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Most Buy to Let mortgages require a higher deposit of 25% which means lower mortgage repayments, which are often interest-only.
Normally the minimum rent required from tenants is 125% of monthly mortgage repayments.
Fixing your mortgage rate can hedge against uncertainty, but we expect the base rate to fall through to 2026, so a variable rate may be preferrable.
Compared to residential mortgages, Buy-to-Let mortgages are less protected from repossession if you default on your repayments.
Consider buying more properties rather than concentrating on one.
Be aware of rental cover requirements; rent cover insures your income in the event your tenants have to move out after an uninsured event like fire and flood.
Whether you are a veteran in the Buy to Let market or hoping to become a landlord for the first time, this article provides the best advice to buy to let landlords and includes your legal responsibilities and the most recent changes. If you are looking for the most tax efficient way to buy a buy-to-let, read our guide on Buying Property Through a Limited Company
Buying an investment property is a big decision and depends on many factors, not least of all, can you afford it? When budgeting, you'll need to consider mortgage rates; agency finder feed and management fees (unless you plan to manage it yourself); repairs, refurbishment and maintenance costs; tax; professional cleaning between tenants; any service charges or ground rent if the property is leasehold; and buildings and landlord insurance.
What are the disadvantages of buy-to-let?
The main obstacle to buy-to-let is that you won't be able to get one at all unless you already own your primary residence. This is because buy to let mortgages have certain perks (including interest-only deals) which are not available to owner occupiers, and lenders are concerned that you might purchase with a buy to let mortgage, and then move in. This would breach the terms of your mortgage.
What is the minimum income for buy-to-let?
Most lenders require a minimum personal income of £25,000, despite the fact that the rental income pays the mortgage, not you personally.
How much rent is required on a BTL?
Your mortgage deal will require a regular rental income of at least 125% of the monthly mortgage payments, but some require as much as 145%. This will make sure your mortgage is covered and you'll have some left over to cover maintenance, management, agency fees, and if the property is leasehold, ground rent and service charges.
Is it worth getting a buy-to-let now?
The higher cost of borrowing in 2023/24 has put a number of landlords off. If your rental income places you in the higher tax bracket, then you'll be paying 40% of any profit you make, which may not be worth the hassle or the responsibility. However, if you trust the economists who generally agree that property prices will rise significantly over the next 5 years, then you only need to break even each month, as the value (and therefore your equity) increases. You'll still have to pay CGT when you sell the property.
Read on for more information on the tax you'll pay as a landlord.
Choosing the right property
You'll need to consider the location you're buying in, the type of property you're looking at, and your ideal tenants. If you want to buy a large house to let to students, you'll need to make sure you're buying a suitable property in a popular student area. If you can afford a smaller property and want to maximise your yield, you might want to buy a higher spec flat in a location which is popular with young professionals. Or, if you want a family who will stay for a few years and save you the hassle of finding new tenants and redecorating every 12 months, you'll want to find a property with a garden, in a good school catchment.
If you pick the wrong property or location for your target tenants, you may struggle to fill the property, every day or week the property is unoccupied, you'll lose money.
You'll need to see what other similar properties cost to rent, so that you can budget your costs within your earnings.
If you plan to use a letting agent to manage the ongoing tasks such as rent collection, you've got more freedom over where you buy, so you can choose a location with high rental demand, and a high rental yield. However, if you want to save money by managing the property yourself, you'll need to choose somewhere that is closer to you, or more easy to travel to.
You can also maximise your investment by choosing a property which will benefit from renovation, but make sure you only do this if you have the available budget to renovate the property and cover your costs while the property is empty for the work to be carried out.
Speak to several estate agents to find out what type of property is in shorter supply than demand in the area.
Choosing the right mortgage
Most buy-to-lets are bought with an interest only mortgage, the interest rate is usually higher than on a residential mortgage and the eligibility terms are usually different. You can check these with your lender, or speak to one of our 100% impartial mortgage brokers who can find you a selection of mortgage products from various lenders which best meet your needs.
How much deposit do I need to put down for a buy-to-let?
You'll need at least 25% deposit to put down for a buy-to-let. The higher your deposit, the lower your monthly repayments will be, which means you'll be able to keep more of the rent as income. However, if you have more than enough for a 25% deposit, it may be financially beneficial to buy more than one property, with the minimum 25% deposit.
