phone icon callback
banner image

Buy to Let
Property Investment

A COMPLETE GUIDE FOR 2022

If you’re considering Buy to Let property investment in the UK, it is important to conduct in-depth research to ensure your real estate purchase produces a strong Return on Investment (ROI) and achieves your desired outcome. Throughout Surrenden Invest’s Complete Guide to Investing in Buy to Let in 2022, we will discuss the merits of investing in a rental property and will take you step-by-step through everything you need to know about owning a profitable investment.

What is Buy to Let property investment?

Buy to Let (BTL) refers to a property that has been purchased with the sole purpose of renting it out. Although the end goal of each investor will vary, most buyers or landlords will aim to achieve a monthly rental income from their property, and in most cases, they hope to make a profit from the value of their asset increasing over time.

The solid current performance of the UK property market has allowed a variety of BTL asset classes to blossom into profitable options for domicile and overseas investors. In fact, the market is now so strong that there are many options for investors, including residential and commercial properties – each with its own benefits. Throughout this feature, we will look at the residential property market, one of the most prominent asset classes for individual and institutional investors.

UK property market overview

The tangible nature of Buy to Let property has seen this form of investment increase in popularity. The value of the UK’s private rental sector reached an all-time high of £1.4 trillion in August 2021, with landlords citing low-interest rates, rising values, and demand from renters as reasons why the sector remains so profitable.

According to Statista, around a third of all UK households are private or social renters. Since 2000, the price of renting has climbed year on year from an average aggregate rental cost of £27 billion in 2000 to roughly to £86 billion in 2020.

And the sector is showing no signs of slowing down.

In 2020, there were an estimated 27.8 million households in the UK – an increase of 5.9% over the last 10 years. The total number is projected to increase 7.1% by 2028, with an estimated average of 164,000 additional households created per year.

As demand for housing across the country reaches an all-time high, house prices are now 30% higher than the peak values reached before the 2008 financial crisis, making affordability and availability sticking points for the majority of the population.

With an average 13 buyers per property listed, industry estimates suggest that up to 345,000 new homes are needed per year in England. This figure accounts for the new formation of households, plus the backlog of existing undersupply.

Analysis conducted by Finder shows that a first-time buyer’s average age in the UK now stands at 34 years old. This figure is six years older than the average age of 28 in 2007 and eight higher than the average age of 26 in 1997.

A lack of housing has seen the average age of first-time buyers reach a record high, meaning that people are living in rental accommodation for longer, with the most recent estimates suggesting the average length of tenancies is increasing. For Buy to Let landlords, these are ideal market conditions to enter a property investment to generate a reliable rental income.

How does Buy to Let property work?

One of the reasons why the Private Rental Sector (PRS) is a popular choice for investors is the simplicity behind the BTL business model, which is essentially buying a property and letting it to a tenant to secure a monthly income.

There are several reasons why this concept has moved into the mainstream in recent years and why it’s an appealing option to many investors.

Low-interest rates on savings have motivated investors to purchase rental properties to make their money work harder for them, with many landlords seeing both property values and rental returns increase year on year.

What’s more, the buoyancy of the UK’s property market means that a variety of properties are needed to keep up with demand. This has led to the monumental rise of the Build to Rent (BTR) sector.

According to JLL, BTR has the scope to become the ‘largest of the living sectors’ in the UK, with the opportunity for up to £20 billion of investment per annum.

Great Britain has a robust market ideal for asset variation and location diversity for those considering a Buy to Let property investment.

Is Buy to Let property still a good investment?

Widely considered a safe haven by property investors from all corners of the world, the UK’s Buy to Let property market has a long track record of providing rising rental yields and capital growth potential. In addition, British real estate is globally considered as one of the ‘most transparent’ markets in the world and is governed by established laws and has protections in place for investors.

Like with any form of investment, it is crucial that you evaluate potential risks associated with your property purchase which could include:

Avoiding void periods is one of the best ways to ensure that your property investment continues to generate the monthly rental income you desire.

It is a wise move to stress test your portfolio to ensure that you can afford the property should it be vacant for a few months. By taking a cautious approach, you will be sure to cover mortgage payments and bills during any period between tenants.

Aside from ensuring you are in an excellent financial position, investors should always aim to purchase a high-quality property in a location with strong demand from the type of tenant you want to house.

Providing a property that a tenant treats like a home helps landlords achieve longer tenancies. According to Statista, private renters spend on average 4.3 years in their residence (in 2019/2020), up from 3.7 years on average in 2010/11.

