Buy-To-Let | Rental Property Terminology | Vesta Glossary

What is buy-to-let?

Buy-to-let refers to any property that is bought with the sole intention of letting it out to tenants. As opposed to buying a property to live in, the purchaser becomes the landlord of the property and will collect regular payments from their tenants to produce a rental income stream.

While the buy-to-let property can provide a return from rental income, it can also grow in value and produce a capital gain when it is sold.

What should the rent on a buy-to-let property cover?

  • The total cost of the buy-to-let mortgage i.e. interest payments
  • Any other regular expenses such as property insurance, letting’s agent fees and maintenance costs

How does buy-to-let work?

While investment in buy-to-let property can be a full-time job for many people, there are just as many who use it as a side-earner for retirement or to diversify their investment portfolio. 

Like any investment, there is a certain amount of risk involved when buying a buy-to-let property. As most buy-to-lets are purchased with a buy-to-let mortgage, the main risks involve leveraged speculation i.e. Will your rental income exceed the cost of the mortgage? And will your property be worth more when you sell it than when you bought it?

Buy-to-let mortgages

A buy-to-let mortgage is a loan taken out to purchase a property that you intend to lease to a tenant. The rules concerning buy-to-let mortgages are very similar to conventional mortgages but have several important differences:

  • Interest rates and mortgage fees are generally higher
  • Many buy-to-let mortgages (but not all) are interest-only
  • Minimum deposits are typically higher – roughly 25%-40% of the property’s value compared to 5-10% for homebuyer mortgages

Points to remember with buy-to-lets

  • You will have to pay Stamp Duty if the buy-to-let property is worth over £125,000.  See our useful guide for further information on Stamp Duty.
  • Buy-to-let properties outside of London will typically be of lower value and offer higher rental yields. Take a look at our top investment picks outside of the capital.
  • Investing in a buy-to-let property with tenants already in place (like most the properties listed at Vesta) ensures rental income from day one.

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