Splitting the money and income across two or more properties of different types or locations helps to diversify your property investment portfolio, making your income more stable. For example, if you have to evict one set of tenants and do work on the property, you'll still have the income from the other.
Before the 1st of June 2024, buy to let properties were subject to multiple dwellings relief, which reduced the tax paid when buying multiple dwellings in a single transaction. This has been abolished.
What fees are involved in a buy-to-let mortgage?
Mortgage valuation, broker fee (if you choose an independent broker to find you the best deal, they may charge you a fee, or take a commission from your lender), mortgage reservation fee aka booking fee (paid up front), mortgage arrangement fee aka product fee (can be added to your mortgage rather than paid upfront), fixed rate or variable interest, mortgage repayments (if you chose a repayment product over interest-only), exit fee, and early repayment charges if you sell your property within the fixed period.
Other purchaser costs
Other purchase costs include your conveyancing legal fees and disbursements, including land registry fees and SDLT, property searches, RICS survey, buildings insurance, landlord liability insurance, rental cover, initial decoration costs, fixtures and fittings as required, furniture unless letting unfurnished, EPC certificate and gas safety certificate.
Many of your running and maintenance costs can be written off as business expenses, if they are wholly and exclusively incurred as a result of letting the property.
Is it difficult to get a buy-to-let mortgage?
They are considered higher risk than residential mortgages, so the criteria are more stringent. You'll need a good credit rating, as with most other borrowing. You'll also need a bigger deposit, a rental income of 125% - 145% of the monthly repayments and to be able to comfortably afford your repayments on any other debts you have, including your own mortgage.
What are the tax changes for landlords in 2024?
Multiple dwellings relief was abolished on property in England and Wales on the 1st of June 2024. Personal tax thresholds have been frozen until 2028. Corporation tax on rental income from properties held by a limited company rose to 25% for businesses with profits over £250,000. Capital gains tax on gains which bring your annual income above the basic rate threshold was reduced from 28% to 24% on the 6th of April 2024, the lower rate remains unchanged.
Stamp Duty Land Tax on the purchase
No stamp duty is payable on a buy to let property which costs less than £40,000. For property costing more than £40,000, the SDLT is payable on the full value. Buy to Let purchasers pay an additional 3% on the standard rate for owner occupiers, resulting in the following rates:
Property Price
Stamp Duty Rate
£0 – £250,000
3%
£250,001 – £925,000
8%
£925,001 – £1.5m
13%
Over £1.5m
15%
Overseas buyers pay an additional 2% surcharge, so if you are buying a rental property or a holiday home from abroad, you will pay 5%, 10%, 15% and 17%, on each band,
The stamp duty threshold falls to £150,000 in 2025. Use our Stamp Duty Calculator to work out what you'll need to pay.
Income tax on the rental profits for individuals
This is the tax payable on your total income, which will include your rental profits plus any additional income, including salary, self-employed income, pensions, benefits in kind, redundancy payments. The first £1000 pounds of your income from property is tax free. This is called the 'property allowance'.
If your rental profits are between £1,000 and £2,500 per year, contact HMRC directly. If your rental income is £2,500 to £9,999 after allowable expenses, or £10,000 or more before allowable expenses, you must report it using a self assessment tax return.
Income
Rate
£0 – £12,570
0%
£12,571 – £50,270
20%
£50,271 – £125,000
40%
£125,001 and above
45%
Tax relief on mortgage interest
Since 2020, private BTL landlords receive a tax credit, based on 20% of the mortgage interest payments. This means that you'll have 20% of the total interest paid on your mortgage deducted from your final tax bill.
Income tax on the rental profits for limited companies
If the property is owned via a limited company, tax is paid at 19% for companies with profits under £50,000 per year. The main rate is 25% but will only apply in full to companies with over £250,000 profits.
Companies with profits between £50,000 and £250,000 will receive marginal relief (3/200), so they will pay between 19% and 25%, relative to their total taxable profits.
Associated companies will have the thresholds adjusted. For example a company with three other associated companies will have the thresholds divided by 4. Marginal relief on the main rate of 25% would apply to company profits between £12,500 and £62,500, after which the full rate would apply.
As a corporation, you do not receive tax relief on your mortgage interest at 20%, instead you deduct the whole year's mortgage payments from your rental income before calculating your taxable profit.
If a company, partnership (where any of the partners is a company), or a collective investment scheme, owns a property worth more than £500,000, it may also be liable for Annual Enveloped Dwellings Tax. However; there are some reliefs and exemptions which may apply. Speak to a tax advisor to determine whether you would be financially better off by setting up a property company for your investments.
