Step 2: Understand the financials
Thoroughly assess all upfront and ongoing costs, tax obligations, and mortgage options
A successful buy to let investment starts with a solid understanding of the numbers. From upfront costs to ongoing expenses, knowing what to expect financially will help you avoid cash flow problems and keep you compliant with HMRC and lenders.
Account for upfront and ongoing costs: The initial purchase price is just the start. Don’t forget to budget for repairs, insurance, letting agent fees, council tax during any vacant periods, and even travel expenses for managing your property
Understand tax liabilities and allowable expenses: Rental income is taxed as part of your income tax, and you must declare your profits through a self assessment tax return. Section 24 of the Finance Act no longer allows landlords to deduct full mortgage interest from rental income. Instead, a basic rate (20%) tax credit is applied. Learn more on tax from our landlord tax guide
Explore mortgage products and affordability checks: As a landlord, you’ll need a buy to let mortgage, not a standard residential one. These are designed for rental properties and come with different lending criteria. Learn more in our buy to let mortgage guide
Interest-only vs. repayment: Many landlords choose interest-only for lower monthly payments and better cash flow, but this means repaying the loan at the end of the term. Repayment mortgages have higher monthly costs but fully pay off the loan by the mortgage’s end, leaving no outstanding debt
Lender stress testing: Most lenders will require your rental income to exceed mortgage repayments by 125–145%, even at higher stress-test interest rates
Fixed and tracker rates: Consider interest rate risks and future refinancing options. A fixed-rate mortgage keeps your payments the same throughout the term, providing certainty regardless of interest rate changes. Tracker rates usually start lower but can go up or down with the Bank of England base rate, which means your payments might increase over time
Don’t let unexpected costs or risks catch you out. Get an award winning landlord insurance quote online today or call 0800 634 3880 to discuss your insurance needs.
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