Buy-to-let property can be an excellent investment, and rental demand in London remains high. However, the rules and regulations on buy-to-lets can be overwhelming. If you want to invest in a property in Marylebone, Camden, Fitzrovia or Mayfair, we can help you learn the ropes.
In this beginners’ guide to rental property investment, we offer essential advice on how to get into buy-to-let property, critically assess your potential investment and ensure a healthy profit.
What Is A Buy-To-Let?
Buy-to-let is the term for buying a property you will rent out rather than living in yourself. Buying properties to let out can be a lucrative strategy, as there is a high demand for properties to rent, primarily because it is difficult for people to save up large sums of money for a deposit to buy a home.
A property portfolio can be very profitable if investors find properties in areas with high demand. However, becoming a buy-to-let landlord is a long-term commitment. Our buy-to-let property guide introduces the potential benefits and challenges, but you should not rush into a decision, so getting expert buy-to-let advice is essential.
Is Buy-To-Let Still Worth It In 2025?
Buy-to-let is not dead but it’s true that landlords could affected by higher stamp duty land tax, interest rates, fluctuating property prices and the prospect of new regulations in the property market. For example, the Renters’ rights Bill is expected to become law during 2025, with higher EPC ratings of C set to be enforced by 2030.
However, buy-to-let can be worthwhile dependant on local demand, your financial situation and medium- to long-term investing goals. The right property in a sought-after location can still generate a healthy profit, and you may well look to the long term in the hope of capital gains.
Although plenty of money can be made through buy-to-let in London (and other areas of the UK), like all types of investment, there are some potential risks to be aware of. These are the main pros and cons:
Pros Of Investing In Property To Let
Rental Yield & Capital Growth
With buy-to-let properties, you can see a return on investment in two ways. Firstly, your buy-to-let property can provide a rental yield; this is the amount you receive in rent, less the purchase and running costs.
You can also profit if house prices have risen when you sell the property. Property values will always be subject to fluctuation but are generally expected to grow over the longer term.
Demand For Rental Property
There is continued demand for good quality rental properties. A study from CBRE estimates that private renters now account for 30% of all London households, equating to roughly 2.7 million tenants.
With high property values putting homeownership out of reach for many first-time buyers, demand for rented accommodation is only expected to rise.
The Possibility Of Financial Freedom
Property investors can give up their full-time jobs as they make adequate money from buy-to-let properties alone.
Tax Advantages And Reliefs
You can deduct expenses from your rental income such as tax relief capped at 20% on your mortgage interest, agent fees, everyday business costs, and maintenance and insurance costs.
Numerous Investment Options
As a property investor, you can choose your property, its location and target market you want to cater to. For example, short term lets can be successful in certain areas, renting to students and HMOs can be lucrative in bustling locations, or you may focus on longer-term lets and family homes.
Cons Of Buy-to-let Investment
High-Interest Rates
Mortgage interest rates have not been as stable as they used to be, and when rates are high, it is more challenging to profit from the rental income.
Property Value Can Fluctuate
Property value will generally increase in the long term. However, if you are considering a buy-to-let investment over a shorter period, there is a risk that the property’s value could decrease.
Requires Capital For Deposit
Investors need to raise capital for a deposit and take out a buy-to-let mortgage if they do not have the funds to buy a property outright. Buy-to-let mortgages tend to have higher interest rates than standard residential mortgages, as well as higher deposit requirements.
Regulations
There are many different regulations you must comply with as a landlord, but if you use a letting agent, they should be able to help with this.
Void Periods
Landlords must cover the mortgage as well as council tax and the utility bills when the property is left empty.
Tenant Related Issues
Many tenancies run without incident, but there is always a chance that you may face non-payment of rent, anti-social behaviour or damage to the property.
Tips For Buy-To-Let Property Investment
Many investors can generate an excellent income from buy-to-lets, but there are no guarantees with property investing; if you do decide to put your faith in bricks and mortar, here are our tips for success:
1. Understand What Buy-To-Let Involves
You need to understand the rules and regulations of buy-to-let before committing. There are buy-to-let landlord responsibilities to consider, including:
Obtaining an energy performance certificate and making improvements to achieve an energy performance rating of E or higher
Placing the deposit in a tenancy deposit scheme (if you don’t follow the rules on deposit protection, you may struggle to remove your tenants later)
Arranging gas and electrical safety checks
Collecting rent from your tenants
Taking care of repairs and maintenance or instructing a management service
Handling eviction proceedings to the letter of the law (if the need arises)
There are other rules to consider. For instance, landlords need a buy-to-let mortgage – you can’t use a standard residential mortgage. Buy-to-let mortgages typically are interest only, so make a long-term plan for repayment by setting aside funds or preparing to sell the property.
2. Is Buy-To-Let Property Investment Right For You?
Look into the pros and cons of buy-to-let to ensure it is the right investment. Consider how much risk you are willing to take, and remember that property values may fall as well as rise.
Research the returns you could expect from other types of investment. You could expect around 3-5% a year from a fixed ISA or a similar ROI through an investment fund. Think about how accessible you need your money to be. Buy-to-let yields vary across the country, with some areas offering yields as high as 10%. Most commentators regard a rental yield of 7% or more as a good return on your investment.
Work out if you can afford to invest in a buy-to-let property by adding up the initial outlay and ongoing costs. You will need the money for a deposit, survey and solicitors’ fees, and higher stamp duty rates due to the 5% surcharge on additional properties.
After purchasing a property, you must cover repairs, maintenance and periods without rent. Many landlords keep a slush fund of six months’ rental income to cover void periods or unexpected costs.
Choose an area with benefits beyond house price. Ask yourself – does it have good transport links, shops, schools and colleges for students? Why would a tenant want to live there?
