The costs associated with a buy to let property

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What are the costs associated with buy to let property?

Solicitor fees 

This covers the administrative cost of setting up your mortgage. Not all mortgages have one, but out of those that do, some bill you a percentage of your mortgage (1%–2% on average), and others charge you a flat fee (£1,504 on average).

Valuation 

This is a fee which some (but not all) lenders charge to “reserve” your mortgage while they process your application. It can cost anywhere between £99 and £250. Unlike an arrangement fee, you pay the booking fee at the start of the process. Even if your mortgage application falls through, you still have to pay.

Searches

You’ll normally have two options for paying the fee: pay it in full out of your own pocket when your mortgage application is complete, or add it to your monthly mortgage repayments.

Land Registry Fees

You’ll normally have two options for paying the fee: pay it in full out of your own pocket when your mortgage application is complete, or add it to your monthly mortgage repayments.

Mortgage arrangement fees

This covers the administrative cost of setting up your mortgage. Not all mortgages have one, but out of those that do, some bill you a percentage of your mortgage (1%–2% on average), and others charge you a flat fee (£1,504 on average).

Mortgage broker fees 

This is a fee which some (but not all) lenders charge to “reserve” your mortgage while they process your application. It can cost anywhere between £99 and £250. Unlike an arrangement fee, you pay the booking fee at the start of the process. Even if your mortgage application falls through, you still have to pay.

Insurance

Before your lender approves your mortgage, they’ll want to value the property to validate that it’s really worth how much you’re paying, and that you’ll get as much rental income as you’ve estimated you would. Your lender will usually charge you for this.

As a general rule, lenders will want your rental income to be at least 125% of your monthly mortgage repayment, so you have a buffer when your property is between tenants.

Valuation fees are usually £150 or more, but exactly how much varies between lenders and depends on the size and value of the property. Which you can learn more about here.

Fixtures and fittings to get ready for rental

With this option, your letting agent will take care of everything – from finding tenants to collecting rent, addressing tenant queries and complaints, and organising maintenance and repairs.

Again, fees vary from agent to agent. But you can expect to pay around 12% of the monthly rent or even upwards of 20%.

And for all these options, if your tenant decides to extend their lease, you’ll have to pay a renewal fee.

property act

Gas Safety Certificate 

Before your lender approves your mortgage, they’ll want to value the property to validate that it’s really worth how much you’re paying, and that you’ll get as much rental income as you’ve estimated you would. Your lender will usually charge you for this.

As a general rule, lenders will want your rental income to be at least 125% of your monthly mortgage repayment, so you have a buffer when your property is between tenants.

Valuation fees are usually £150 or more, but exactly how much varies between lenders and depends on the size and value of the property. This is known as a declaration of trust (seen here)

Deal sourcer fees

The exit fee is the cost of maintaining and closing your mortgage. It can be anywhere between £75 and £300.

If you take out a fixed rate mortgage and leave the deal early, or decide to overpay during the initial period, you might also have to pay an early repayment charge (ERC).

An early repayment charge can be as low as 1% and as high as 5% of the mortgage you’ve got left to pay. Some lenders also make you pay back the cost of the valuation, and some other fees too.

Bridging fees

You’ll need a solicitor to take care of conveyancing – the legal side of buying a property. Conveyancing can cost anywhere between £850 and £1,500.

Your solicitor will carry out searches to find out if there are any problems with the property – for example, they’ll check the area for risk of flooding. (They might charge you extra for these searches, depending on the solicitor.)

Buy to let running costs

The exit fee is the cost of maintaining and closing your mortgage. It can be anywhere between £75 and £300.

If you take out a fixed rate mortgage and leave the deal early, or decide to overpay during the initial period, you might also have to pay an early repayment charge (ERC).

An early repayment charge can be as low as 1% and as high as 5% of the mortgage you’ve got left to pay. Some lenders also make you pay back the cost of the valuation, and some other fees too.

letting agent fees 

Mortgages with low interest rates are likely to come with hefty upfront fees.

It’s important to weigh up the interest rate against any fees over the long term. In some cases, a higher interest rate might actually work out cheaper for you.

Still have questions about buy-to-let mortgages? Check out our Buy-to-let mortgage guide

Do you need a mortgage?

As a landlord, you’re technically a ‘data controller’ under the Data Protection Act, because you’re handling your tenants’ sensitive personal data.

By law, data controllers have to register with the Information Commissioner’s Office to confirm they’ll process and manage people’s data responsibly. Registration costs £40, and you’ll have to renew it every year.

A snagging inspection being carried out

Mortgage interest

A buy to let mortgage is a popular option for those looking to invest in buy to let property.

If you don’t have the cash in hand to pay the full property price outright, then this is a great alternative. With the help of a buy to let mortgage, investors can put down a lump sum deposit and pay monthly mortgage repayments.

These kinds of mortgages work in a similar way to regular residential mortgages – with the main difference being that the deposit needed is usually a little bit higher.

Insurance 

A deposit protection scheme is a way of looking after the deposit money your tenants have handed over.If you don’t have one, you or your letting agent could be fined.

There are two types of government-backed deposit schemes: insurance and custodial.Under the insurance scheme, you or your letting agent keeps hold of the deposit. You pay interest to the insurer.

This scheme is available through the Deposit Protection Service, MyDeposits and Tenancy Deposit Scheme.

With a custodial scheme, the deposit money is paid into the scheme, so you don’t have to look after it yourself.Deposit schemes come with an independent resolution service, just in case any problems arise between you and your tenant.

Building insurance 

You’ll need to take out buildings insurance before you can secure a mortgage on a property. Buildings insurance covers you if your property is damaged or destroyed and needs to be repaired or rebuilt.

