Buy-to-let (BTL) investment has become a popular strategy over the last 30 years, with approximately 2.7 million private landlords in the UK.

Investing in property can provide long-term security and the opportunity to benefit from capital gains and regular rental income.

Despite changes to mortgage interest relief, a surcharge on stamp duty for second homes and, more recently, the implications of Covid, letting a property can still be profitable and rewarding if approached in the right way with the help of a professional letting agency.

However, there are some key areas to address when considering a BTL investment that can improve the chances of a successful outcome. 

The risks and benefits of BTL investment

The financial returns of property investment can be two-fold. There is potential for capital growth if the property’s value appreciates, and the property can also yield a regular rental income.

BTL mortgages generally cost more than residential mortgages. Additional costs can occur as the property will require maintenance and have void periods, which landlords need to finance from their own funds.

Furthermore, as with any investment, a profit can’t be guaranteed as the value may depreciate, and the expenses could outweigh the rental yield.

It’s crucial to note whilst unlikely, because of the more significant deposits needed for BTL, there is no guarantee that rental income will be sufficient to meet the cost of a mortgage.

Mortgages and financial preparation

When evaluating your finances, it is prudent to calculate how much money you can realistically spend, leaving enough funds for renovations, maintenance and void periods.

 BTL mortgages are generally about one percentage point more expensive than residential mortgages, as they are considered to have a higher associated risk. However, the rental yield will usually balance out the difference.

Those landlords who have the option to buy a rental property outright can benefit from the net rental income as there will be no mortgage repayments. An investor may alternatively choose to spread their money across a broader portfolio, to invest in a higher number of properties.

Rental income will be subject to income tax, and profit made on a property sale may be subject to Capital Gains Tax (CGT), so it is wise to seek guidance from a financial adviser.

Purchasing an additional residential property such as a BTL or second home is also subject to a 3% surcharge, rising to up to 15% depending on the stamp duty threshold. 


Regular residential SDLT rates

Residential rates with the extra 3%
















Source: HMRC

Investing in the right BTL property

Thorough research of the property market in your desired area is paramount, as any plans for local development may affect your property’s value in the future. It’s always prudent to talk to local letting agents, who know the market inside out.

Owning an investment property in your local area could also be beneficial, giving you the ability to manage the property yourself.

Alternatively, working with an established letting agent to manage your property could broaden your options to a wider geographic area.

Above all else, it is essential to consider which demographic your property is likely to attract as the tastes and requirements of different tenants may vary.

Student renters, for instance, would require the privacy of their own bedrooms and a large communal area. In contrast, families may favour an open-plan space that children can play in and are likely to prioritise storage and gardens.

Landlord insurance and protection 

It’s in a landlord’s best interests to consider getting their rental property insured. This cover usually includes the same type of protection as home insurance, such as cover for buildings and contents.

However, there are factors that you will need extra cover for, including missed rent payments, damage to your property by the tenant, loss of earnings/rehousing costs and liability for accidents if your property caused an injury.

While there’s no legal requirement which states you must have insurance, some BTL mortgage lenders may specify that you must have insurance in place.

HomeLet offer insurance for buildings and content, designed specifically for landlords.

Rent guarantee insurance is becoming increasingly popular because it covers a landlord's income should a tenant fail to pay their rent. Landlords can access HomeLet’s RG policy through professional managing agents across the country.

Managing your investment for the long-term

To ensure a rental property fulfils its potential, it’s important to source suitable tenants ready to move in from the date of completion.

Letting agents can handle the process of finding a suitable tenant by using thorough referencing checks.

There are several responsibilities and obligations a landlord must follow and understand – an essential one being to use a government-approved scheme to protect the tenant’s deposit.

Once the initial process of becoming a landlord has been settled and concerns have been allayed, many investors look to spread their investments and expand their property portfolio.

Over the last 18 months, the lettings industry has had to contend with Covid restrictions and operate under a new normal, including virtual viewings, increased health and safety measures and limited contact under social distancing measures.

The above challenges may prove overwhelming for landlords who manage their own portfolios. Therefore, letting your properties with a professional letting agency could be a good idea.

Not only do letting agents have access to the most reliable tradespeople and the ability to help reduce void periods, but they also provide a ‘buffer zone’ between landlords and tenants. They’re also well-equipped to advise you on the many intricacies of the letting sector, helping you to remain compliant throughout.

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