Buy-to-let property guide

There are many potential benefits to investing in property and the financial returns can be twofold: there is the potential for capital growth if the value of the property appreciates and the property may also yield a regular rental income.

Buy-to-let mortgages generally cost more, both to arrange and on a monthly basis, than residential mortgages. Additional costs can occur as the property will require maintenance and financing tenancy void periods from your own funds. In addition, as with any investment, a profit cannot be guaranteed as the value may depreciate and the expenses could outweigh the rental yield.

Should you have a buy-to-let mortgage that could increase due to interest rates, a tenant’s rent cannot be increased until the tenancy contract has expired. There is no guarantee that you will be able to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

Buy-to-let mortgages are usually more expensive than residential mortgages, as lenders often consider them to have a higher associated risk. However, any difference can usually be balanced by rental yield. Although some lenders will limit the number or total value of buy-to-let mortgages available to an individual, others may provide services to help private investors expand their property portfolio.

Buying a rental property outright will mean the net rental income will be greater, as there will not be any mortgage repayments to make. Alternatively, an investor may choose to spread their money across a broader portfolio. When evaluating these options, it is prudent to seek independent tax advice to fully understand the associated risks, benefits and tax implications.

Properties have low liquidity and cannot always be sold immediately if the investor needs to quickly recoup their money. However, unlike investments in stocks and shares, it is possible for property investors to directly influence the value of a property through renovation, depending on market conditions.

Rental income will be subject to income tax and profit made on a property sale may be subject to Capital Gains Tax, so speaking to a tax professional should form part of your investigation.

Anyone purchasing an additional residential property such as a buy-to-let or second home will be charged a 3% surcharge on each of the stamp duty threshold bands. To find out more and see how much stamp duty you might have to pay, use our stamp duty calculator.  

It is important to thoroughly research the property market in the area in which you are looking to invest. Any plans for local development may contribute to a property’s future value.

There are also benefits to owning an investment property locally to where you live, as it may be easier to individually manage yourself. Alternatively, if a letting agent is used, your options open up to a wider geographic area. The cost for using a letting agent must be taken into consideration.

When considering investment properties, it is important to consider the type of tenants the property is likely to attract as the tastes and requirements of different tenants may differ. Families, young couples, students and tenants receiving housing benefits all have specific needs, and different types of tenants will appeal to different landlords.

If you find yourself in the position where you want to move home but not sell your current property, or if you are struggling to sell your current property, let-to-buy is a possible alternative. This will let you move into a new home without being pressurised to sell, potentially at a loss. 

Should you have enough equity in your property, you could remortgage and release funds to put down a deposit on a new home. The rent you would receive from your existing property will assist in covering the cost of the let-to-buy mortgage, and in turn may enable you to take out a mortgage for your new home.

Your property may be repossessed if you do not keep up repayments on your mortgage.

We do not charge for advice. We do charge a fee for the arrangement and processing of your mortgage; our typical fee is £399 and becomes payable only once you have the keys to your property.

For a rental property to fulfill its potential, it is important to have a suitable tenant ready to move in from the date of completion. The process of finding a tenant and the ongoing managing of the property can be outsourced to a letting agent and, usually, there are several tiers of service available.

Landlords will need to use a government-approved scheme to protect the tenant's deposit, and there are a number of other landlord responsibilities that should be understood.

After the initial process of becoming a landlord is complete, many investors look to spread their investments and expand their property portfolio.