Make sure you put the correct rebuild value on your buildings insurance form. This is different to the amount you paid for the property. A chartered building surveyor can do a valuation to make sure you’re setting the right rebuild value.

Landlord’s insurance

Landlord liability insurance will cover you in the event of the injury or death of the people who live in or visit your property. 

This type of insurance is often optional, but you may be required to have a minimum level in place. This includes if you are renting to students, have an HMO, or in some local authorities

Rent guarantee insurance 

First of all, get to know the local rental market and going rates. You want a fair rental rate that will both attract tenants and make you a return.

General maintenance

A letting agent can take a lot of admin and hassle off your hands. But you’ll have to weigh up the cost and decide if it’s right for you. For a let-only service, you’re probably looking at a one-off fee of around four to six weeks’ rent.

This will cover the letting agent finding a tenant for you, which is often faster than if you go at it alone. They’ll advertise your property and hold viewings for you. They may also handle the paperwork when a tenant moves in.

agreement for apo

What would a property expert recommend?

Your tenants will do the simple maintenance stuff: like day-to-day cleaning, mowing the lawn and testing smoke detectors. But it’s your responsibility as the landlord to make sure the property stays safe and fit to live in.

By law, you have to carry out gas, fire and electrical safety checks every year. You also have to make sure that any furniture or electrical equipment you provide meets a certain standard of health and safety.

More importantly, you have to make sure your property is in good repair, everywhere, including:

Is a buy to let a good investment?

We think you should feel happy to rent your home to anyone who can put down the deposit and afford the rent.

But if you’re targeting a specific type of renter, such as students or professionals in a house share, it can make a difference to your plans.

Some lenders are more careful about giving out mortgages for student lets and Houses in Multiple Occupation (HMOs). 

Instability

You will need to pay Capital Gains Tax (CGT) on your rental property when you come to sell it.

You pay this tax on any value increase since you bought the property. In other words, on your profit. CGT is paid at 18% or 28% depending on your tax bracket.

Capital Gains Tax: what you pay it on, rates and allowances (GOV.UK)

There can be allowances though. The first proportion of your profit might be tax-free in some cases.

Capital Gains Tax calculator (GOV.UK)

You can also offset the cost of stamp duty and solicitors and estate agents’ fees against your CGT bill.

Cyclical

You’ll need a solicitor to take care of conveyancing – the legal side of buying a property. Conveyancing can cost anywhere between £850 and £1,500.

Your solicitor will carry out searches to find out if there are any problems with the property – for example, they’ll check the area for risk of flooding. (They might charge you extra for these searches, depending on the solicitor.)

Void periods

Usually, buy to let mortgage costs are at least 25% of the property value. However, some lenders will ask for a deposit of up to 40%. 

Basically, the more you can offer, the better. 

When deciding on a buy to let mortgage, it’s essential that you work out whether your expected rental returns will be able to match the amount needed for repayments, while also still leaving you with some income each month. 

To help you determine how much rental income you’ll need to satisfy buy to let mortgage costs feel free to use our buy-to-let costs calculator. 

What is the rental yield of a buy to let

For a one-time fixed fee, your letting agent will advertise your property, book viewings, arrange the let, and take care of tasks such as checking references, running credit checks, drawing up the inventory, drafting the letting agreement, and collecting the security deposit.

Fees vary by region (as you’d expect, it costs more in London, for example). And they’ll also depend on the agent. For example, the Edinburgh Letting Centre’s fees start at £295 plus VAT. Compare that with Foxtons’ let-only fee, which is 13.2% of your annual rent.

Gross yield

Stamp duty isn’t the only tax to pay. You’ll also have to pay income tax on any profits you make from renting out your property.

How much tax you pay depends on a few things, but a big one is whether you’re buying your property as an individual or through a company. We’ve written more about that here. If you like thorny taxation issues, you’re going to love it.

Net yield

Usually, buy to let mortgage costs are at least 25% of the property value. However, some lenders will ask for a deposit of up to 40%. 

Basically, the more you can offer, the better. 

When deciding on a buy to let mortgage, it’s essential that you work out whether your expected rental returns will be able to match the amount needed for repayments, while also still leaving you with some income each month. 

To help you determine how much rental income you’ll need to satisfy buy to let mortgage costs feel free to use our buy-to-let costs calculator. 

get a mortgage without payslips

To conclude

In conclusion, investing in a buy-to-let property can be a profitable venture, but it’s important to fully understand the costs associated with it.

From mortgage fees to landlord allowable expenses, there are many expenses that need to be considered before making a purchase. However, by thoroughly researching and keeping detailed records, landlords can maximise their profits and minimise their costs.

It’s also crucial to stay up-to-date with any changes in regulations or tax laws that may affect buy-to-let properties. With careful planning and management, buy-to-let properties can be a great addition to any investment portfolio.

FAQ

Is a property survey part of buy to let costs?

A property survey is part of buy to let costs because you can write it off as a business expense

Are mortgage arrangement fees part of buy to let costs?

Mortgage arrangement fees can bes used as buy to let costs if you add the arrangement fee to the total cost of the mortgage. However, if you do this you will have to pay interest so many choose to pay it off up front

How can you reduce buy to let costs?

You can reduce buy to let costs by looking at expenses and attempting to reduce them. Reducing fees you pay letting agents and property managers as well as unnecessary renovation costs are good places to start.

Can you roll over buy to let costs for the next tax year?

Yes, you can roll over buy to let costs for the next tax year but you cannot roll over capital gains tax

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donnell-bailey

Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.

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