Allowable expenses
As a landlord you can claim allowable expenses, be deducting them from your total taxable income, meaning you wont pay income tax on the amount of money you've spent running the property as a business, for example:
landlord insurance
costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
letting agents' fees
legal fees for lets of a year or less, or for renewing a lease of less than 50 years
accountant's fees
rents, ground rents and service charges
direct costs such as phone calls, stationery and advertising for new tenants
(If included in the rent) water rates, council tax, gas and electricity
Capital gains tax on the sale proceeds
When you sell a property, you pay capital gains tax on the 'capital gains', that's the increase in the value of the property. If you bought the property for £225,000 and sold it for £260,000, your capital gains would be £35,000.
You would pay CGT at 18% on any of the £35,000 which falls within your basic rate tax allowance, and 24% on any of the capital gains which bring your personal income above the basic rate. Higher rate taxpayers pay 24% on all gains from residential property disposals.
Capital gains tax applies to UK residents and foreign investors.
Need tax advice on your property transaction?
Get up-to-date property tax advice on SDLT, CGT, IHT, Personal versus partnership versus company structure.
Free 15-minute initial consultation with a qualified accountant from our panel of tax advisors.
Ask your tax questions and get guidance on what you can do next.
If there is some further accountancy work required, then you'll be quoted for this as a separate piece of work with no obligation to purchase.
Many BTL landlords manage their own properties as a business. However, if you are already working full time or have many properties to manage, you may choose to pay a letting agent to manage things for you.
They can just do the work of finding your tenants, or they can handle the ongoing management, including inspections, arranging maintenance, and rent collection. If your margins allow, this option may be preferrable for new landlords who want the peace of mind that comes with letting experienced professionals handle your legal obligations.
There can be very contentious arguments over the condition of the property at the end of a tenancy so it is very important to get an an independent inventory clerk to catalogue the condition of the property and fittings, at the start and end of a tenancy. If you end up in a dispute over the condition of the property, fixtures or fittings, the independent catalogue will help you to settle the matter.
Deposit Protection Schemes
As a buy to let landlord, you normally take a deposit from a tenant to hold as security. You put the deposit money in a government-backed tenancy deposit scheme (TDP). In England and Wales a tenant's depo deposit can be registered with:
Deposit Protection Service (Custodial and Insured)
MyDeposits - including deposits that were held by Capita
Tenancy Deposit Scheme
Are all rental deposits monetary?
You can accept valuable items (eg a car or watch) as a deposit instead of money; items such as these are not protected by the above scheme.
You must make sure a tenant gets their deposit back if they:
meet the terms of your tenancy agreement
don’t damage the property
pay your rent and bills
You or your letting agent must put deposits in the scheme within 30 days of getting them. Failing to register a tenant's deposit in a registered protection scheme and/or not providing the prescribed information about the scheme has automatic penalties of up to 3 times the sum of the deposit.
You have to carry out basic repairs to any property you let, in compliance with Section 11 of the Landlord and Tenant Act 1985, whether your tenancy agreement is in writing or has been agreed orally.
The landlord is responsible for keeping in repair:
the structure and exterior of a home, such as the walls, roof, foundations, drains, guttering and external pipes, windows and external doors;
basins, sinks, baths, toilets and their pipe work;
water and gas pipes, electrical wiring, water tanks, boilers, radiators, gas fires, fitted electric fires or fitted heaters;
communal parts of a building - entrance halls, stairs and lifts (tenancies that began on or after 15 January 1989);
You can't cancel out any of these obligations by tailoring a tenancy agreement, and you can't pass on repair work costs to a tenant.
'Reasonable Wear and Tear'
The Wear and Tear Allowance for fully furnished properties has been replaced with a relief which allows for landlords of residential properties (not commercial) to reduce the taxable profit for the year by deducting the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.
The tax relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.
When a tenant moves out you can reasonably expect to receive your property and items in it back in a reasonable state. Note that you can't expect to receive these back 'as new' but as allowing for 'reasonable wear and tear' given the length of a tenancy.
If you find cracked tiles, marks on walls, scuffs and minor knocks, these will invariably regarded as 'reasonable wear and tear' and you should not expect compensation for repair or replacement from a tenant. On the other hand, broken doors, smashed windows and any seriously damaged items on the inventory might form a claim for reasonable repairs (but not to a 'like new' standard) from a tenant.