Investors who can provide quality housing in the right location can ultimately minimise the risk of void periods.

According to Finder, over £36 billion was borrowed on Buy to Let mortgages in the last 12 months.

Investors looking to borrow money to fund their property purchases should always be aware that interest rates are likely to rise.

And although an increase is on the horizon, interest rates have been incredibly low for the past decade, reaching a record low when the Bank of England slashed rates to 0.1% in March 2020. So should rates climb in the near future, it will likely be in small and carefully considered increments.

Securing the best value for money is always a savvy approach for those planning to buy a property through a BTL mortgage. However, it is the affordability factor that investors need to be aware of; for example, if the cost of borrowing rises, will your asset still produce a good return?

It is vital that you reduce the risk of not covering costs by ensuring that you are charging the right amount of rent to deliver a favourable rental yield whilst making sure it is in line with the local rental market.

Understanding exactly how much money you need to charge and your other financial obligations, including potential rising mortgage repayments, taxes, and insurance, will always help ensure you keep on top of your investment.

Freehold refers to the property and the land it stands on, with the ownership in place for an unlimited period. A Leasehold agreement means that the property is owed for the pre-determined time frame and does not own the land it sits on. The Leaseholder will pay the Freeholder additional charges, including Ground Rent and, in some cases, a Management Fee.

Apartments in the UK are typically sold on a Leasehold basis. A 125-year Leasehold agreement is the lowest an investor should consider. Investors will require an extension on leases under 60 years (especially if you plan to purchase with a mortgage), and this should be actioned during the purchase process.

It is always important to establish the length of the Leasehold on an apartment before buying to ensure that you do not need to pay to extend it in the near future.

Those entering the Build to Rent sector often purchase their property off-plan – meaning the buyer is acquiring property either before or during the construction process.

Investors should therefore look for what safeguards are in place throughout the build phase to protect their money.

Some compelling reasons why an off-plan property is an attractive investment include upfront discounts and the ability to benefit from any uplift in housing values seen on the local market throughout the construction phase.

Those who decide to make an early commitment should ensure they purchase through a reputable developer with a proven track record in the off-plan market, plus you will need to find out exactly how your money will be held throughout the construction period. Again, any reputable developer will have all of this information available and will be happy to share their contingency plan should the construction be delayed.

The process of preparing for any real estate investment should include as much information gathering as possible, and when it comes to establishing your ROI, this is incredibly important.

In an ideal world, when it comes to rental income, most investors hope to see returns rise over time, and, in today’s market, yield growth appears more achievable than ever.

The latest UK Rental Market Report from Zoopla has revealed that rental growth is close to a 10-year high in most regions across the UK, as rental demand remains higher than supply.

According to the report, “The resumption of more ‘normal’ life; offices, restaurants and bars, cinemas and theatres and other amenities re-opening – as well as students looking for accommodation, has led to strong rebound in rental demand.”

Zoopla expects a structural undersupply of rental properties across the UK to support rental growth in 2022 and beyond.

Investors who aim to achieve a long-term passive income from a rental property will be in a favourable position to secure robust returns for many years to come.

We can’t talk about Buy to Let property investment without addressing the potential for property values to increase or decrease.

British real estate is widely seen as a ‘safe’ option for investment, and it is easy to see why.

Despite the clear differences between the 2008 global economic crisis and the 2020 Covid-19 pandemic, some interesting comparisons are to be made between these two extraordinary periods for property investors.

Following the 2008 crash, the UK’s property market was one of the first to recover from falling prices. The sector rewarded landlords who acted fast to secure rental properties at a lower cost with significant capital gains and rental growth over the years.

Although today’s property market is very different from the one that existed 13 years ago, the sector has proved its resilience throughout the pandemic. In the year to September, property values increased by 11.8%, with the average property in the UK now valued at £269,945 (UK House Price Index).

As the UK takes steps to return to ‘the new normal’, the outlook for property values remains positive. Experts have suggested that investors still have plenty of potential to secure major gains from UK property, with UK house prices expected to rise 13.1% by 2026.

On paper, bricks and mortar investments are a money-making business for investors. However, it is important to remember that a person/people will need to live in your property for you to generate a rental income. Most tenants are respectful and pay on time; however, unwittingly renting to a problematic tenant isn’t something you should completely rule out.

For this reason, most investors who purchase through Surrenden Invest are more than happy for an experienced Management Company to take care of the day-to-day running of their property.

