Buy-to-let guide for landlords: Everything you need to know

Summary

The UK rental property market continues to present opportunities for both new and experienced landlords. From generating a consistent income to almost guaranteeing capital growth, it remains an attractive investment.

However, if you want to invest in property, it comes with its fair share of challenges, especially with the UK government introducing new policies that impact how buy-to-let properties operate.

In this guide, we’ll explain everything new landlords need to know about buy-to-lets, including the benefits, considerations, common buying methods, and how to manage a rental property in the current market.

What is Buy-to-Let?

Buy-to-let (BTL) is a popular type of property investment. It means buying a residential property to rent it out. Inherited properties that are let are also commonly referred to as buy-to-lets.

To buy a rental property, owners who need a loan must get a buy-to-let mortgage. When converting a residential home to a rental, owners with an existing residential mortgage must convert it to a buy-to-let mortgage.

What are the benefits of buy-to-let property investment?

There are a fair few upsides that come with investing in a BTL property, and the important ones are mentioned below:

Steady income source: Buy-to-let investments can create a steady income stream through long-term tenancy agreements. Rental rates should pay for outgoings (e.g., buy-to-let mortgages and maintenance) and create a reliable monthly profit.
Multiple income sources: A buy-to-let property investment allows you to earn in multiple ways. The consistent rental income you get from tenants is the primary income, while capital growth is another.
Long-term opportunity: Property investment is relatively safe in the long run. Although prices can fluctuate, you should still find a monetary increase when you calculate it over a period.

How to invest in a buy-to-let property

The primary ways to invest in a buy-to-let property are to buy via a mortgage, buy with cash, or set up a limited company to buy the property. Here’s a quick explanation of each option.

Getting a buy-to-let mortgage

A common method of buying a rental property is to get a buy-to-let mortgage from a lender. This is different from a residential mortgage. To be eligible, you generally have to be over 21 years old, with a good credit score and a minimum income of £25,000 per year.

Most lenders require a deposit of at least 20%. The interest rates are also higher compared to residential mortgages. However, most buy-to-let mortgages are interest-only loans, which means you only pay off the interest, thus reducing monthly payments.

In terms of how much you can borrow, lenders usually expect the rental income to meet at least 125% of the monthly interest payments on the loan. Some lenders may also set an age limit, usually less than 70 years old, if they’re to offer you a BTL mortgage.

Buying the property with cash

Buying a property with cash means using your own savings/money to purchase a buy-to-let property.

Essentially, you don’t take out any sort of loan, like a mortgage, to buy the property.

There are pros and cons to this option, as the buying process is often quicker, and you don’t have to pay monthly payments or interest on the property loan. You also have more buying power, as most sellers prefer a cash buyer over someone with a mortgage.

However, investing all your cash into a property can limit your options in terms of future investment and make it difficult to access your cash quickly. It’s also important to ensure you don’t overpay on the property, as it puts capital growth at risk.

Buying via a limited company

Buying via a limited company means buying a property under the name of a company you set up, rather than in your own name (as an individual). The tax you pay on profit is different when buying via a limited company.
As an individual, you have to declare your income from rent in a Self-Assessment tax return. As a company, you pay corporation tax. Sometimes, particularly for private landlords with lower incomes, you pay less tax each year if you have a limited company.

However, there are downsides to consider. Mortgage rates are often different when buying via a limited company, as are the legal fees and stamp duty rates. You also lose the ability to use your personal Capital Gains Tax (CGT) when you sell the property.

What taxes do you pay on buy-to-let properties?

Buy-to-let landlords have to pay certain taxes. The taxes you pay as an individual are different compared to if you buy/own the property as a limited company.
When you own the property as an individual, you have to pay the following taxes when managing, buying, or selling a buy-to-let property:

Rental income tax: You have to pay tax on the income you earn, minus allowable expenses (e.g., insurance fees, repairs, bills, council tax, letting agent fees, cleaning, gardening, etc.)
Stamp duty: As of April 2025, you have to pay a surcharge of 5% on top of the standard stamp duty rates for residential properties when purchasing a buy-to-let
Capital gains tax: If you sell the property for more than you paid for it, you have to pay capital gains tax on the profit, minus selling expenses (e.g., solicitor or estate agent fees)

What fees do you pay on buy-to-let properties?

You have to pay various fees on buy-to-let properties. These charges apply when purchasing the property, setting it up as a buy-to-let, and managing the property on an ongoing basis.
Some fees are mandatory (like purchasing and licensing fees), while others are optional (like letting agent and insurance fees). Learn the main fees and charges for buy-to-let properties.

