gains Tax

If you’re a basic-rate taxpayer, Capital Gains Tax will be charged at 18% of any increased value on the property and 28% for higher-rate payers. For the tax year 2020/21, the allowance is £12,000.

Stamp Duty

As you’ll be owning a second property, you will have to pay an additional 3% of Stamp Duty in England and Northern Ireland, 4% of Land Transaction Tax in Wales and 4% of Land and Building Transaction Tax in Scotland, on top of the initial band. To learn more, read stamp duty costs on second homes.

7. Think About Other Costs Involved

Buying a buy-to-let property comes with additional costs that you should factor in.

You’ll have to hire a conveyancing solicitor to take care of the legal side of the purchase, which on average will cost £1,040. You should also get a property survey to check for any hidden damage, which averages at around £500-£800, depending on the type of property you’re buying.

To learn more read, average conveyancing costs and house survey costs.

8. Understand the Legal Process

You’ll need a conveyancing solicitor to help with the legal process of buying a buy-to-let property. The process will be the same as the traditional conveyancing process and you’ll have to pay solicitor fees for their time and services.

The conveyancing process typically takes between 8 and 12 weeks.

9. Consider the Pros and Cons

Investing in a buy-to-let property will suit some people more than others and come with pros and cons. Below we’ve listed the advantages and disadvantages that come with this type of mortgage.

AdvantagesDisadvantages

You will receive an income and profit as you must be earning more from rent than you pay on the interest.

You are subject to paying Stamp Duty/Land Transaction Tax, Capital Gains Tax and Income Tax.

In the long run, property prices will most likely increase so it is a long term investment.

The potential drop in property value month on month.

Most buy-to-let mortgages are interest only, so you only pay the interest per month and not interest and capital.

Requires a higher deposit and has higher interest rates than a residential mortgage.


10. Compare Insurances

Although it’s not a legal requirement, many mortgage lenders will insist you have insurance in place before they can lend to you. It’s important to get the right type of insurance to cover yourself from any risk.

Landlord buy-to-let insurances usually cover:

  • Buildings insurance
  • Contents insurance
  • Liability insurance
  • Alternative accommodation costs
  • Rental income protection

The cost of your insurance will vary and will depend on the size and location of the property.

Next Steps of Buying a House

This article has been part of our home buying guide. In our next article, we explore stamp duty costs for second homes. To learn more, read How Much Does Stamp Duty Cost on a Second Home.

Martha Lott

Written by Martha Lott

Having written for Huffington Post and Film Criticism Journal, Martha now regularly researches and writes advice articles for everything moving house related.

Graham Norwood

Reviewed by Graham Norwood

Property Journalist and Editor,

With over 15 years of experience in residential property journalism, Graham is currently the editor for both Estate Agent Today and Letting Agent Today.