24th January 2024

A beginner’s guide to buy-to-let property

Property investment for beginners can be daunting, as there is an overwhelming amount of information and considerations to take into account. Despite this, however, there is great appeal in investing in a buy-to-let property, such as generating a viable and potentially lucrative form of secondary income. 

Becoming a landlord is not without risk, but with our buying-to-let guide, you’ll be well-equipped to mitigate these risks and improve your chances of becoming a successful landlord. Continue reading to learn more about what your responsibilities as a landlord will be, as well as what to look out for when purchasing a buy-to-let property. 

What is a buy-to-let property? 

A buy-to-let property is a building purchased with the intent to rent the property to one or multiple tenants. As such, this means that a buy-to-let property can come in several forms including studio flats, family homes, townhouses, or apartment blocks. The idea behind this is to generate a revenue stream through property investment from collecting rent from tenants. The rental yield of a property is typically determined by location, but it is also influenced by the condition of the property. To learn more about rental yields in the UK, we’d recommend reading our blogs ‘What is a good rental yield in the UK?’ and  ‘The best buy-to-let areas in the UK’.

What to look for in a buy-to-let property

Property investment for beginners can be a difficult thing to navigate, but finding the right lot to purchase is critical to ensuring success. It’s important that you make decisions based on strategy and logic, rather than just choosing a property that you like and you think will generate income. To do this, there are a few considerations that you should take into account when looking at potential investments. 

• Budget – Your costs should not be more than your profits. Factor in things like insurance, mortgage rate interest if applicable, cost of buying, and potential income.
• Tenant demographic – who your potential tenants are will greatly influence your decision when buying a property. For example, students may be happy with a studio flat in the city centre, but young couples are likely looking for a minimum of two bedrooms with good transport links, and a family of four will want a decent-sized house with schools nearby. 
• Rental yield – As mentioned previously, considering your rental yield is highly important. Buying in an area with little demand for rentals or high buying costs may not be profitable. 
• Area – Rental yields often vary within regions depending on area or street. Research the area to find out what the best and worst places are, as well as what amenities and transport links are available which may make a property more attractive to tenants.
• Internal specifications – Properties that are unkempt, outdated, or with issues are not likely to attract tenants. If the renovation work required is going to cost you more than you have budgeted for your purchase, it may be worth looking for a different property that needs less work. 
• Maintenance costs – Newer buildings are usually more expensive, but they often require less maintenance and renovation costs. Whereas older buildings may be more difficult to maintain and need more frequent fixes, they are typically cheaper to buy. You’ll need to weigh up these costs before making a decision.

What is a buy-to-let mortgage?

If you are not cash-buying your property outright, you will need to obtain a buy-to-let mortgage. You cannot purchase a property that you’ll let out using a regular mortgage. These mortgages are considered by lenders to be a higher risk than standard residential mortgages, so there are certain stipulations that you will be required to meet to be eligible for a buy-to-let mortgage, these will differ from lender to lender, but some of the common criteria is as follows.

• Many lenders have a maximum age requirement, this is usually set at 75 but it could be lower
• You’ll need to have a good credit score and a spending history that shows you don’t borrow too much across credit cards
• You might have to provide evidence of income which is separate from rental earnings
• Some lenders may ask for proof that you already own your own home
• An LTV (loan-to-value ratio) of 75%, which means you’ll have a minimum of 25% deposit to put down on the mortgage
• Your rental income should cover at least 125% of your mortgage repayments

Can I live in a buy-to-let property?

It is not illegal to live in your buy-to-let property but it is not advised as doing so without the permission of your lender could result in you committing mortgage fraud. Most buy-to-let mortgages will prohibit landlords from living in their buy-to-let properties due to the different stipulations between residential mortgages and buy-to-let ones. Once you have paid off your buy-to-let mortgage you can live in the property, either solely or alongside your tenants if circumstances allow. Some landlords may do this if they own a block of several flats, and wish to occupy one of the flats in the building.

What are the responsibilities of a landlord?

Purchasing a buy-to-let property is not a passive form of income, as it comes with a lot of responsibility. Understanding your full legal responsibilities and duties as a landlord is incredibly important, as this will allow you to protect both your tenant, yourself and, in the process, your investment. Before purchasing a property, it’s worth asking yourself whether you’re ready for these commitments. To help you get a better understanding of what is expected of you, we’ve compiled a list of responsibilities below. 