Buying fees

Fees for buying the property include:

Solicitor fees
Lender valuation
Mortgage arrangement fees
Mortgage broker fees
Searches
Land registry fees

Becoming a landlord

Fees for obtaining landlord certificates/licenses include the costs of:

Energy performance certificate (EPC)
Gas safety certificate
Electrical safety certificate
Fire safety check
Deposit protection scheme
Legionella risk assessment
HMO license (if applicable)

Ongoing management fees

Fees for ongoing maintenance/management of the property can include:

Using a property management software (see our pricing)
Hiring an accountant to submit tax returns
Employing professional cleaning services
Letting agent fees
Insurances (like building and rent guarantee insurance)
Routine maintenance/inspection fees

How to choose the right buy-to-let

It’s important to choose the right buy-to-let property – with the right property in the right location, targeted at a specific group of tenants. Here’s a quick guide on how to find the right buy-to-let investment.

Find the right property location

The location of a buy-to-let property investment is essential to generating a steady income stream. Some locations are more in demand among renters than others, and the tenant market is different everywhere.

For example, in areas near a university, student accommodation or Houses in Multiple Occupation (HMOs) may have high demand. In areas close to schools, family properties may be more sought-after, while commuting towns or cities may be best for young couples or individuals.

Some locations have a higher average rental price than others, yet the property value can vary significantly depending on the location. It’s important to find a location and property that’s sought-after locally and financially viable for you to invest in.

Read our tips on how to find the next up-and-coming area for a buy-to-let.

Decide your tenant market

It’s a good idea to find your niche before investing in a buy-to-let. Choosing a specific group of tenants to rent to can help you find a location and property type.

The main tenant markets include:

Individuals/singles
Couples
Retirees/seniors
Students
Families
House shares/co-living
Short-term/holiday lets
Disabled tenants

Each target market will want different features from a rental. For example, families will likely want a garden and storage space, while couples may want a property close to public transport and entertainment.

Decide on your property type

You’ll need to choose your property according to what your target market wants and the local demand. Bear in mind that you’ll have to follow different rules/regulations depending on the type of property you rent.

For example, when renting an HMO, tenants have their own room but share the same spaces, like bathrooms and kitchens. Landlords often need a separate license from the local council to manage an HMO, and must follow different rules compared to a single-let property.

FAQs

Do you need a letting agent when renting a property?

No, you don’t need to pay for a letting agent when renting your property. You can become a “DIY” landlord where you manage everything yourself. Most DIY landlords utilise a property management software to keep on top of finances, payments, routine maintenance, tenancy agreements, etc.

However, you can pay for a letting agent if you prefer to have someone manage all or part of your buy-to-let property for you. For example, you can hire a letting agency for tenant-find-only services, guaranteed rent insurance, or full management.

Is it better to purchase a buy-to-let under a limited company?

Since the UK government introduced taxation changes, many landlords switched to setting up a limited company for buy-to-let properties. Close to 50,000 limited companies were set up by landlords in 2021.

For landlords with a smaller portfolio, buying via a limited company is often seen as a more financially viable option. E.g., companies with profits under £50,000 pay 19% tax, as opposed to paying 20%, 40%, or 45%, depending on your tax bracket.

But there are downsides, and whether it’s better for you depends on your annual earnings, property value, and other financial factors.

Is buy-to-let still worth it in the UK?

The short answer is yes, but the long answer is it depends on the location, demand, rental income, and other key factors. Buy-to-let properties are forever in demand. In fact, a survey by the National Residential Landlords Association (NRLA) revealed that will be the case for a long time.

But government legislation in the last decade has made it difficult for landlords to get as much income as they used to. For instance, landlords can no longer deduct certain expenses from their income and must pay 5% more on stamp duty.

However, buy-to-let property investment still presents a consistent source of income for homeowners (around £17,000, on average), which can make it very worthwhile. You can also reduce your tax by setting up a limited company, among other methods.

Buy-to-let guide for landlords: Things to remember

Landlords have increasing responsibilities, and it’s important to stay on top of these and make sure your property is safe for tenants and complies with recent government guidance.
Taxes and buying/selling fees are different for BTL properties, and individuals have to declare rental income via a self-assessment.
Managing your expenses/tax maximises profits, including by using a property management software rather than a letting agent or setting up a limited company.
In high-demand areas, the right property can generate a consistent monthly profit for homeowners, which can make it well worthwhile.
Choosing the right location, property, target tenant market, and rental rate is important to ensure a buy-to-let stays occupied and generates a steady income.