The Management Company will take on all relevant admin and background checks to ensure that your property is rented out to your ideal tenant. Should that not be the case, the Management Company will resolve any issues on your behalf.

Overall, it is clear to see that UK Buy to Let investments remain a good opportunity and giving some thought to the most common risks will help you come up with a plan for how to mitigate them. In addition, addressing any potential risks at the earliest stage of the purchase process will inevitably help you to maximise your ROI over the long term.

Establishing your objectives

It may seem obvious, but you will be surprised by how many investors fail to establish clear objectives for their property purchases. At Surrenden Invest, we always urge buyers to determine what they want to achieve and their long-term goals to enable them to have a clear benchmark to measure their success. In our experience, here are some of the most common objectives of real estate investors

With robust predictions in place for the next five years, taking the traditional buying and selling route for profit is an option for investors. This strategy comes with the added benefit of receiving a rental income throughout the time the asset is held.

Investing for a monthly rental income is one of the most popular goals for first-time and established investors. With interest rates at an all-time low and the volatile nature of stocks and shares, a tangible asset like property is often seen as a secure way to invest money for an instant income.

It is not unusual for retirees to want to find a way to top up their pension pot. The potential monthly returns from a BTL asset have proven to be an ideal choice for those looking for a regular income boost. The additional benefit of leaving an asset as part of an inheritance is often seen as a positive for retirement age investors.

Maybe your goal is to build a profitable portfolio that will allow you to leave your traditional 9-5 job but still enjoy a healthy income from your investments. If this sounds like you, why not discuss the best way to diversify with a member of the Surrenden Invest team who will be more than happy to advise you on the best locations for Buy to Let property investments.

It is important to set achievable goals before entering an investment to ensure that you have a clear idea of what you stand to gain from the endeavour. Whether you are looking to achieve a reliable second income or you are more interested in securing long-term capital growth, establishing clear milestones will guide your decision-making process and will help you to measure your strategy’s success.

Buy to Let yields

If you’re prioritising steady rental yields, you might gravitate towards the UK’s Build to Rent or the Private Rental Sector to achieve a passive income stream.

According to the Your Money website, the average rental yield is 3.53%. However, selected hotspots can deliver returns between 5% and 7% (see the location guide section for more information).

To determine the yield on an opportunity, you essentially need to measure the difference between the overall cost of the property and the income you generate from renting it out. This simple rental return formula from John Charcol will help you with your calculations:

Rental yield = (Monthly rental income x 12) ÷ Property value

You will also need to take all expenses associated with your BTL property into account for accurate calculations. For those prioritising an additional income stream, an ongoing high demand for new rental homes and a range of market pressures mean that investors are in a prime position to secure rising yields over the long term.

Portfolio diversification

Building a property portfolio isn’t necessarily the best route for every buyer, but if done correctly, those who want to adopt this strategy have much to gain by diversifying the assets they own.

So, why should investors consider diversifying their portfolios? First of all, building a diverse portfolio is a good way to reduce risk since lower returns or performance in one area can often be offset by better results in another. Committing to just one type of investment can leave you overly exposed to volatility or unpredictable trends in that space.

You generally have two options to diversify when building your portfolio: asset class or location.

As mentioned previously, one of the most attractive draws of the UK’s real estate market is the variety of housing needed. From traditional Buy to Lets to Purpose Built Student Accommodation (PBSA), from Holiday Lets to Commercial Real Estate, there are plenty of avenues for buyers to explore.

Those who diversify their portfolio across various asset classes are likely to benefit from positive trends in certain segments and are also better protected from risk and short-term downturns.

Location diversity is also a growing trend that investors have embraced, especially in light of the outstanding performance of regional property hotspots like Manchester, Birmingham, Leeds, Newcastle, Liverpool, and London commuter belt towns.

Favourable house price and rental trends in the regions suggest that key locations will outpace the UK average and London’s market over the next five years. So investors who diversify their portfolio – by location, in this case – can broaden their options to ensure they’re seeing maximum benefit from various trends and fluctuations in the market.

At this stage, it is also worth readdressing the benefits of off-plan property and the role this residential market segment has to play for those who wish to diversify their portfolio.

Off-plan properties can offer some key advantages over completed properties that make them an attractive option for real estate investors, including a discounted entry-level, the potential to secure an assured yield, and the added benefit that most off-plan investments are fully managed.

