Buy To Let Guide

Buy To Let Guide


If you want to become a landlord, then this is a huge financial step to make that has so many implications that you need to fully consider. Jumping on the buy to let ladder can be a steep learning curve, so we thought we would share our easy-to-follow buy to let guide with you.

Let’s start by explaining exactly what a buy to let mortgage is and how it could work for you.

The buy to let mortgage

In the simplest terms, a buy to let mortgage enables you to purchase a property and to then rent that property out with the aim of making a profit. Successful landlords will always weigh up the initial cost of the mortgage, additional taxes and other outgoings against the amount of profit that will be made.

Seek tax advice and know the risks

Investing in the current housing market is of course not without risk. But, these risks can be greatly reduced by researching the current housing market and seeking out independent tax advice before you purchase any buy to let property. It’s important that you know all of the costs involved.

Know your market and plan for your budget

You need to be realistic about what you can afford and the time you will need to put into this new property venture. It is vital that you plan a realistic budget and that you will see a return on your investment, so plan carefully.

Is buy to let right for you? – Rental yield and capital growth

Two important factors to consider before embarking on the buy to let venture are rental yield and capital growth.

Rental yield refers to the amount of profit you will make on your property over time. There are many online tools that can help to give you an idea of how much return you will get on your investment over a set period.

How do you get a buy to let mortgage?

It is important that you put your finances in order and know your budget and limitations before going down the buy to let mortgage route. In addition, you will also be assessed for eligibility by a mortgage advisor. Lenders will look closely at your financial situation and will also assess the expected income that will be gained from your rental property. Most lenders like this to be at least 125 percent of the rental interest repayment. You will also need to put down a deposit. We discuss the deposit and other costs below.

Eligibility for a buy to let mortgage

Mortgage lenders often have strict criteria that you need to meet in order to secure that buy to let mortgage. You will normally need a personal income of £24,000 or more per year. First-time buyers are usually not allowed to have a buy to let mortgage and you will need to show that you can pay all relevant costs such as a survey and stamp duty land tax before a buy to let mortgage is agreed.

Information about the buy to let deposit and other costs

Firstly, you will need to put down a deposit on your chosen buy to let property, just as you would for a regular mortgage. However, there are a few differences with a buy to let mortgage. One is that you usually have to put down a bigger deposit with the average cost being that of 25 percent. The second difference is that the interest rate is usually a lot higher. Obviously, the bigger the deposit you pay the more options will be available to you including lower interest rates. Every mortgage provider will have something a little different to offer you, so it’s a good idea to shop around and find the right deal for you. This is because you need to find a mortgage that you know you can easily pay back at the end of each month.

Stamp Duty Land Tax, Income Tax and Insurance

When you purchase a residential property that is over £125,000 then you will need to pay Stamp Duty Land Tax. What you pay depends upon the stamp duty level as the higher the property cost the more you have to pay. In addition, when you purchase a property as a second home, so as a buy to let, you will need to pay an additional 3 percent surcharge.

What you also need to know is that you will also have to pay income tax on any rental income that you receive over £1,000. There are also certain expenses that you can claim as a landlord, so do look into these before applying for your buy to let mortgage. You will also need to take out buildings insurance on your chosen rental property before being accepted by most lenders.

Survey and Maintenance Fees

You will need to pay for a survey. There are different types of surveys that include a simple valuation, standard valuation and full structural survey. Most mortgage lenders require a standard survey for a buy to let property. It is recommended that for an older property, you opt for a full structural survey.

You need to think carefully about the maintenance fees of your buy to let property. This will include everything from general upkeep costs, repairs and ensuring that the rent is paid on time each month. In some cases, it may be worth your while investing in a property letting agency to do these tasks for you, but you will need to weigh up this additional cost.

Tips on getting the right buy to let property for you

So, you now know the financial implications of a buy to let property, but how do you go about choosing the right property for your needs. Below we share some tips with you.

Before you even begin to find that right property you need to have in mind the type of tenant that you want to attract. If you want a family to rent your property then look at residential areas near parks and schools. On the other hand, if you want more of a student let, then look in the inner city area or near the university campus.

Do your research into your chosen area. One great way to do so is by chatting to local estate agents to find out what properties are available, what sells well and if anything is due to go on to the market.

Always plan for the unexpected. There will always be those unexpected costs and repairs, plus you may have months when there are no tenants in the property, which means that you will have to cover the rent.

You need to stick to your budget and be sure not to stretch it to the absolute max. We can’t reiterate this point enough. Know how much money you have for a chosen property and then work out how much rental income that would bring. Look at similar houses in the area to gain a fuller picture.

If you would like more information and advice about buy to let mortgages then please don’t hesitate to get in touch with us here at Orchard Mortgage Solutions today.

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