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Published on : February 22, 2022 11:51

Key Costs Involved With Buying Your Buy-To-Let Property


Purchasing a buy-to-let property, whether your first or as an addition to your property investment portfolio, requires a great deal of due diligence. It would be best if you made informed decisions to get the best returns on your investment and be aware of all the key costs involved with buying your buy-to-let property.


Purchasing a buy-to-let (BTL) property differs from a traditional residential property. It needs to be done from a business perspective, supported by meticulous research and scope for returns on the investment.

The costs of obtaining a buy-to-let property are similar to buying a residential property for yourself to some extent, but there are also additional costs to consider. The types of financial input involved with with a BTL property can be split into three distinct categories:

  • Initial Costs
  • Letting Costs
  • Ongoing Costs

Initial Costs


There are two primary states where you can purchase a BTL property: tenanted or vacant. Tenanted properties have the benefit of giving you an immediate return of your investment, but the current owner will typically request cash buyers only. This means you will need to put the total cost of the property down in one lump sum rather than being able to place down a deposit and then a mortgage.

Vacant properties are more akin to traditional residential properties and can usually be purchased with a BTL mortgage. A BTL mortgage lender will make additional considerations when deciding to lend to you, including the prospective rental income from the property. Typically you will also be required to put down a larger deposit, somewhere in the region of 25 per cent of the asking price.


Stamp Duty Land Tax


When purchasing a Buy to Let property, you will have to pay Stamp Duty Land Tax (SDLT). If you own or will own two or more properties, the higher rate of SDLT applies. However, there are some scenarios where they may or may not have to pay. You’ll need to pay increasing portions of the property price.

The higher rate of SDLT applies if you are:

  • Adding a new BTL property to your existing portfolio.
  • Selling one BTL property to purchase another (with another property owned in the background).
  • Buying a first home you will live in, but you’ve already jointly owned an inherited property that’s being rented out. However, if the share is less than 50 per cent during the three years before purchasing the first home, the higher rate doesn’t apply.
  • Purchasing a new main residence and turning your existing property into a Buy to Let – this is known as ‘Let to Buy’.
  • Living at home with family and owning a BTL property, then you purchase a new main residence.

The standard rate of SDLT applies if you are:

  • Selling your main residence to purchase a new main residence, but also own several BTL properties, as long as the transactions take place on the same day. If the sale completes after, but within three years of the purchase, you may be able to claim the additional tax back.
  • Unmarried and currently live in a property that your partner solely owns, but you want to purchase their own BTL property (if applicable).
  • Living with family or in rented accommodation, and you own one BTL property and sell it to purchase another, as long as the transactions take place at the same time.
  • Living at home with family or in rented accommodation and purchasing a BTL property.

Mortgage / Valuation Fees

If you are purchasing a BTL property with a mortgage, then much like traditional residential mortgages, fees will apply.  A mortgage lending fee is payable to the mortgage lender to assess the value of the property. This will allow them to determine how much they are prepared to lend you.

As mortgage lenders will require you to be able to give an accurate insight into the rental figure based on the market rate, you will typically have to provide a rental valuation, usually carried out by a letting agent. You should aim to obtain multiple valuations where possible. You will also need to research if the agents you have reached out to will charge for a mortgage rental valuation.

Surveyor Costs

Much like a traditional residential property, you need to carry out due diligence on the individual property to source any potential issues that may make the investment financially unviable. Purchasing a property requiring extensive work but at a fair price to reflect this can still allow you to make returns on the investment. Purchasing a property at a market rate, however, and still requiring a substantial cash input in order to bring the property to standards is not advisable from an investment perspective.

The cost of a surveyor will depend on the size of the property, but you can get deals by tying the mortgage valuation fee in with a surveyor visit.

Legal Fees

You will need a solicitor or licenced conveyancer to carry out all the legal work involved in buying a property. They will also do local searches and liaise with the seller’s solicitors on your behalf. Legal fees tend to range from the mid hundred figures to the mid-thousand-pound mark, depending on how much work and time is involved from the solicitor’s perspective.

Electronic Transfer Fee

This fee covers the lender’s cost of transferring the mortgage funds from the lender to the solicitor. Usually, this figure is around the £40 – £50 mark; one of the more inexpensive fees throughout the whole process!

Insurance

Mortgage lenders will require your property to be insured before you can complete on it. Every lender will have different rates available, and you aren’t required to take out insurance with your mortgage lender. This means in order to get the best rate, much like your BTL mortgage, you will need to shop around for the best deal. You can get apply for building insurance by itself, or get it paired with contents insurance as well. You should also consider insurance for when the property is tenanted, such as rent protection in order to cover the cost of any missed rental payments from the tenants.


Letting Costs


After purchasing your BTL property, there will then be a range of costs in order to start the return on your investment. Any remedial and repair works, decoration and landscaping, and even property staging need to be considered and factored in prior to the property being put up for let on the rental market.

In order to get your property seen by as many prospective tenants as possible, then you will want to look at placing it on the property portals such as Rightmove and Zoopla. These portals charge considerable fees to do this, and it will be cost-efficient to let through an experienced letting and managing agent.

Additionally and importantly, you will need to carry out the legal compliance works and documentation to ensure you can lawfully let the property. This includes obtaining a Gas Safety certificate, an Electrical Inspection Condition Report, Energy Performance Certificate, and ensuring all smoke alarms and detectors work.

You will then have the costs of tenant sourcing and the move-in, including referencing, the tenancy agreement drafting, inventories and move-ins. This will also cross over to the end of the tenancy, for check-out reports, move-outs, and re-letting costs.

During re-lets, you may also need to employ the use of a cleaner to prepare your property for remarketing.


Ongoing Costs


The main difference between a traditional residential property and a BTL property is that many costs can be placed onto the tenant rather than coming directly from your pocket; this includes utility bills and council tax.

The largest regular ongoing cost when owning a BTL will be your mortgage payments, as well as the managing fees should you opt to use a letting agent to manage your property on your behalf.

You will also need to consider the costs of any insurance payments, including public liability and rent guarantee insurance. If the property is leasehold, then you will also be required to pay the service charge. You should additionally factor in maintenance costs, as your responsibilities will encompass ensuring the property is maintained to a certain standard.


The differences between purchasing a traditional residential property and a buy-to-let property mean that you should always strive to conduct due diligence beforehand, whilst surrounding yourself with knowledgeable and capable experts who can help you with the process. From property management that can help you earn a passive income from your property and take back control of your time, through to expert financial advisors who can help find the best buy-to-let mortgage rates tailored to your requirements.

Are you looking to build or grow your BTL portfolio? Book a consultation with one of our mortgage advisors by clicking below or giving us a call on 0161 826 2998. 

Book your Buy-To-Let Mortgage Appointment today

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