• Register as a landlord: Some local authorities require private landlords to be registered before they can advertise their property to prospective tenants. In Scotland, however, every landlord must be registered by the local authority, with considerable fines and bans in place should you fail to do so.
• Leasehold and freehold: If the property you’re purchasing is leasehold, you must have permission from the freeholder to rent out the property.
• Checking tenants: In UK law, any landlord caught renting to someone who doesn’t have the right to rent could be prosecuted and fined up to £3,000 per illegal tenant, and could face up to five years of jail time. Ensure you have evidence of your tenant’s proof of right to rent in the UK.
• Tenant documentation: Before your tenants move into the property, you are legally obliged to provide them with the government’s ‘How to Rent’ guide.
• Tenant deposit protection: It is your responsibility to protect the deposit paid to you by your tenant(s) within 30 days of receiving it by putting it into a governmentally approved tenancy deposit scheme.
• Fire safety: You must familiarise yourself with all fire safety regulations and ensure that your property meets the standard. Correct fire safety solutions could not only protect your investment from damage but also the lives of your tenants. You must ensure that your property has clear escape routes, fittings that meet regulation requirements and working smoke alarms on every floor of the property. For properties with fuel-burning devices installed (such as solid fuel boilers), carbon monoxide alarms must also be installed.
• Energy performance test: Private landlords must provide all tenants with an energy performance certificate (EPC). These tests will remain valid for ten years, so you don’t have to worry about testing annually as you do for gas safety certificates. Unlike the rest of the UK, properties in Scotland must have an EPC in place before advertising the property and a physical copy of the certificate must also be displayed within the property.
• Gas and electric: Annual gas safety inspections must be carried out, with the certificate being provided to the tenants. For electrical safety, you are only legally required to have safety tests performed on electrical fittings if it is a house of multiple-occupancy (HMO), and this must be done every five years. However, in Scotland, an Electrical Installation Condition Report must be completed by a qualified electrician at least every five years.
• Repairs and maintenance: One of your ongoing responsibilities is to ensure the property remains in good condition whilst tenanted. You’ll also need to make sure the property is in adequate condition before your tenants move in and maintain that condition with necessary repairs during the tenancy.
• Repairs and maintenance (Scotland): For Scotland, additional regulations are in place regarding your repairing and maintenance obligations. As introduced by the Housing (Scotland) Act 2006, all rental properties must meet the Repairing Standard and the Tolerable Standard, the former meaning that the property meets basic levels of repair (wind and watertight, structure and exterior kept in reasonable condition, all amenities including gas, electricity and plumbing all working properly) and the latter addresses problems that can affect a property (damp, poor ventilation, lack of natural light and breaches of safety standards).
• Tax returns: You need to declare your rental income and file a tax return, and you must complete it accurately.

It is also worth mentioning that being a landlord may also come with difficulties regarding your tenants. Perfectly behaved tenants are a landlord’s dream, but not a guarantee. You are expected to resolve any disputes yourself, collect rent, serve any notices, and be responsible for dealing with maintenance requests from the tenant. If this side of things doesn’t sound appealing to you, you might wish to hire a property management agency that can help to take care of these things on your behalf. Of course, this would incur extra costs that would need to be accounted for in your overall budget.

What taxes do you pay on a buy-to-let property?

Buy-to-let properties are subject to several tax payments which are worth taking into consideration when accounting for your budget and expected income. The tax types to take into account are: 

Stamp Duty Land Tax: This is paid on properties in England and Northern Ireland that cost over £250,000 however since a buy-to-let property will be a second residential property that is not your main residence, you will have to pay a 3% surcharge on top of the Stamp Duty.

Income Tax: Since renting will generate an additional income source for you, you will have to pay income tax on your earnings. You are permitted a £1000 allowance, but as a landlord, you will likely generate significantly more than this.

Capital Gains Tax: If you decide to sell your rental property at any point, you’ll be charged Capital Gains Tax. The amount you have to pay will be determined by your personal income and the profit from the sale.

Secure your ideal buy-to-let property with SDL Property Auctions

Property auctions attract a lot of attention from investors as there is a wide range of property types available across the country. Some landlords choose to streamline their portfolios and sell buy-to-let properties with tenants in situ at property auctions, which can make the leap of getting into property investment easier for beginners. To start your search, browse through our Timed Auctions and Auction Events to see our available properties, or contact a member of our team for further information.