Selecting a good tenant in the first place means you're more likely to avoid a costly, long and stressful eviction process further down the line. You therefore need to carry out your due diligence thoroughly. Ideally you should check all past landlord references (particularly to see if rent has been paid on time), obtain bank statements which at least cover the previous 3 months, credit checks (particularly being vigilant about any references concerning fraud) and references from employers.
For properties in England, under the Immigration Act 2014 you are legally obligated to carry out background checks on people you offer tenancies, sub-leases and subtenancies to, particularly regarding their right to reside in the UK. This has been termed 'Right to Rent'. You'll need to conduct basic identity checks. You should also form your own impression using your 'gut instinct' by taking the time to talk to a prospective tenant before offering a tenancy. If someone you let to doesn't have leave to remain and reside in the UK, you face a £5,000 fine.
Right to Rent - the checks
All tenancies, leases below 7 years, sub-lets and lodging arrangements are affected for agreements granted on or after 1 December 2014. The provisions affect dwellings used by relevant non-nationals without the right to remain, as their 'only or main home' and where they pay rent - 'house guests' are unaffected.
No due diligence is required when you have seen proof the tenant is a UK citizen. Since 1 July 2021, EU, EEA and Swiss citizens have had to evidence their rights in the UK, including their right to rent, either using their online immigration status (eVisa) or with a physical immigration document.
We strongly advise that you add these checks to your initial tenant checklist to avoid the possibility of falling foul of the law.
You can't evict a tenant using a Section 21 notice for the first 4 months of a tenancy. This law was brought into force ostensibly to act against 'revenge evictions'.
Section 21 Notices are also time-limited. If you issue a notice, you have to start repossession proceedings immediately, if possible, and within 6 months of the issue of the notice. If you have not started proceedings within 6 months, you'll have to serve a new Section 21 Notice.
Improvement Notices etc.
Additionally, a tenant can make a written complaint about the condition of a property to you and you must reply within 14 days in writing, setting out how you will make good the issue. If you do not reply then the tenant can inform your local council - they can also do this if you issue a Section 21 Notice.
After examining the tenant's information, the local council can choose to serve you with an Improvement Notice, which is an order to make repairs or renovate a property to comply with the law. If you do not respond to this notice, you face imprisonment and large fines.
If you adjudge a tenant to be making a tactical complaint to avoid paying rent, you can pursue issuing a Section 8 Notice of repossession, but you will have to establish the statutory grounds and the eviction process is likely to be drawn out and costly.
Alarms
By law, as a private landlord in the UK, you must:
Fit a smoke alarm on every storey;
Fit a Carbon Monoxide (CO) alarm in every room with a 'solid fuel burning appliance'; and
Test all alarms at the start of a tenancy: these must all be functioning properly.
If you don't comply with these requirements, you are liable to a £5,000 fine. The Government expects landlords to 'make an informed decision and then choose the best alarms for their properties and tenant'. Despite the legislation only referring to solid fuel burning appliances in relation to CO alarms, the Government guidance given is 'we would expect and encourage reputable landlords to ensure that working carbon monoxide alarms are installed in rooms with these [gas appliances]'.
How To Rent Guide
As a landlord you must ensure that you make available to new tenants the How To Rent Guide, a Government document which makes tenants aware of most of the issues discussed in this article. Failure to do so can invalidate any Section 21 eviction process. For more information, please read Prescribed Information - Section 21 New Rules.
ASTs are the most common type of rental agreement between a private tenant and private landlord and most lenders insist on them.
If all of the following apply, you automatically have an AST with your tenant, unless you specifically set up another type of tenancy:
You and the tenant live in different properties
The tenant has control of the property such that you (or any others) can't enter it as they please
The tenant moved in on or after 28 February 1997. Alternatively the tenancy began 15 January 1989 and 27 February 1997 (inclusive) and you issued notice of the AST before the tenancy began.
