What is buy to let?
Buying to let advantages and disadvantages
Advantages of buying-to-let
- Financial freedom in the short and long-term
- Safe short-term investment as most homes gain value over time
- Profit from rental income
- Deduct expenses from your rental income in your rental profit
- If you buy a brand-new home with Barratt Homes, you’ll be backed by a 10-year warranty, so you won’t need to worry about the cost of unexpected repairs
Buying to let is a great short- and long-term investment to boost your monthly income or add another property to your portfolio.
Learn more about the advantages of buying a new home with Barratt Homes in our guide.
The potential disadvantages of buying to let
- Paying 18% to 28% of tax on any profit you’ve made on your buy to let property
- You may need to pay Capital Gains Tax if you decide to sell your property
How do I make money from a buy to let property?
If you want to buy a £200,000 home and charge your tenants £1,000 for their monthly rent, this works out at £12,000 a year. To work out the yield, divide 12,000 by 200,000 and multiply by 100. The yield, in this case, is 6%.
What is a buy-to-let mortgage?
- The amount you can borrow
- Buy to let mortgages are interest-only
- Buy to let mortgages can require a larger deposit
The amount you can borrow
Many lenders will also consider your income. In most cases, you'll need to be an existing homeowner earning at least £25,000 a year.
This means you'll pay monthly interest on your mortgage instead of the loan. Monthly payments will be lower, but you may need to pay off the loan in full, sell the house or remortgage it at the end of your term.
How do I choose a buy to let property?
Set your budget
Be realistic about what you can afford and research how much you can earn from rental income.
Read more on how to get your finances in order in our comprehensive guide.
Talk to a local estate agent
Factor in the mortgage
Appeal to a particular type of tenant
Families often want to live near schools and amenities. Students may prefer more affordable properties closer to their university, transport links and nightlife.
Our brand-new homes around the UK are a perfect option for buying to let, energy-efficient, highly insulated and equipped with double-glazed windows.
What taxes do I pay on a buy to let?
There are some taxes to pay on buy to let homes, including:
- Tax on your rental income
- Capital Gains Tax
- Stamp Duty
Tax on your rental income
Capital Gains Tax
If you're a basic rate taxpayer, CGT is charged at 18% or 28%, depending on your tax bracket. You have available allowances and can offset Stamp Duty, solicitor and estate agent fees.
REAd our stamp duty guide
Top tips for buying to let
Research the market
Get help from a letting agent
Do your checks
Buy a newer home to reduce maintenance costs
Take care of your property
Buy to Let FAQs
Typically, a minimum deposit of 20% of the property value is required for a buy-to-let mortgage.
Buy-to-let is a type of property investment where you purchase a property to rent out to tenants, with the aim of generating rental income and potential capital gains.
Pitfalls of buy-to-let include potential rental voids, maintenance costs, difficulty finding suitable tenants, and changes to the tax treatment of rental income.
The amount you can borrow for a buy-to-let mortgage depends on various factors, including the rental income potential of the property, your credit score, and your income. Typically, lenders may offer up to 75% loan-to-value (LTV) for buy-to-let mortgages.