What’s more, new-build homes are generally built to high standards and specifications, providing a level of quality that will be attractive to new tenants. Investors also benefit from new-home warranties and can often secure a favourable price on a furniture pack that the developer usually sources.

It is undoubtedly worth considering portfolio diversification for those looking to get maximum returns from Buy to Let property investment. This tired and tested approach has delivered results for many investors in the past.

Where to invest in Buy to Let property

Overall, 2021 was an extremely positive year for British real estate, with figures published by Land Registry highlighting overall values increasing by 11.8% in the nation’s residential property sector.

Some of the best places for Buy to Let have seen property values climb at almost twice the rate of London’s market over the past year, and when compared to the national average, they still give investors more scope for long-term capital gains.

Across the north of England, the Northern Powerhouse initiative will continue to deliver a wide range of benefits for property investors in 2022. Top-performing regions include the North West and Yorkshire and the Humber, where values are forecast to climb by 18.8% by 2026, closely followed by the North East (17.6%), East Midlands (15.9%), West Midlands (15.9%), all of which are set to outpace the national average of 13.1%.

Those considering entering the market will also be interested in rental growth forecasts to determine the best growth potential. Cities including Birmingham, Manchester, Liverpool, Newcastle, and Leeds have been highlighted as areas that will witness steady rental growth and will therefore likely prove attractive options for investor activity in the years ahead.

According to JLL, between 2020 and 2024, the average rental growth is set to climb by 16.5% in Manchester, +15.9% in Birmingham, + 14.8% in Liverpool, and 14.2% in Leeds. With the UK average expected to reach 12% over the same period, it is easy to see why regional cities are proving the most lucrative for BTL purchasers.

Considering the various trends, the investment case for UK PRS remains extremely compelling, with those who carefully consider the location of their next purchase set to achieve the best ROI.

What are your tax obligations?

It is not a ‘size fits all’ situation when it comes to tax obligations. Therefore, we urge all buyers to always seek professional advice before investing in a property, as the amount you are required to pay will vary depending on personal circumstances.

This section will outline the most common tax obligations that buyers should be aware of.

Investors must pay Stamp Duty Land Tax (SDLT) on their purchase. The tax obligation varies depending on the asset class, the value of the property, and where the buyer is based (an additional levy for overseas buyers was introduced in 2021).

The tax applies on houses, flats, and other types of buildings and land over a certain threshold and is often paid upon completion of a purchase.

To determine how much you will pay, you can use our Stamp Duty calculator or refer to the information in the tables below.

Buy to Let and second home SDLT
BracketsStandard rateBTL/second home rate
Up to £125,0000%3%
£125,001 – £250,0002%5%
£250,001 – £925,0005%8%
£925,001 – £1.5m10%13%
Over £1.5m12%15%
Source: HMRC.

 

Non-UK resident SDLT bands
BracketsBTL/second home rateBTL/second home rate with 2% overseas surcharge applied
Up to £125,0003%5%
£125,001 – £250,0005%7%
£250,001 – £925,0008%10%
£925,001 – £1.5m13%15%
Over £1.5m15%17%

For non-UK residents, the additional 2% levy applies to property purchases from 1st April 2021. However, there are some exceptions to the new surcharge. You can find more information about these exceptions and the information non-residents need to provide to purchase property in the UK, here.

Capital Gains Tax (CGT) applies when owners dispose of a Buy to Let property that has made a profit. There are some scenarios where CGT does not apply; however, generally speaking, most investors are likely to pay tax.

The tax obligation will vary depending on individual investors circumstances as the amount is government by taxable income, personal allowances and any other income reliefs.

Non-residents and people disposing of a property held in a Limited company will also need to pay tax on any gains made. Due to the complexity of CGT, we advise that individuals seek professional advice from a qualified person.

Investors will be pleased to know that following the Autumn 2021 Budget, Chancellor Rishi Sunak announced an extension for sellers to pay their CGT bill. The window for payment extended from 30 days to 60 days following the completion of the sale.

You can find out more information on this topic, here.

In 2016, the UK government introduced a wave of changes that impacted landlords. Alongside the introduction of a higher SDLT rate for BTL and second homes, the amount of mortgage interest that landlords could deduct from rental income before paying tax fell from 100% to 0% between 2017 and 2020.

With tax breaks for property investors steadily reducing, there has been a rise in the number of professional landlords owning real estate through Limited companies. This route still allows for mortgage costs to be deducted before tax.

Certain Buy to Let investors are likely to benefit from holding property within a Limited company structure. For more information on this strategy and determine if this is the right approach for you, contact Surrenden Invest.