The benefits of an AST are:
You grant the tenancy for a fixed period of time - usually either 6 or 12 months
You can decide not to renew the tenancy at the end of the period
ASTs are not normally subject to rent controls
In sum, you have more rights over the possession of the property. As a landlord you can bring an Assured Shorthold Tenancy to an end before the fixed period of time without reason, but the following must apply:
You’ve protected your tenants’ deposit in a deposit protection scheme
You’ve given your tenants at least 2 months’ written notice that you want the property back (‘notice to quit’) and the date they must leave
The date they must leave is at least 6 months after the original tenancy began (the one they signed on first moving in)
They have a periodic tenancy – or they have a fixed-term tenancy and you aren’t asking them to leave before the end of the fixed term
If you're still in the fixed term, you can only request that your tenants leave if you have a reason for wanting possession according to the Housing Act 1988. Reasons include:
your tenants are behind with rent payments (‘in arrears’)
your tenants have used the property for illegal purposes, eg selling drugs
The Homes (Fitness for Human Habitation) Act 2018 aims "to ensure that all rented accommodation is fit for human habitation and to strengthen tenants’ means of redress against the minority of landlords who do not fulfil their legal obligations to keep their properties safe". Although the Act doesn't impose any new obligations on you as a landlord, it requires you to meet your existing responsibilities regarding property standards and safety.
Under the Act, the Landlord and Tenant Act 1985 was amended to require all landlords (private and social) to ensure that their properties, including any common parts of the building, are fit for human habitation at the beginning of the tenancy and throughout. The Act states that there is an implied agreement between the tenant and landlord at the beginning of the tenancy that the property will be fit for human habitation.
The Act provides an additional means for tenants to seek redress by giving them the power to hold their landlord to account without having to rely on their local authority to do so. It is designed to stop good landlords from being undercut by bad ones.
Overview of the Act
The Act, affecting both the social and private rented sectors, makes it clear that you must ensure properties are fit for human habitation at the beginning of a tenancy and throughout, including any common parts of a building.
Properties must be hazard-free and without serious defects which might affect habitability. The remedies available to your tenants are an order by the court requiring you to take action to reduce or remove the hazard, and/or damages to compensate them for having to live in a property which was not fit for human habitation.
In what situations does the Act apply?
It applies to:
tenancies shorter than 7 years granted on or after 20 March 2019 (tenancies longer than 7 years that can be terminated by you before the expiry of 7 years shall be treated as if the tenancy was for less than 7 years)
new secure, assured and introductory tenancies (on or after 20 March 2019)
tenancies renewed for a fixed term (on or after 20 March 2019)
from the 20 March 2020 the Act will apply to all periodic tenancies. This is all tenancies that started before 20 March 2019; in this instance you have 12 months from the commencement date of the Act before the requirement comes into force. In this sense the Act is retrospective in effect.
Are there any exceptions to the Act?
You won't be required to remedy unfitness when:
your tenants' behaviour has caused the problem/s
Acts of God have caused problems (fires, storms and floods for example)
your tenants' own possessions have caused the problem/s
you haven't been able to get consent such as planning permission from freeholders etc. and can produce proof of reasonable efforts to get it
your tenant/s isn't an individual (i.e. they're a local authority, a housing association etc.)
People need tenancy agreements not 'licences to occupy' to be protected under the Act. The latter may include lodgers (people living in your house as tenants) and some other groups.
When can tenants use the Act?
They can use it for any tenancies which started on or after 20 March 2019. Landlords with properties let on existing tenancies however have until 20 March 2020 to comply.
What are the penalties for non-compliance?
If your tenant is successful in taking you to court under the Act, the court can make you pay compensation to them - the level is at the discretion of the judge and can include an order for costs and/or make you carry out works to remedy the fault.
NB Local authorities can still use their own enforcement powers on you however, if they judge that you are carrying out poor and illegal practices.
What are the criteria for 'Fitness for Human Habitation'?
The criteria a court looks at to decide this are whether:
the building has been neglected and is in a bad condition
the building is unstable
there’s a serious problem with damp
it has an unsafe layout
there’s not enough natural light
there’s not enough ventilation
there is a problem with the supply of hot and cold water
there are problems with the drainage or the lavatories
There is no fixed legal time limit, however you should act as soon as possible after a tenant makes you aware of the problem and if the problem is a hazard located in common parts of a block of flats or a House in Multiple Occupation (HMO), you become immediately liable.
Note, however, that if you have to access a tenant's flat or room (HMO) to investigate a problem or hazard, you should still give at least 24 hours' written notice and you should visit within reasonable hours unless in the case of an emergency. You should always keep records regarding this area.
Do you need Buy to Let Advice?
If you own, or are buying a UK property to let, get in contact with us. We can help provide:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
Hi there, I'm Ehren. Do you need any help with a Buy to Let property?
Click and ask me a question or call me now on 0333 344 3234 (local call rate) and I'll happily help.
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