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Should you invest in buy-to-let property?

25th October 2017

If you want to earn income and benefit from capital growth, then investing in buy-to-let might be the right thing for you.

According to figures from the Office for National Statistics, average house prices in the UK increased by 5.1% in the year to July 2017.

Despite the potential for growth, there are initial costs when buying a buy-to-let property and on-going expenses associated with renting out property.

If you’re considering going down this route then it’s important to understand the challenges you will face. 


In order to invest in a buy-to-let property, you may need to take out a mortgage. Buy-to-let fees and interest rates tend to be much higher than regular mortgages.

The minimum deposit for a mortgage is usually 25% of the property’s value. Most buy-to-let mortgages are interest-only, meaning you pay interest each month but don’t repay the loan. 

However, you must repay the capital in full at the end of the mortgage term.

Mortgage relief

Until April 2017 landlords could deduct certain finance costs (including mortgage interest) from their taxable rental profits.

However, this system is being phased out so that by April 2020 tax relief will be restricted to 20%. While basic rate taxpayers will be unaffected, those who pay higher and additional rates of income tax will see their tax relief reduced.  

The restriction is being phased in over 4 years:

Tax year Percentage of costs deducted from profits  Percentage of costs available at basic-rate reduction
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 0% 100%

Stamp duty

The biggest cost when purchasing a property is likely to be stamp duty land tax (SDLT). 

Changes brought in from April 2016 saw a 3% surcharge levied on newly-bought second homes and subsequent properties.

SDLT applies to most property purchased as a buy-to-let.

Portion of property price SDLT rate
Up to £40,000 0%
£40,001 to £125,000 3%
£125,001 to £250,000 5%
£250,001 to £925,000 8%
£925,001 to £1.5 million 13%
Above £1.5 million 15%

Talk to us

There are other expenses and allowances involved when buying a buy-to-let property, which are beyond the scope of this blog. 

Talk to us about buying a property to let.


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