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Purchasing a buy-to-let property: things to consider

A buy-to-let (BTL) property is one that you purchase to rent out to tenants. It can be an attractive way to use your money and receive extra income. But is it right for you?

Here are some questions to consider to help you decide. 

Are you eligible for a buy-to-let mortgage?

If you can't buy the property outright, you’ll need to apply for a mortgage. 

Lenders have their own criteria when it comes to buy-to-let mortgages. For example, to be eligible for a buy-to-let mortgage with HSBC: 

  • You need to have a minimum annual salary of £25,000
  • You must have owned and lived in your existing property for at least 6 months
  • The property must be in the UK

Additional criteria apply. 

Have you saved enough for a deposit?

Deposits for buy-to-let properties are higher than they are for residential properties. 

While most mortgage lenders require a deposit of at least 25% of the property purchase price, some lenders require as much as 40%. 

Explore: How to save for a home deposit

Can you afford a buy-to-let mortgage over the long term?

Many buy-to-let mortgages are on an interest-only basis, which means your monthly payment only covers the interest charged on your loan, so the amount you owe doesn’t reduce over time.

Rental income may help cover your monthly mortgage payments. However, you’ll need a repayment plan to show that you’re able to repay your mortgage at the end of the mortgage term. 

Alternatively, you might take out a buy-to-let mortgage on a capital repayment basis.

With this option, your monthly payments cover the interest charged on your loan each month, as well as a repayment of some of the capital. Your mortgage will then be paid off at the end of the term if you keep up with the monthly payments. 

Explore: Types of mortgages and repayment options

Keep in mind

Interest rates and mortgage fees tend to be higher for buy-to-let mortgages than residential mortgages.

You must also continue to make your monthly payments during voids. Voids are periods when the property is empty because you don’t have a tenant or you need to carry out maintenance.

Mortgage lenders will consider these factors when deciding whether to lend to you.  

Can you afford the costs of a buy-to-let property?

There are other costs to consider when buying a property to let, such as:  

  • Conveyancing fees, survey fees, and Stamp Duty
  • Renovation costs to make the property safe and secure before you let
  • Letting agent fees
  • Landlord insurance to help protect you and your investment
  • Ongoing maintenance and repair costs

Do you understand your responsibilities as a landlord?

As a landlord, you will have legal obligations and a duty of care to your tenants, so it’s really important to understand these before investing in property.

Have you researched the rental market?

Take your time to research the rental market in the area you want to buy in. It can give you an idea of local demand, who your tenants might be, and how much you could receive in rent – and, therefore, the potential yield on your investment.

Understanding the market can help you when it comes to finding tenants and managing your income. There may be times when your property is empty. So, make sure you can manage without this income during these times.

If your property increases in value, you may be able to sell the property for more than you paid for it. However, property prices can fall as well as rise, meaning they could also drop in value.

Do you understand the tax implications of owning a rental property?

You must pay tax on the income you earn from your investment property and on any profit you make when you sell your rental property. However, you may be eligible for certain tax reliefs. 

Always seek tax advice, as tax rules can change and depend on individual circumstances.  

Your property may be repossessed if you don’t keep up repayments on your mortgage.