Buy to let investments are properties bought by an investor to let out to tenants.
Most people invest in buy to let properties to acquire a rental income or make a profit when the house is sold.
They tend to be major, long-term investments that last several years and need a big commitment.
You’ll find some important facts about buy to let investments on this page. Take a look at our longer guides for the full picture on mortgages, getting started and managing your investment.
The UK’s private rental market is growing. There are now 4.5 million households renting privately in the UK – an increase of 25% since 2010.
One in five residential properties in the UK are privately rented households. This figure includes some short term let properties.
70% of residential properties homes are owner-occupied. The remaining 10% are a mixture of council and social housing, temporary accommodation and short term lets.
More than a third of private tenants – 1.6 million households – are families with children.
Who invests in Buy To Lets?
Most buy-to-let investors say they started investing to build up their savings and pension.
Rental income is much more important for landlords than making a profit when they sell their property. 47% of landlords say they invest in properties for the rental income, while only 30% say it’s for capital growth.
Most new investors start off with one property while they maintain their full-time professional careers.
Almost half of landlords (45%) own just one buy-to-let property. These properties make up 21% of the private rental market.
But many landlords build up their rental profits to acquire additional properties and become professional landlords as the rent becomes their primary income.
More and more landlords have been expanding their buy-to-let investments in the past decade. In 2010, only one in five landlords (19%) had multiple properties to let, and they owned 60% of the private rental market. This figure now stands at 55% – more than half of landlords have multiple properties to let. They now own 79% of the properties on the private rental market.
Buy To Let properties
Residential buy-to-let investments can be long term lets, short term lets or Homes of Multiple Occupancy (HMOs). See our guide to buy to let investments.
Long term lets are usually Assured Shorthold Tenancy agreements (ASTs). Under an AST, a family or a group of friends rents the whole property as a household. There’s just one contract, and anyone who’s signed is legally liable to pay the rent and meet the terms of the contract.
About 80% of long-term residential tenancies in the UK are ASTs.
HMOs make up about one in five long-term tenancies.
An HMO is a property with several people who rent a room each and share the communal areas, like the bathroom and kitchen. Each person has an individual rental agreement and they’re only responsible for their own rent.
An HMO can have a mixture of people living in long-term and short-term tenancies. The landlord pays the bills and council tax.
Short term lets
Short term lets can range from a single night to a six-month temporary stay.
Landlords often let out a spare bedroom or their entire property on a short term basis while looking for long term tenants. But investors are increasingly buying properties to let out exclusively for short term tenancies. These can be on an individual room basis or for the whole property.
Tenants can be tourists, professionals on temporary work contracts or newly-arrived families looking for a home of their own. The short term rental sector is growing as they’re in very high demand in city centres and industrial areas. AirBnB has over 200,000 listings in the UK.
Rental income is typically higher the shorter the tenancy – annual rental income can be 10-25% of the property price.
Many traditional letting agencies can also serve short term lets, but landlords mostly advertise on new online letting websites and platforms such as AirBnB and SpareRoom.
Landlords usually need planning permission from the local council if the property is rented on short term basis for more than 90 days in a year.
Some properties are better suited to short term lets. For example, if you’re letting out a seaside villa, you’ll find a lot more tenants who want to stay on a temporary basis.
But many short term lets are normal residential homes in a neighbourhood that mostly has long term tenants.
You can also let out land or commercial property, such as office space or a shop. ‘Mixed use’ or ‘semi-commercial’ properties are buildings with commercial and residential uses. These can be a shop with a flat above, or a BnB that the owners live in.
Buy To Let mortgages
Buy to let mortgages are different from residential mortgages in a few important ways.
You’ll have to provide a bigger deposit. Most mortgage products offer 60% – 75% Loan To Value (the percentage of the total property price the bank will lend you) – so you’ll have to pay 25% – 40% upfront yourself.
The interest rates are higher for buy to let mortgages – but they’ve been falling over the last decade. Today, the average interest rate is 3.25% – down from about 5% in 2012.
The bigger your deposit, the lower your interest rate. You could access interest rates as low as 1.5% for a loan-to-value figure of 60%.
Most buy to let mortgages are interest-only, although you can find repayment mortgages with specialist mortgage brokers.
For an interest-only mortgage, you repay the amount you borrowed as a lump sum at the end of the mortgage term – this is usually 25 or 30 years.
Fixed vs variable interest rate
You can choose to pay interest at a fixed rate or tracker rate.
With a fixed rate mortgage, the interest you pay stays the same each month. Fixed rate deals are for a fixed term of one, two or five years. You’re locked in to the deal during this period – you can’t remortgage or move to a different lender.
For a tracker rate mortgage, the interest you pay each month varies according to the Bank of England base rate. Your bank offers a rate of, for example, 2.5%, to be added to the base rate. The Bank of England base rate is currently 0.75%. Tracker rate deals also last for a period of one, two or five years.
At the end of your fixed or tracker rate deal, your bank automatically switches you to their Standard Variable Rate. The bank adds a percentage to the base rate – but the bank can increase its rate at any time, even if the base rate remains the same. Most investors remortgage their property or switch to a better deal as soon as they’re put on the SVR.
Short term let mortgages
Short term let properties require a more bespoke mortgage so you’ll need to find a specialist mortgage provider. Most specialist lenders still offer 60-75% loan-to-value mortgage products and interest rates between 3% and 4%.