Is Buy to Let for Me?

Working out whether a buy to let investment is the right decision for you depends on a huge amount of factors – both financial and otherwise.

We’ve put together this guide to help you work out if becoming a landlord is a good idea.

Buy to let mortgages

It can be trickier to secure a buy to let mortgage than a residential mortgage. That’s because you might face trouble collecting rent or your property might be unoccupied for a while between tenants, losing you money.

There are certain conditions you’ll have to meet to get a buy to let mortgage. You’ll usually have to:

  • Be earning at least £25,000 a year
  • Be a certain age – most lenders will require you to be under 70 or 75 at the end of the mortgage
  • Have a strong credit rating
  • Own your home already – either outright or with an existing mortgage

Buy to let mortgages are usually interest-only. With these, you pay the interest monthly, but not the capital. At the end of the term, you repay the loan in full. Interest rates are typically higher than those on residential mortgages.

You’ll also need to think about whether you can get the best deal on a mortgage. Some of the best interest rates are only available if you have a deposit of at least 40%. Meanwhile, you’ll usually only be able to secure a mortgage if you have a 25% deposit. So carefully consider if now is the right time to invest or if you need to build up your deposit fund a little more.

Tax relief changes

One of the biggest talking points in the buy to let field for the last few years has been the changes to tax relief. The new rules mean some investors will have to pay more tax on their rental income.

Previously, landlords were able to deduct their mortgage interest from their rental income before they paid tax on that income. After April 2020, though, they haven’t been able to. Instead, a 20% tax relief has been imposed for landlords.

It means that landlords in higher tax rate bands will pay more tax than they did before. But basic rate taxpayers won’t be hugely affected. And if you’re looking to invest in a buy to let property now, you won’t be affected by the tax relief changes.

But it makes it important to consider whether you’ll get the best return on your investment by putting your money into property. If you’re considering investing, it’s important to speak to an independent financial adviser.

Stamp Duty

Right now, there’s a Stamp Duty holiday. This means that residential home buyers won’t have to pay the tax on properties up to £500,000 and will pay a reduced rate on homes that cost more than that. The holiday is set to last until 31 March 2021.

Investors in buy to let homes usually have to pay a 3% surcharge on standard residential Stamp Duty rates. But since there are currently reduced rates for residential buyers, there are also reduced rates for investors. On the first £500,000 of a property, investors will only have to pay the surcharge.

If you’re a first-time buyer investing in a buy to let, you won’t have to pay the surcharge. But because you won’t be living in the home, you’ll miss out on the first-time buyer Stamp Duty exemption or discount. So you’ll have to pay standard home-mover tax rates.

A potential problem is that conveyancers and councils are dealing with a backlog of home transactions. This means that your purchase could be delayed, meaning that you miss the Stamp Duty holiday deadline by the time it’s completed.

Individuals and industry bodies are calling on the government to extend the holiday, with the Law Society urging people to write to their MPs about the matter.

The best thing to do is talk to a conveyancer to find out if you have a chance of completing in the timeframe.

A landlord’s duties

Are you the right person for the day-to-day life of a landlord? Will you arrange repairs when an appliance stops working? If someone attempts to break in, can you go around to secure the property and reassure the tenant? Could you confront them if they can't pay their rent?

If you don’t have the time – or the inclination – for these sorts of duties, but you’re still determined to become a landlord, you’ll probably want to consider a letting agent that will take over full management.

They’ll charge around 10-15% of the rent you receive as commission, but you’ll leave everything in their hands. They’ll make sure of your rental income while you focus on other aspects of your life.

When you’ve decided that a buy to let is right for you, you’ll need the best conveyancing team for a straightforward purchase. First4Lawyers works with top property experts to make the process stress-free and efficient.

Get in touch to find out how we can help.


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