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How to become a buy to let landlord

Buy to let property remains a popular investment with many people across the UK. But what do you need to know before becoming a buy to let landlord?
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How to become a buy to let landlord. Image of colourful houses with To Let boards.
How to become a buy to let landlord

Buying a property to rent out is exciting, but there are lots of things to consider before being a landlord for the first time. Unless you can buy the house or flat outright, you’ll need a buy to let mortgage to finance the purchase. 

Compare buy to let mortgages

Looking for a buy to let mortgage? Our comparison tables show you a range of different fixed, variable or tracker buy to let mortgages.

Buy to let mortgages are designed for buying homes to rent out to long-term tenants. Before taking one out, it’s best to ensure you:

  • Have a deposit of at least 20%

  • Are approaching the venture with a business plan

  • Are buying a property with tenants in mind

  • Have decided if you're going to handle the property yourself or use a letting agent

  • Have considered specialising in a niche area of the rental market

  • Are not counting on rising property values alone to give you a return on your investment

Becoming a landlord: your budget

Consider your current assets and financial position - look at how much you can pull together to get a deposit, or if remortgaging against the equity in your home could give you a bigger deposit. You will typically need a deposit of more than 20% to get a buy to let mortgage.

Buy to let mortgages are different to residential mortgages. If you’re planning to rent out a property rather than use it yourself, a buy to let mortgage is what you need. 

Renting out a property you have bought with a residential mortgage and not informing your lender is mortgage fraud, and you could face penalty fees or even have your mortgage withdrawn if you are caught.

To take out a buy to let mortgage, you’ll have to convince the lender your rental income is sufficient to meet the monthly repayments.

Becoming a landlord: researching the market 

Buying a property to let out is fundamentally different to buying somewhere that you would like to live; it’s a business venture, and should be approached as such. Think about what is important to your customers (tenants) and what they are looking for in a rental home. Location is key and being in a popular area for renting can make a considerable difference to your income.

But beyond fashionable neighbourhoods, think practically about your tenants' desires. For example, small properties within walking distance of a public transport link tend to be let faster than larger, more isolated homes.

Most popular buy to let mortgages

Before you buy anything, take a look at the going rates of rent in the area for comparable properties, and compare that potential income to the mortgage costs you can expect to pay.

Your rent will have to be significantly higher than your mortgage repayments to qualify for most buy to let mortgages. It’s also worth bearing in mind other costs, such as income tax and management charges. 

Becoming a landlord: What kind of landlord do you want to be?

Broadly speaking, there are two ways to be a landlord. These are as follows:

A full-time professional landlord

You rent out your properties to your tenants directly. You manage all repairs, answer any tenant queries, and set up a safe-deposit scheme.

A part-time landlord

You own the property and pay the mortgage, but a letting agent does all the day to day legwork of managing repairs, tenants, and rent.

It’s a lot easier and less time-consuming to be a part-time landlord. However, you’ll have to pay your agent a cut of the rent in return for finding tenants and managing the property. This could be under 10% or more than 20%, depending where the property is and what services the agency provides. 

Whether you become a landlord part time or full time, there are a number of legal responsibilities and duties that ultimately sit with you as a landlord. These include:

  • Fire safety

  • Electrical safety

  • Gas safety

  • ‘Right to rent’ checks to ensure your tenants can legally live in the UK 

Becoming a landlord: types of rental properties

Most landlords rent their buy to let properties out to one or two tenants on long-term contracts. However, you may find you can earn better returns through: 

  • Short-term lets - If you think there is demand for it, offering flexible accommodation for shorter periods can be a lucrative option. However, it’s likely to involve more organisation than letting the house or flat long term. The property is also more likely to be empty at times. 

  • House in Multiple Occupancy (HMO) - This where at least five tenants live in the same large property on separate contracts. Rental properties of this kind can work well in areas where there are lots of students and young professionals. However, you’ll need a special licence to be an HMO landlord.

  • Student housing - Towns with large populations of university students have a disproportionate demand for rental properties. It’s another potentially lucrative market, as long as you’re happy for students to live in the property and offer contracts that fit in with the academic year. 

Becoming a landlord: investment returns

As long as it’s rented out, and the rent you receive is higher than related costs such as mortgage payments, letting agent’s fees, and maintenance, a buy to let property should prove a handy source of regular income. 

If you become a professional landlord with several properties, renting out flats and houses could become your main source of income. However, there’s no guarantee a buy to let property will increase in value during the time you own it, especially in difficult economic times.

This isn’t a problem if you’re planning to own the property for a long time. But if, like many people who decide to be a landlord for the first time, you opt for an interest only buy to let mortgage, you’ll probably have to sell the property to pay off your mortgage at the end of the mortgage term - which could be an issue if house prices have gone down.

Most buy to let mortgages are offered on an interest-only basis. This means you only pay the interest on the balance of your mortgage each month; the original amount borrowed stays the same and must be repaid in full at the end of the term. So unless you have enough spare cash or have invested in a ‘repayment vehicle’, you’ll need to sell the property to pay back your original debt - known as the mortgage capital. And if the value has dropped since you bought it, you may have to find the extra cash to make up the difference.

Compare buy to let mortgages

Looking for a buy to let mortgage? Our comparison tables show you a range of different fixed, variable or tracker buy to let mortgages.