To purchase a property in the UK, you will need to appoint a Solicitor who will act on your behalf and guide you throughout the process. Although costs will vary depending on your selected company, you can expect to pay around £1,000 per investment for this service. If you do not have a Solicitor and would like a recommendation, your Surrenden Invest Consultant can provide you with options.

As a blanket rule – especially within the Build to Rent sector – tenants prefer fully furnished properties, which means investors should include the cost of a furniture pack in the calculations. When buying off plan, most Developers can source a discounted rate for high-quality furnishings.

Landlords should also consider what type of insurance they require to hold and Management Fees.

To make life easier, Surrenden Invest will provide an outline of all the upfront costs of your purchase and will calculate the NET yield of your investment, so you know exactly how much money your BTL will generate.

The British property market is viewed as a safe haven is nothing new. For years, foreign investors have been flocking to the UK from Europe and Asia, the Middle East, and South African buyers joining the party more recently.

When investing from overseas, timing has emerged as one of the most profitable strategies. Between the market’s drop in value in 2008 and its climb to pre-recessional levels in 2013, the majority of sentiment from international buyers was seen in London after the financial crisis when the capital managed to retain property values relatively well.

However, in recent years, buyer activity has shifted to regional property hotspots that are now significantly outpacing London in terms of capital in terms of growth and potential for the future.

The UK’s decision to leave the European Union in 2016 created another perfect storm for overseas investors, who took the opportunity to capitalise on the drop in the pound’s value following the immediate aftermath of the vote’s results.

For example, the pound fell from 1.5 against the dollar to 1.33 in a matter of hours. For years afterwards, the value of sterling hovered around 1.2 to 1.3. As we approach 2022 and a full year since the UK formally withdrew from the EU, the pound still hasn’t fully recovered, and in early November, it remains at just 1.35 against the dollar.

Interestingly, it is a similar story for the pound against the euro. Before the vote, the pound was worth around 1.3 against the euro, but this fell rather dramatically in the aftermath. In recent years, the two currencies almost reached parity on several occasions, and the rate now averages out at around 1.19 against the euro. Elsewhere, the pound has also dropped against currencies creating an exciting buying opportunity for overseas investors who are willing to invest in UK property with a long-term approach in mind.

When considering the drop in the value of sterling, overseas buyers who acted quickly saved a considerable amount on their purchases. With the pound’s value yet to fully recover, investors based overseas can still benefit from potential discounts on offer on the UK property market.

With more overseas investors taking advantage of the strong performance of UK property, trusted consultancies like Surrenden Invest can match buyers with fully managed BTL opportunities that will produce reliable rental yields and strong capital growth potential.

Overseas buyers are assisted throughout the purchase process. Our team of professionals will explain precisely how buying a property in the UK works to help you determine the best option for your circumstances.

BTL considerations for first time buyers

For first time investors, the UK BTL’s sector is a large market to navigate alone. By taking a proactive approach and conducting thorough research, aspiring investors new to the segment can give themselves the best possible chance of success and long-term profitability.

Whether you’re looking for a mortgage or planning a cash investment, first time property investors must seek professional advice about the best way to fund their investment. If you wonder how much borrowing will cost, you can use Surrenden Invest’s mortgage calculator to get an idea of your monthly repayments.

Once you have decided on the asset class and the location of your purchase, first time investors must consider how much time it will take to manage their property. A fully managed property investment is an ideal option for those new to becoming a landlord. An experienced Management Company will take care of tenant sourcing and the admin process, including tenant checks, property maintenance checks, and day-to-day operations.

For those juggling a full-time job alongside their first investment property, a fully managed opportunity is one of the best ways to become a landlord.

How to find Buy to Let property

Congratulations! You have made it to the end of Surrenden Invest's Complete Guide to Investing in Buy to Let in 2022.

We have packed in lots of information into this feature, so when it comes to the performance of your next investment, you can feel confident about seeing results by conducting the proper research, choosing your asset class carefully and picking the most suitable location.

UK property has a strong track record for delivering returns, proving itself to be a reliable, resilient investment many times in the past. Even in the face of a pandemic, it continues to provide results.

When considering your next property purchase, why not reach out to contact the Surrenden Invest team? Our experienced consultants thoroughly enjoy discussing the UK’s property market. They will be able to provide you with information on current trends and locations where investors are seeing the best return on investment.

Stay ahead

Register your details to receive the latest market updates and property development news.