The Complete Guide to Buy to Let Costs

Like most investments, there are some substantial costs to buying a buy-to-let property from the outset.

So, for those of you looking to update your buy-to-let costs spreadsheet – here are the most important things to remember when buying a buy-to-let property.

The Initial Costs – Buy-to-Let Mortgage

The process of purchasing buy-to-let can essentially be broken into these three steps:

• An investor purchases the property of their choice from an estate agent or property investment company.
• They find a tenant who will agree to pay the regular monthly rental instalments.
• Then, they can see a return on investment through monthly rental payments.

Sounds easy, right?

Well, of course, this is just a simplistic overview of the process – in order to be truly successful in this venture, you’ll need to know the ins and outs of the process on an in-depth level.

This means you’ll need to familiarise yourself with things like buy-to-let mortgages, buy-to-let conveyancing costs, as well as all the taxes included with the purchase.

A buy-to-let mortgage is a popular option for those looking to invest in buy to let property.

If you don’t have the cash in hand to pay the full property price outright, then this is a great alternative.

With the help of a buy-to-let mortgage, investors can put down a lump sum deposit and pay monthly mortgage repayments.

These kinds of mortgages work in a similar way to regular residential mortgages – with the main difference being that the deposit needed is usually a little bit higher.

How Much is the Deposit for Buy to Let?

Usually, buy-to-let mortgage costs are at least 25% of the property value. However, some lenders will ask for a deposit of up to 40%.

Basically, the more you can offer, the better.

When deciding on a buy-to-let mortgage, it’s essential that you work out whether your expected rental returns will be able to match the amount needed for repayments while also still leaving you with some income each month.

To help you determine how much rental income you’ll need to satisfy buy-to-let mortgage costs, feel free to use our buy-to-let costs calculator.

Can I Secure a Buy-to-Let Mortgage Without Already Owning a Home?

This all depends on what mortgage lender you use.

Some lenders will be more than willing to accept first-time buyers for a buy-to-let mortgage without any issue.

However, it’s likely that the majority will view this as a high-risk scenario.

To offset this, you may want to first purchase a home of your own using a residential property mortgage before looking to secure a buy-to-let mortgage as an investor.

Once you’ve purchased your property, the expenses don’t stop there – there’s still a load of landlord costs that buy-to-let has in store for you.

Chiefly, you’ll need to ensure that the property is fully repaired, cleaned, and stocked with any appliances or furnishing needed to appeal to your ideal client.

The amount it will cost to refurbish a property depends on its state before tenancy, as well as the level of work you plan to do on the property every few years.

If purchased as a complete property development project, then you will undoubtedly need to spend a hefty amount of money on redevelopment.

However, most properties won’t need much money to ensure that they’re up to scratch.

Typically, around £1,000 to £2,000 is more than enough to cover any possible refurbishment costs over five years. However, like most things in this guide, you should base this on your personal circumstances.

Now, you’re all set up and seeing returns on your investment when suddenly – bang – it’s the end of the tax year.

You’re probably wanting to offset the tax on your profit with the buy to let allowable expenses you have incurred while renting the property, yes?

Well, good news!

All you need to do is make sure that those expenses were wholly and exclusively made with the intent of renting out your property.

If an expense wasn’t incurred for the purpose of your property rental, then you can’t offset the cost against the rental income.

Some of these expenses, for example, include:

• General maintenance and repairs, but not improvements (such as fitting in some fancy new marble floorboards)
• Letting agent fees and management fees
• Water/gas/electricity rates, council tax
• Insurance
• Costs of services (such as gardeners and cleaners)