Buy to let options for landlords in 2021


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The rental property and real estate market in 2020 has faced many financial challenges, not limited to COVID-19 , but there are several promising signs that the next year and beyond can still provide some strong opportunities for landlords in the buy to let market.

Demand for rental property was higher than ever in 2020 and doesn’t look to be reducing in the upcoming year due to house prices growth. While there are increasing pressures, stiffer regulations, and even a temporary lockdown on the property market as a whole to contend with, you could be forgiven for putting your plans on hold until things settle down. However, the following article intends to put your mind at ease and help you plan for the future with a long term investment.

What is buy to let?

Put in simple terms, buy to let is the purchase of a property specifically with the intention to rent it to a tenant rather than lived in by the person who has purchased the property. 

Investors can make profit from this by generating income through the rent charged, so long as the monthly rent charged is more than the mortgage rate. 

If you can’t buy your property outright, you’ll need to apply for a mortgage, but this will need to be a specific buy to let mortgage. A standard or residential mortgage is only available if you plan to live in the property. There are several differences between a buy to let mortgage and a residential mortgage.

Instead of your salary, a potential lender will look at the potential rental income of the property as your primary source of income. Many mortgage providers will look at your income as a secondary factor.

A deposit on a buy to let mortgage tends to need to be bigger than the one required for a standard mortgage. Most lenders will require at least a 25% deposit and the cheapest mortgages may ask for 40%.

How much are buy to let mortgage fees?

Ahead of investing in a buy to let mortgage, there are several fees you need to take into account. These fees include Stamp Duty, property valuation and survey, legal costs, and mortgage arrangement fees.

Buy to let mortgages with the lowest interest rates can come with the biggest upfront costs. A chart-topping rate could carry a fee of up to £2,000, for example. You can combine the fees together with the loan but remember this will mean paying interest on them.

It’s important therefore to weigh up your options, and the interest rate with fees before making a decision. In some instances you may find paying a higher interest rate may work out cheaper.

What sort of buy to let property should I buy?

Whether you’re searching for your own home, or a buy to let property, location is an important factor to consider. In the case of buy to let properties, it’s key to think about the type of tenant you want to attract.

Families, for instance, are more likely to want to live somewhere with a garden that is close to local amenities such as good schools and a high street. Whereas students will want to live in an affordable property close to their friends, university and nightlife.

Take a look at the properties we have on offer.

Does it matter what type of tenant I have?

Getting your location wrong may deter tenants, but it’s also worth bearing in mind the type of tenants you want your property to attract. 

Many lenders have restrictions on student accommodation and houses in multiple occupations (HMO’s) A HMO building is defined by having three tenants or more, that form more than one household and who share a toilet, bathroom or kitchen facilities.

How do I choose where to buy?

If this is your first venture into buy to let, purchasing somewhere close to your current home is a safe bet. As well as being familiar with the area already, you’ll be available if anything goes wrong. If you’re further afield, homes4u are on hand to manage your property for you.

If you plan to use a lettings agent like homes4u, you will be provided with information on which houses are in demand and rent return you can expect for any area – so you can look further afield.

Do I want good rental returns or capital growth?

The type of property and the location will be determined by what is financially viable.

As an investor in buy to let you will either be relying on capital growth (increase in the property value in the medium or long term) or rental yield (income generated as a percentage of the property value) you will need to decide which of these has the greater advantage to you.

For example, if your initial costs are high you are unlikely to obtain a good rental yield, so you’ll be reliant on the price of the property rising. 

However, if you are purchasing several cheaper properties to let out to students you’ll be more reliant on rental yield.

Do I need buy to let insurance?

Also known as landlord insurance. Find out more about landlord insurance on our landlord services page

What are the tax implications of buy to let?

There are certain taxes to pay on your buy to let home and unfortunately, in recent years they have become more stringent. Here’s some guidance on what you can expect.

The rent you receive from the property will be taxed in your standard tax band, but bear in mind this may push you up a bracket. There are some costs you can deduct against the amount of tax you pay, including some lettings fees, buildings, and content insurance, council tax (if you cover this on behalf of the tenant), and essential maintenance, for example, boiler repairs.

If you’re letting a furnished property bear in mind you can no longer claim 10% ‘wear and tear’ tax relief against your tax bill, and can only claim for actual costs of any damage or repairs.

And as of April 2020, relief on mortgage interest is capped at 20% for all landlords, regardless of what tax level you are at. 

If this seems a bit all too confusing don’t worry we’re on hand to help, with over 30 years experience we’ll be able to provide you with the information you need.

What is Consent to Let?

Consent to let gives you permission from your mortgage lender to rent your home for a limited amount of time. This isn’t guaranteed from your lender, and they may ask you to meet a criteria before agreeing to consent.

General buy to let tips to keep in mind

Shop around – use a comparison website to find the best BTL mortgages available to you.

Talk to us today

If you’re interested in buy to let or are an existing landlord with questions, 

speak to the team today and we can talk you through everything you need to know to ensure you’re compliant and prepared for the future. Register your details to be contacted.


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