Buy-to-Let in the UK

This guide is for people who are thinking of buying a property to rent with a ‘buy-to-let’ mortgage and who may have little or no previous experience of investing in the private rented sector.

It is not intended as a detailed guide; if you are thinking of purchasing a buy-to-let property you should seek expert advice on legal, tax, financial and property management matters.

Buy-to-let is a form of residential investment where you buy a property, usually with the aid of a mortgage, and rent it out. The 1988 Housing Act made investment in residential property more attractive to landlords when it introduced a new type of tenancy giving landlords more control over their properties and there has been a modest recovery in the private rented sector since then. The increased availability of loans at attractive rates of interest for buy-to-let purchasers has also increased the appeal of owning rental property.

When you buy a property to let out, you are becoming a landlord. And owning investment property is not like owning your own home. Instead you are effectively running a small business.

Before you choose a property and arrange the finance to purchase it, there are a number of factors you should look into, which are described below. 

Choosing a property

Researching your market

You should carefully research the market where you want to buy your property. You can either do this yourself or employ a specialist letting agent to help you find the area and property you are looking for. If you research the market yourself, you will need to gather information from estate agents, local papers, local employers and even the local authority, about the demand for and supply of, rented housing. 

Finding your tenants

You will also want to think about the type of tenant you are aiming to attract. Consider whether you are hoping to attract single people or families, as they will have different requirements. It is important to remember your property should have features that are attractive to would-be tenants, rather than would-be purchasers.

Choosing your location

You should also look at how close the property is to local amenities such as shops, transport and schools, and are these the type of amenities that are important to your tenants? So, if you are aiming to let your property to say a family with school-age children, how close the nearest schools are will be an important influence on where they choose to rent.

Choosing your property’s size and condition

Equally, you should think carefully about buying a property whose size is attractive to households looking for rented accommodation in that location. As well as the size, type and location of your property, what about its condition? Have you assessed whether the property will require expensive maintenance. Generally speaking, older homes require more attention.

Choosing a property you can afford.

Obviously, the size of mortgage you can afford will have a major influence on the size and location of your property. Choosing a mortgage is described in more detail in the section below. And finally, in considering how much to spend on a property you should bear in mind that as well as increasing in value, your property can also fall in value. 

Managing your property

Your responsibilities

When you have chosen a property, you will need to decide who will manage it for you.

If you manage it yourself, you will be responsible for:

• finding tenants
• checking tenants’ references
• collecting the rent and maintaining the property
• and dealing with problems

Your legal responsibilities

You will also need to be aware of your legal responsibilities as a landlord such as –

• carrying out repairs
• ensuring the safety of gas and electrical appliances
• and ensuring that the furniture and furnishings meet fire safety requirements

You should also consider familiarising yourself with landlord and tenant law, to understand your responsibilities as a landlord, and the rights your tenants enjoy. This is an area you may wish to take legal advice about. The Department of Communities and Local Government (DCLG) have published a useful guide for landlords in England and Wales called “Assured and assured shorthold tenancies: a guide for landlords” which is free and can be downloaded online.

When your property is empty

You should remember there may be periods when you are unable to find tenants for your property and it will be empty, with no rental income coming in. Obviously you will still be expected to continue repaying your mortgage so you will need to think about how you will meet your mortgage repayments in these circumstances. This could particularly apply if you choose a property in an area where the supply of rental property exceeds demand from tenants.

Maintaining your property

As well as managing your property, you will be responsible for maintaining it. Besides repairs and regular maintenance, properties can benefit from routine improvements which maintain their attractiveness with would-be tenants. You may find that your property is in need of an overhaul after a tenancy finishes. Naturally, you will have to finance this yourself. What is more, your property is likely to be empty and you will not receive a rental income, while your property is being improved.

Using a managing agent

Given the number of different responsibilities you face as a landlord and the limitations on your own time, you may wish to use a managing agent to look after your property for you. This will cost you approximately 10% – 15% of your monthly rental income.

To be continued.