UK Buy to Let
Investment Property

Everything you need to know about making money from property.

(First published in 2021. Please see the update at the end of the article.)

Is buy to let investing still profitable?

The UK’s buy to let sector has come a long way in the past few decades, growing from a small, niche market into a multi-faceted, lucrative area of the property sector.

Buy to let to is generally accepted as one of the best asset classes around, with returns consistently outpacing stocks, shares, and gold over the past few years. With more than two million private sector investors now owning over £1 trillion worth of homes across the UK, buy to let has become a mainstream consideration for buyers from all around the world.

How to get started with buy to let?

For people getting started with buy to let property, it is important to establish your objectives before investing.

It is a great idea to seek independent financial advice to determine your budget and long-term financial obligations. Establishing your outgoings including buy to let mortgage repayments, insurance, and management costs for example, will give you a clear overview of how to balance your books.

Buy to let property appeals to first-time investors as it offers the opportunity to secure a monthly rental income and capital growth when they come to sell the asset.

The tangible nature of property and the simplicity of renting out a property for profit is also a draw for first-time investors.

For those starting out with buy to let, contacting a trusted property consultancy like Town Square Invest is a great starting point. Our experienced team can answer your questions and present specifically sourced opportunities to suit your budget and requirements.

How have recent changes  affected buy to let property investment in the UK?

Since 2015, the UK government has introduced policy changes to improve buying conditions for owner-occupiers.

For landlords and property investors, this wave of recent changes will have an impact on the buying process, taxes and returns.

Policy changes include:

  • An additional 3% levy on Stamp Duty on buy to let and second homes
  • Taxation changes mean that owners can no longer deduct mortgage interest from their taxable income
  • A ban on letting agent fees for letting agents
  • Stamp Duty increase from April 2021 applied to overseas investors (additional 2% levy)
  • Capital Gains changes introduced in April 2020 means that, if you’re a UK resident and sell a residential property in the UK you will have 30 days to tell HMRC and pay any Capital Gains Tax owed (you do not pay if you have not made a profit on the property)

Despite the introduction of these changes, the UK’s buy to let market remains a strong contender for investors and, when compared to international markets, real estate in Great Britain continues to offer exceptional value for money.

Buy to Let Hotspots (UK)

Trends outside the capital in recent times have given investors an insight into just how much regional markets have to offer. In areas such as the north-west, north-east and the Midlands – specifically places like Liverpool, Newcastle and Manchester – buyers can find properties that are considerably cheaper than those available in London, with greater scope for capital growth in the coming years.

Properties with excellent transport connections have traditionally kept their value due to demand from buyers and renters outstripping the supply chain.

Towns in London’s commuter belt including Brentwood have benefitted from a rise in the number of city workers leaving the capital due to the pandemic and taking advance of flexible working. For investors, commuter belt locations with fast access into the capital will offer reliable rental returns and strong growth potential – especially if they are situated on the new Crossrail route.

Buy to Let Mortgages

Interest rates have been historically low for the past decade and in light of the pandemic, the Bank of England cut rates to a record low of 0.1% in March 2020. Rates will inevitably climb over time however, if the last 10 years have taught us anything, any increase will be a slow and steady pace.

Low interest rates are great news for investors looking to purchase property with a buy to let mortgage. With plenty of mortgage products available it is vital you seek independent advice to secure the best deal for your requirements.

Is overseas property a good investment?

Before investing in a UK property, it is always important to consider your motivations and what you want to achieve from your investment.

A buy to let property investment provides investors with the opportunity to secure a monthly rental income and house price gains over time however, it is advisable to establish exactly what you want to achieve before investing.

It is not for you if:

  • You are looking for a visa
  • You or a relative want to live in the property
  • You are looking for a holiday home
  • Need to flip for a quick profit

This investment could be for you if:

  • You want to enter a stable property market
  • You want to secure reliable rental returns
  • You understand that property values fluctuate
  • You are looking for a fully managed asset

Why Act Now?

Despite the pandemic, UK property values increased by over 10% year-on-year and is showing no signs of slowing down.

If you have been considering investing, now is the time to act. Unlike stocks and shares, property is one of the most stable ways to invest your money, and you will generate a better return than holding it in a bank that offers low interest rates.

