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What to Consider Before Investing in Buy-to-let Properties in the UK

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Throughout the UK, there are an estimated 1.5 million private landlords letting out a property to a tenant. This number has continually increased over the last several years, for a variety of reasons. Homeowners have recognised their ability to generate income from letting, while renters have grown in number due to rapidly rising homeownership costs. With these factors in mind, many consider their options for investing in buy-to-let properties, particularly as interest rates on mortgage loans remain relatively low.

Becoming a private landlord through a buy-to-let scheme comes with added responsibilities, above and beyond what one might expect as a residential homeowner. Here are several considerations to weigh before joining the rank of landlords in the UK by investing in a buy-to-let property.

Knowing the Numbers


When thinking about purchasing a property to let out to someone else, certain financial factors must be considered before signing on the dotted line. The process for purchase a property is the same in many cases as it is with buying a home in which to reside, but higher costs are involved for potential landlords. Most lenders want to feel confident in the buyer’s ability to maintain the monthly mortgage expenses, and so, a larger contribution up front is typically required. There are also expenses like stamp duty and legal fees that are required during the purchase process. In addition to these increased expenses, prospective landlords must also have a plan for future financial costs.


Should tenants fail to pay rent for the month, or they cause damage to the property at some point during their tenancy, it is a landlord’s responsibility to cover these expenses so the home can be let out in the future. Also, landlords should be prepared to include any rental income received as taxable income each year.


Recognising Legal Responsibilities

In addition to the financial aspect of becoming a landlord, the UK has provided clear guidance over the last few years relating to the responsibilities landlords take on in the process. Depending on the type of property and the agreement to let it out, the legal requirements may include the following:

  •          Obtaining energy performance certificates and following gas safety guidelines
  •          Securing deposits from tenants
  •          Having a landlord license
  •          Ensuring the safety of appliances and sockets


Misunderstanding or avoiding these requirements could lead to unnecessary fines and legal proceedings, all which can dilute the return on investment.


Landlords are also required to have certain insurance cover in place. A finance expert from Money Pug, a site used to compare home insurance, states that buy-to-let properties may need buildings cover along with contents cover and landlord insurance. Policies like these are meant to protect the landlord should things go awry that impact the home itself due to unforeseeable events. Without the right insurance cover, the financial burden of repairing a home after an accident or natural disaster could eliminate any potential return on investment for years to come.


Calculating Rental Income


Another consideration before purchasing a buy-to-let property is the potential for rental income. As mentioned, any income received from a tenant in the form of rent is taxable to the landlord, and so this should be calculated into the long-term return on investment. However, taking a close look at rents in the area where the property is located is the first step in getting a strong ROI.


Prospective landlords should complete due diligence on a neighborhood before purchasing, evaluating what is realistic for rent amounts and the demographics of residents in that specific area. If the rent collected does not come close to or fully cover the cost of owning and maintaining the property, a buy-to-let home may become more of an expense than an investment.


Having Access to Help


Finally, not all buy-to-let arrangements go as planned. Some tenants do not pay what they owe, or they create other headaches during their tenancy in the property. When this unfortunate issue arises, landlords need to know where they can turn for recourse. Fortunately, landlords have rights under the law that can help remedy situations with tenants. However, having a sound tenancy agreement is the first step toward ensuring a landlord can lean on his or her legal rights if something goes wrong.


Both Citizens Advice Bureau and the National Landlord Association are helpful resources for private landlords. They can provide guidance on what steps to take in a bad tenant situation, as well as offer assistance on recouping losses. Buying a property for the sole purpose of letting it out can be a lucrative financial move, but only when these considerations are carefully weighed at the start.

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