So, how much money do you need to invest in property in the UK if you opt for buy-to-let property investment?
Before we look into detail at the expenses, it’s important to establish what type of costs you will encounter when investing in property.
The costs involved with investing money in property can be split into three main categories.
- Upfront Costs – which include things like Stamp Duty and the cost of the property.
- Ongoing Costs – such as mortgage repayments and maintenance costs.
- Exit Costs – the expenses involved when you sell the property, including capital gains tax.
The Upfront Costs of BTL
Currently, in the UK, the average property price, according to the Land Registry, is valued at £294,329 as of December 2022.
However, prices can vary heavily, depending on what type of property you’re looking to buy and the location of the investment (something we will discuss later).
While these prices may be out of the range of most investors and landlords, one of the central benefits of buy-to-let when it comes to financing your investment is that you can use a buy-to-let mortgage.
Buy to Let Mortgage
Buy-to-let mortgages work slightly differently than normal residential mortgages, as they require higher deposits, usually 25%, and they are usually interest-only.
This means you will only pay the interest every month without touching the overall debt. Then, come the end of the mortgage period, you will need to pay off the full debt by either selling the property or re-mortgaging.
You can read our full guide to buy-to-let mortgages and BTL tax in our detailed beginner guide.
The other main cost you will see is Stamp Duty Land Tax.
Stamp Duty Land Tax
The tax operates under a progressive tax system, meaning you will pay different tax rates on certain portions of the property price.
To learn more about stamp duty and calculate how much you will pay, check out our stamp duty calculator.
If you’re a first-time buyer, you can also check out our first-time buyer stamp duty ultimate guide by clicking the link.
Current rates are: TABLED NEEDED
Legal Fees, Land Registry Fees, and Cash Buffers
Aside from mortgage costs and stamp duty, there are some other expenses you can expect when investing in UK property.
They are:
- Legal Fees – A solicitor will need to be hired to handle the legal paperwork. This can cost anywhere between £1,000 and £2,000.
- Land Registry Fees – Houses sold between £100,001 to £200,000 will cost a £200 land registry fee, while houses between £200,001 to £500,000 will cost around £300.
- Cash Buffer – It’s a good idea to have some cash spare to deal with any surprise costs – potentially around £2,000. You could also use a cash buffer to update furniture.
Overall Upfront Costs for Residential Property
Below you will find an estimated total for costs you could expect to pay upfront at varying property price points if you use a mortgage.
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Ongoing Costs and Exit Costs for Buy-to-Let Property
When investing money in property, there are other costs than just the upfront expenses.
Potential ongoing costs for investing in UK property include:
- Mortgage interest rates
- Ground rent
- Property management fees (if you want a hands-off investment. Check out our guide to how to manage your investment property to learn more).
- Maintenance costs
- Corporation tax if you form a limited company
- Landlord insurance/ buy to let insurance
- Rental income tax
Upon the sale of your property, you will also need to pay some fees before you can (ideally) net your profit.
Examples of exit costs include:
- Capital gains tax
- Estate agent fees
- Legal fees
Additionally, investors should be aware of any potential changes to property regulations, such as the new EPC regulations set to take effect in 2023 and beyond.
Currently, all rental properties must have an EPC rating of E or above, but future regulations may require a rating of C or higher, with those who fail to comply facing severe fines if their property is not up to scratch.
Check out our guide to what you need to know about energy efficiency for more.
