Buy-to-let has traditionally been seen as a safe haven for investors. If you have the capital needed to purchase a home and let it out to tenants, it is possible to turn a generous profit.

This does not mean that buy-to-let is not without its challenges; there are various costs and potential risks to be carefully considered, before buying into one of the UK’s most appealing investment sectors.

Sky-High Property Prices

The initial costs of buying into the sector have reached an all-time high with approximately 95% of all UK rental stock fully let out; demand for quality rental properties among tenants is insatiable. Consequently, availability of affordable buy-to-let has almost completely dried up.

“Investors have a tendency to offer lower [purchase prices] so that their yields remain strong however due to the low stock on houses the market, demand has pushed prices up meaning in a lot of cases, it discounts investors,” explains Bramleys senior valuer, Gemma Caulfield.

“Investors tend to have greater success in buying property near universities for student purposes, and houses at the lower end of the market which may require repairs or are ready for immediate occupation.”

Mortgage Qualification Criteria

Furthermore, obtaining a Buy to Let mortgage is not quite the same as qualifying for a standard home purchase loan. Elevated interest rates and additional borrowing costs almost always apply, along with a significantly larger initial down payment. 

“The number of buy-to-let mortgage products available from lenders has started to increase again in 2021, after a pandemic-hit 2020. But the buy-to-let market in general has remained fairly steady over the course of the pandemic,” comments finder.com investment specialist, Michelle Stevens.

Product availability is high, but applicants can expect to be heavily scrutinised – particularly by the UK’s major High Street lenders.

Tax Obligations

This year saw the introduction of new rules where buy-to-let investors can no longer deduct mortgage expenses from their rental income. A new 20% tax credit on interest payments was introduced, resulting in the vast majority of landlords losing out financially.

Buy-to-let landlords are also subject to higher stamp duty payments, an additional 3% on the portion of the property up to £500,000, then 8%, 13% and 15% within the subsequent tiers. 

Further Costs and Liabilities

All prospective buy-to-let investors need to be fully aware of their liabilities and obligations as landlords, along with all additional repair and maintenance costs that must be covered. Along with ensuring the property is kept in a good state of repair, it is also the responsibility of the landlord to make sure all routine safety checks are performed. 

“With the ever changing legislation surrounding rentals, ensure you speak to a knowledgeable and regulated agent who will discuss the law around electricity, gas, legionella, smoke alarms and all the information you need to provide to your tenant at the tenancy,” advises Caulfield.

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