Is a Buy to Let a Good Investment in the U.K?

Are you considering investing in property in the UK? It’s a widely recognised best practice to diversify your investment assets not only to increase potential gains and get exposure to new investment opportunities, but also to effectively manage your investment risks. A buy to let (BTL) property investment is one solid option for diversification, especially in the high-demand UK market. In this article, our BTL mortgage specialists will take a look at what BTL investment is, the risks, whether it is a worthwhile investment, and more.

What is a buy to let investment?

A buy to let property investment is when you purchase a property to get additional income through rental payments and profit through the long-term growth and value of the property market. This investment vehicle has seen some significant returns since around 2001, and the private rental sector has more than doubled over the last 20 years as housing values and the demand for rental accommodation rise. Many investors also respond well to the idea of having a physical, bricks-and-mortar investment to rely on.

When you want to buy a property for investment purposes, you cannot use a standard residential mortgage. Instead, you are required to purchase it using a buy to let investment mortgage. This means that investors are subject to more stringent eligibility, down payment, and repayment requirements. For this reason, it’s advisable to negotiate this complex process with the assistance of an experienced BTL mortgage broker with strong ties to key lenders and the ability to negotiate a robust and best-interest financial agreement.

Why should I consider a buy to let investment?

So, is a buy to let a good investment? Like any investment, this depends on many different factors including your financial position, where you would like to buy the property, and whether you want a short-term or long-term investment.

In terms of the general market, the buy to let property investment sector has experienced some significant challenges, including increased taxes and regulations, a 3% stamp duty surcharge, the loss of the ability of landlords to offset 10% of their annual rental income against tax for wear-and-tear, and the global economic challenges of 2020. 

The private rental sector in the UK is very powerful – and the slight dip in the market since 2016 along with many long-term landlords selling off properties in the last couple of years has created some exciting new opportunities for new investors to get a foot in the door in this robust market.

As a result, current data shows that 64,500 buy to let mortgages were granted in 2020 despite the global economic downturn, with the Financial Conduct Authority (FCA) data showing that 12% of all new mortgages are BTL mortgages. This shows that the demand for these investments is still high despite the 3% stamp duty tax introduced in 2016 that had a plateau effect on the market.

The reality is that, while no market is bulletproof and profits are not guaranteed even though the market has been booming since the early 2000s, the BTL investment opportunities for new investors are more accessible and open than ever before. This is especially significant when you consider how buy to let mortgages work to help grow your investment without the need for considerable capital expenditure.

If you have always wanted to invest in property and reap the rewards of an additional source of income as well as capital growth, it’s hard to beat a BTL investment.

How does a buy to let property investment work?

This is a process whereby you purchase a property for the specific purpose of renting it out to tenants. You can achieve this with minimal capital investment through one of two types of BTL mortgage – an interest-only loan where capital repayments are excluded from the monthly loan repayments until the term is complete, and capital repayment loans that fully pay off the capital and interest each month.

It’s important to remember that buy to let mortgages usually carry higher fees and interest rates than would be included in a standard residential mortgage because these are for an additional property. The eligibility requirements are also slightly different, and applicants are usually required to put down a deposit of 20-40% of the property’s value, although this can be negotiated by your broker.

In general, the eligibility criteria for a BTL mortgage include:

  • That the property is purchased to rent to tenants, not to live in
  • That your credit record is in good health
  • That you have the required income after paying off other debts to meet the repayments of the mortgage you are applying for
  • That you earn a minimum of £25,000 per year (this is negotiable, and a broker can assist you if you do not meet this criteria)
  • That the persons responsible for repaying the loan would be under the age of 85 when the term of the mortgage is complete although there is some flexibility on this.

What risks are involved with a buy to let investment?

No investment is without risk and it’s important to consider your personal and financial risks before investing in buy to let property in the UK or anywhere else. Typical risks to consider include:

  • Being unable to find tenants
  • Non-payment of rent and disruptive tenants
  • Changing tax and landlord regulations
  • Higher barriers to entry (including more stringent capital and eligibility requirements)
  • Ongoing costs to the property such as repairs, maintenance, and property upgrades
  • Liquidity, as it may take time to sell your property
  • Changes in interest rates, depending on the type of interest rate applicable to your loan
  • The burden of managing your property as a landlord

While a buy to let property is often a sound and rewarding investment, it is best to be prudent when considering your options. It’s also essential to have a good broker at your side if you do decide to purchase, as they can explain terms fully to help understand your risks, and ensure you get the most advantageous terms on your loan.


What other costs will I need to consider?

In addition to the cost of the loan’s monthly repayments, it is important to consider the following additional costs:

  • 3% stamp duty in England and Northern Ireland
  • Land transaction tax in Wales
  • Buildings transaction, legal and survey fees in Scotland
  • BTL mortgage fees, including arrangement fees, booking fees, valuation fees, CHAPS fees, account fees, exit/mortgage closure fees, and a mortgage broker fee
  • Property costs including property management fees (if you use a provider), maintenance costs, insurance costs, and repairs costs
  • Income tax and capital gains tax

An experienced broker will be able to walk you through all the applicable costs and help you determine the cost benefit of this type of investment, helping you prepare your finances and determine if investing in a buy to let property investment in the UK is the right option for your portfolio.

Can I avoid paying tax on a buy to let investment?

Investing in property requires that you pay tax on the rental income you earn from tenants and Capital Gains Tax (CGT) on the sale of second properties for profit. In terms of CGT, when you eventually sell your investment property, buy to let investors carry a 28% for higher rate taxpayers and 18% for basic rate tax payers.

Currently, landlords are no longer allowed to deduct mortgage interest from rental income to reduce tax and receive a tax credit instead. Your BTL mortgage broker can assist you in determining the tax implications of this type of investment. 

How much money do I need to buy to let?

This depends on two factors – how much capital you can put down, and whether or not you require a buy to let mortgage. The amount you will be allowed borrow through a BTL mortgage is dependent on how much you can earn through renting the property, as well as the specific criteria of the lender, which can vary. In general terms, lenders will want to see a rental income that is 20-30% more than your mortgage repayment to secure their loan.

The Best Route to a BTL Investment Property is the Right Broker

If you are considering investing in a BTL property anywhere in the UK, it is highly advisable to have an experienced and skilled broker guide you through the process and assist you in sourcing your BTL mortgage. With an extensive professional network and key relationships with lenders, investors have access to the best BTL mortgage deals across the country, and we work with you each step of the way to protect your interests, reduce your payments and capital expenditure, and guide you towards a successful investment. At Mortgages for Business, we specialist in buy to let property investment in the UK. We understand that each client is as different as each property, and we work tirelessly to find you the perfect fit.


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