4 Top Tips for New and Aspiring Buy to Let Landlords


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Legislation hasn’t been kind to buy to let landlords in recent years. And that’s putting it mildly!

In a bid to free up homes for social housing and reduce the private rental sector, George Osborne first hit buy to let landlords with tax changes to their buy to let mortgage interest relief around 2017.

Then landlords were told they could no longer claim automatically for ‘wear and tear’ to furniture etc but would be entitled to money for a ‘similar replacement.’ Finally, an extra tax (3%) was put on buying second homes, effectively landing landlords with large stamp duty bills.

Is buy to let investment still popular?

Yet, despite these financial hurts, buy to let property remains a popular investment choice for thousands of Brits today. And it’s growing in popularity once again.

The most recent quarterly report by the National Residential Landlord Association revealed that landlords were feeling buoyant about the market. The Association’s Landlord Confidence Index was 50% higher for landlords indicating their intention to purchase another buy to let this year compared to the same period in 2020.

This was backed up by a survey from The Deposit Protection Service (The DPS) which revealed more than a third (34%) of landlords had recently bought a new property – or were thinking of doing so.

  • Of the 300 landlords surveyed, most said they had bought because of savings on stamp duty. 
  • Others had purchased more property as a long-term investment opportunity. Interestingly, nearly half (43%) of landlords had reduced rent for tenants during the pandemic, while 13% of tenants had sold a property during the same period.
  • Only 7% had taken the mortgage holiday announced by the government as a result of lock-down measures.

So, now that we have established buy to let investment is once again on the ‘up’, what do new landlords looking to enter the scene need to look out for? Well, here are 4 tips that are definitely worth considering when it comes to applying for that buy to let mortgage you will no doubt need.

Be prepared to put down a big deposit

A buy to let mortgage differs greatly from a residential mortgage in several ways.

The first is that whilst most high street lenders provide buy to let mortgages, if there are any "non-standard" issues with the property you will need to go to a specialist lender.

For example, a flat above a shop or properties of non-standard construction. Mortgage brokers that have access to the whole market can look across all lenders and products on offer to match your requirements.

Secondly, it is more common to go with an interest-only mortgage. That’s to make it more affordable for the landlord and generate a profit from the rental income. Lenders will require you to have a repayment strategy in place such as paying off the capital debt at regular intervals.

And, thirdly, buy to let mortgages always involve a much bigger deposit than a typical residential mortgage – starting at 25% of the property’s purchase price.

Get ready to pay more for your buy to let mortgage

As well as that bigger deposit you’ll have to find, get ready to pay a higher mortgage interest rate than you would for a residential mortgage – at least one percentage point higher, in fact.

The reason for this is that landlords are seen as ‘riskier’ borrowers than those taking out a residential mortgage. Lender arrangement fees can also be higher (up to 3% of the property’s value in some cases).

Meanwhile, it’s worth noting too that not all buy to let mortgages are regulated by The Financial Conduct Authority (FCA) as they are seen as commercial in nature.

In some specific circumstances, (usually where someone becomes an unintentional landlord) they can be fall under “regulated buy to let” rules.

Considering becoming a limited company

When landlords lost their mortgage interest tax relief allowance, many landlords – especially those who were higher taxpayers - found it more profitable tax-wise to become a limited company.

That’s because, as a limited company they are still entitled to claim some financial costs before tax as expenses. Also, corporation tax is charged at a lower rate than Income Tax (19% compared to 20% for a basic taxpayer or 40% and 45% for higher brackets.)

Limited company landlords can also benefit from the dividends system – the first £2000 of which is tax-free. After that further dividend payments to themselves are taxed relative to their tax status (7.5% for basic taxpayers, 32.5% for higher etc).

The downside of being a limited company for landlords is having to pay capital gains tax on properties when switching from individual to company status.

Not all rentals make money

The amount you can charge in rent depends on lots of things, such as the condition of your property, where it’s located and how other similar properties in the same area are priced.

The way you’ll know whether or not a property is profitable is by the yield – the higher the yield, the more profitable the apartment or house is.

To calculate the yield, you have to take into account the annual rental income and divide it by the price of the property. Next, multiply by 100. You’ll also have to factor in potential void periods i.e. when no one is living there and paying rent (usually between different tenancies).

There will also be maintenance costs, insurance, boiler checks etc to pay for and which also must be taken into consideration when calculating the yield.

The majority of buy to let mortgage lenders insist on your rental income being 125% of your mortgage interest payments.

That’s to make sure you can still afford it if the interest rates increase (and which could certainly happen in the distant future since right now they are historically low).

Get in touch, we're here to help

Are you an aspiring landlord looking to invest in UK property? If so, then our broker here at The Mortgage Stop guarantees to find you one of the most competitive buy to let mortgage rates around. So, whether you are looking for a lower deposit buy to let mortgage, a long-term fixed-rate, or the lowest interest rates possible, then come and discuss your needs with us.

Book an appointment or request a call back from an member of the team by clickin on the buttons below.

Your property may be repossessed if you do not keep up repayments on your mortgage.  Not all buy to let mortgages are regulated by the Financial conduct Authority

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