Buy to Let Investment FAQs & Glossary

Freehold means that you own the property and the land it stands on for an unlimited period of time. A Leaseholder owns the property for a pre-determined period of time and does not own the land it sits on (mainly applies to apartments). The Freeholder owns the land and Leaseholders are subject to paying additional charges including Ground Rent.

At Town Square Invest, our developments are sold on a long leasehold basis. When buying a property on a leasehold basis, we recommend buying a property with a minimum of 125 years on the lease. Anything below 60 years, will require an extension which can be costly and time-consuming plus, if you are buying with a mortgage, it may not meet your lender’s requirements.

Stamp Duty Land Tax (SDLT) applies when you buy houses, flats, and other buildings over a certain price in the UK. The amount you pay will vary based on the property’s price, whether you are purchasing a second home, and also depending on what asset class you are entering.

Generation Rent is a popular term used in the UK property market. It refers to young adults (18-40) who have been priced out of the housing market. This tenant pool is appealing to buy-to-let investors because there is a high demand from tenants who are unable to buy and instead spend a high percentage of their wages on rent.

A government department created to register the ownership of land in England and Wales, Land Registry is where evidence of ownership is documented including third party rights.

It is not common to pay VAT on residential property purchases. However, commercial property transactions may be subject to VAT. Whether a commercial property transaction is subject to VAT will depend on a number of factors, mainly being whether it is regarded as a “new” property or whether the seller has opted to tax the property. If you are buying a commercial property, it is worth seeking independent advice from a trusted company to ensure that you understand your obligations.

Council tax is a tax set by each locality on UK properties that may be used as a dwelling, regardless of whether owned or rented. Landlords must ensure that there is an assured tenancy in place where the tenant pays the tax. If there is no tenant in place, or the property is unoccupied, owners are liable to pay.

Across the UK, some local councils have launched landlord licences. The fees vary depending on the council and you will need to establish whether your property will require a licence.

Capital Gains Tax (or CGT) is a tax on the profit when a person sells their property/asset that has increased in value. The amount of Capital Gains Tax you will vary depending on what you are selling, the amount of profit made and whether you are based in the UK or overseas. It is always best to seek independent advice to determine your tax obligations.

It is important to appoint a trusted and specialist solicitor to aid you throughout your property purchase. Your solicitor will act on your behalf to protect your best interests and will be able to help you throughout the buying process. If you are buying through an agent, you can ask for a recommendation and make sure you do your own research (by checking online reviews) before entering an agreement.

Update: 2023

Since this guide was written, the UK residential property market has seen significant change. As a result of the cost-of-living crisis and turbulence in the financial markets after the September 2022 mini-Budget, conditions became more challenging for investors. However, the market has remained surprisingly resilient and many indicators now suggest that the outlook may be improving.

Capital Growth

In March 2023, ONS released its January house price index, which showed that the year-on-year rate of growth had slowed to 6.3%. This is slower than during much of 2021 and 2022 but, as many commentators have discussed, this represents a slow readjustment towards longer-term norms. There was no price-crash as some pundits had suggested and instead, the market has continued to be characterised by resilience and a good deal of stability. This is underpinned by an enduring imbalance between intense demand for property and very restricted supply. As a result of this imbalance, many sources expect capital values to return to growth in 2024 and to remain on an upward trajectory thereafter.

Rental Values

Despite the cost-of-living crisis, rental values have grown very quickly, more or less in line with inflation, which was running at just over 10% in the fist quarter of 2023. In March and April, different sources quoted growth rates of between 8% and 11%, with even higher rates in certain towns and cities.

Interest Rates

The Bank of England announced a succession of rises in the Bank Rate in 2022 and 2023. In March 2023, it climbed to 4.25%. However, while the base rate was rising, lenders were actually cutting some of their rates. As the dust settled after the mini-Budget, market competition prompted banks and building societies to introduce more attractive rates. Moreover, in April 2023, the IMF announced that it regarded the current inflationary conditions as a short-term aberration and expected natural interest rates to fall slowly across all developed nations. The forecast, which extends as far as 2050, suggests that investment conditions could improve steadily over the next decade and beyond.