A guide to buying-to-let

How to prepare for buy-to-let

The first question to ask is, ‘Will it be worth it for me?’

Buying-to-let can be a good way to generate income while also investing for the future – but it can involve a lot of work, it can be risky, and it isn’t easy money by any means.

It can help to contact a specialist buy-to-let mortgage adviser even before you get started.

They can guide you on the kind of mortgage you’re likely to get, the kinds of properties you could afford, how much rent you could bring in each year, how much tax you’re likely to pay, and – most importantly – how much profit you could expect to make.

Since April 2020, mortgage interest relief has been fully replaced by a 20% tax credit. Landlords can no longer deduct mortgage interest from rental income when calculating tax but can claim a basic rate (20%) tax credit. This is important to consider, especially for higher-rate taxpayers.

Your adviser can also talk you through the likely overheads, such as lettings fees, maintenance costs, furniture and white goods. These costs may affect the size of the mortgage you can obtain.

Another point to discuss is your deposit. You will need at least 25% for a buy-to-let mortgage, and to get the better mortgage deals you should aim for more like 40%.

When you and your adviser have gathered all this information, you should have a better idea about whether buying to let is right for you. If you’re still keen, you can set about finding a mortgage.

How to find the right mortgage

Buy-to-let mortgages are worked out differently from a normal residential mortgage because they take into account how much you’ll earn in rent. To be eligible for most loans, the rental income will need to cover 100% of the mortgage plus an extra 25%.

A key decision to discuss with your adviser is whether to choose a repayment or interest-only mortgage.

Most buy-to-let mortgages are interest-only, as this means lower monthly repayments and thus higher income. However, if your priority is a long-term investment, a repayment mortgage may be better.

Your adviser will also help you to secure the best mortgage deal. Arrangement fees and interest rates tend to be higher on this type of mortgage, so it really pays to get advice at this stage.

You should now be able to agree a mortgage in principle, so you know the maximum price of property you can afford.

How to choose a property

Think about the kind of tenants you want. Do you plan to let to students, young professionals, families, or perhaps people moving house and looking for temporary accommodation?

Your choice will determine the kind of property you should buy, and where to search for it.

A good rule of thumb is to know your area. Don’t buy in any location you don’t know well, even if prices are very attractive (there’s usually a reason for that).

Also be wary of buying far away from where you live, even if you have a good letting agent – you’ll still want to check up on things now and again.

The UK government recently scrapped plans to tighten energy performance certificate (EPC) rules in 2025, although landlords will still be encouraged to improve the energy efficiency of their properties.

Furnished or unfurnished?

Again, the choice depends on what kind of tenants you want. Families tend to want to bring their own furniture, but young professionals and students usually prefer furnished places.

In general, most people would like white goods to be provided. Bear these costs in mind during your mortgage application.

Stamp duty

If this property is not your only property, you’ll have to pay at least an extra 5% on top of your regular stamp duty. Factor this in during the budgeting stage.

How to select a letting agent

If you don’t want to spend time on a lot of admin, a letting agent will do the hard work for you. They’ll find you tenants, run the necessary credit and legal checks, take care of the maintenance, and collect rent on your behalf.

For a comprehensive service, you’ll usually have to pay them around 15% of the rental income, but you can reduce this fee by doing some of the tasks yourself. Alternatively, you can deal directly with your tenants and keep all of the income after tax.

A good letting agent should be part of a scheme or association, like Safeagent, previously the National Approved Letting Scheme (NALS), or the UK Association of Residential Letting Agents (UKARLA)

Do some more digging into what each agent offers. Find out how they’ll prove they’re managing the property well and read their terms and conditions thoroughly. Your solicitor can help check the contract.

Arranging contracts and running checks

All landlords are now legally required to check their tenants are over the age of 18 and have the right to live in the UK. These are called Right to Rent checks. Make sure you take copies of the original documents (passports etc.) from all tenants over 18. 

You can find out which documents you can accept and how to check them properly on the government website.

For every tenant you take on, have your solicitor draw up a contract for you both to sign. This kind of contract is also known as a tenancy agreement and should outline both your own rights and those of your tenant(s).

When you receive a tenant’s deposit, you must put it in the Deposit Protection Scheme (DPS), unless you’re a live-in landlord.

How to be a good landlord

Be sure to print off the How to Rent guide from the government’s website and give it to your tenants on moving day. You’ll then want to go over the contracts and sign everything together – your solicitor can explain how to do this properly. 

On moving day, you’ll want to do an inventory with your tenant. Mark down what’s included in the property, and any existing damage to these items. When the tenant moves out, you can check this against the condition they leave it in and decide if you want to deduct any money from the deposit for any additional damage.

From that day on, you just need to be on hand if anything goes wrong in the property, or ensure your letting agent is taking care of this. Always give your tenants reasonable notice if you need to carry out any repairs.

As a landlord, you must make sure your property is safe to live in. Every year, you need to get a registered Gas Safety engineer to check any gas appliances, including the boiler. Also make sure that any furniture and electrical equipment, like kettles and microwaves, meet safety standards.

Running your buy-to-let business

Even if you let only one property, buying to let is essentially a business and you should run it like one. If you own more than one rental property, it can really help to get an accountant on board to help keep things tax efficient and maintain your cash flow.

If you sell your buy-to-let property, any profit made will be subject to Capital Gains Tax. The rate depends on your income bracket, so it’s worth understanding the implications before you sell.

Remember that the money you receive in rent counts as income, so is exposed to income tax. You can however reduce the amount payable by offsetting profits against your expenses (e.g. maintenance and letting fees) on your self-assessment tax return.

Get expert financial advice

Opting for a buy-to-let deal can help you generate extra income while also investing in your financial future. However, it can entail plenty of work and a fair degree of risk and will also require you to take on the many responsibilities of a landlord to ensure a successful venture.

Speaking with a specialist buy-to-let mortgage adviser is vital for securing reliable guidance on which type of mortgage deal you may be able to get, which types of properties you could afford, how much rental income you stand to generate, and the amount of tax you can expect to pay.

Let Unbiased connect you with a skilled mortgage adviser who can help you navigate factors like mortgage applications, taxes, profit calculations, letting fees, and more to help you make the best possible buy-to-let investment for your needs.

Find out more about being a landlord here. If you found this article helpful, you might also find our article all about consent to let informative, too.