In prime central London, many addresses benefit from proximity to university campuses, workplaces, entertainment venues and excellent transport links. Fitzrovia and Mayfair boast the hustle and bustle of city life alongside the tranquillity of their elegant squares and parks. Marylebone’s village atmosphere is highly prized, while Camden’s proximity to the City can attract white collar office workers.
Most people tend to invest in property close to where they live. This strategy’s benefits are that they know the area well and will be better at picking a property that will provide good returns. Managing the property is also easier as they live close by. However, it is worth remembering that if you are already a homeowner, you are already exposed to property prices in your area. Looking in a different location will help spread your risks.
4. Find A Buy-To-Let Mortgage
A buy-to-let mortgage is a loan for a property bought to rent out (you can’t use a residential mortgage). Research the market for an idea of house prices and the rent you will likely achieve. Before viewing properties, use a mortgage calculator to ensure the deposit and interest on your mortgage payments are affordable. You can find a mortgage calculator online.
It’s a good idea to shop around. Research the different types of buy-to-let mortgages on offer, then consult an independent mortgage broker to explore your options before settling on a mortgage deal.
Buy-to-let mortgages are generally interest-only but have a higher interest rate and deposit than residential lending. Buy-to-let mortgage providers often want the rent to cover 125% of the interest payments. Most lenders expect you to find a 25% deposit for a buy-to-let mortgage. You will get a more favourable interest rate if you can put down a larger deposit. Check if there are any arrangement fees and budget accordingly.
Buy to let mortgage as a First-Time Buyer
Finding suitable lenders can be difficult for first-time buyers, as you will be classed as high risk due to never owning a property before. It is essential to be aware that if you are declined a buy-to-let mortgage by multiple lenders, it can damage your credit score. Therefore, it’s advised that you use a specialist advisor or mortgage broker to avoid this from happening.
The most common and easiest way to become a landlord is to purchase your home first. Then, once you have a personal mortgage with a history of payments, it becomes much easier to obtain buy-to-let mortgages.
5. Find A Suitable Property
When choosing buy-to-let properties, consider your target tenant’s profile and tailor your decision to them. Who are they, and what do they want? Search for properties that appeal to the target audience and are easy to let and maintain.
Buying a property that needs renovation could immediately increase your investment value. Ensure that the house price you negotiate is low enough to cover the refurbishment costs and some profit. As a rule of thumb, the final value of the refurbished property should be at least 20% more than the combined purchase price and refurbishment costs.
As a buy-to-let investor, you have no chain, making you as attractive as a first-time buyer. Ensure you use this asset when negotiating a discount on the asking price. When negotiating, it helps to know your market and the seller’s situation. If houses in the area are selling slowly or the property has been on the market for a long time, you will be better positioned to make low offers.
6. Consider And Calculate Rental Yield
Work out the expected rental yield for an impress of what you could expect to achieve and invest for income, rather than short-term capital growth.
Once you know the mortgage rate, deposit and rental income, calculate the profit you will likely achieve. To calculate your gross rental yield, work out your annual rental income by multiplying your monthly rental income by 12, then dividing the total by the property’s value. Finally, multiply the final figure by 100 to generate the yield percentage.
However, a landlord’s actual income from a buy-to-let investment is the amount of rent left over after all the expenses associated with the property have been paid. To calculate this, subtract your costs from your annual rental income figure. You may consider whether a buy-to-let property still beats an investment fund once these costs are considered, explore here how to increase rental property value for your central London BTL.
7. Weigh Up Buy-To-Let Costs
Your rental income will have to cover the costs of buying your property and ongoing expenses. You will also need to pay tax on your rental income.
Some of the costs that could help you establish if a buy-to-let opportunity is worth it include:
solicitors’ fees
stamp duty
mortgage payments
ongoing maintenance costs
insurance premiums
fees charged by letting agents
safety checks
energy performance certificate
repairs
capital gains tax when you sell
It’s better to be cautious, so stress-test your calculations for mortgage rate increases, monthly rent drops, void periods, estate agent fees, and significant, unexpected maintenance costs.
8. Consider How Hands-On You Want To Be
Buying the property is just the first step. You must decide how to advertise, find good tenants and manage the property throughout the tenancy – or you can engage an agent to manage the property. You have three main options:
Appoint a letting agent to do everything for you, including repairs and maintenance.
Appoint a letting agent to advertise and source tenants. They will screen potential tenants, conduct reference and credit checks, arrange the viewings, and negotiate the rent. They may also collect the security deposit and the monthly rent, but you would manage the ongoing relationship.
Undertake the whole process yourself.
Your option depends on how much of your life you want to devote to your new role. The third option will mean savings on agent fees but will be time-consuming, leaving you with the sole responsibility of finding the right tenants and filling an empty property quickly enough to avoid losing money.
9. Research Landlord Insurance
Landlord insurance is not a legal requirement in the UK, but it is highly recommended – and a normal residential policy won’t cover you. Mortgage lenders make building insurance a condition, but this doesn’t cover all the risks a rental property owner may face.
Each type of buy-to-let insurance offers a different form of protection, such as rent protection or rent guarantee insurance. Even if you rent unfurnished property, contents insurance is a good idea, with accidental damage cover offering further protection.
10. Know Your Landlord Tax Obligations
Landlords pay income tax on profits. However, you can claim tax relief on a percentage (currently 20%) of your mortgage interest payments.
When you buy an investment property, unfortunately you can’t avoid the stamp duty surcharge at 5%. This is charged on additional homes, including buy-to-let properties, on top of the standard rate. In the long term, you may need to pay capital gains tax when you sell your property.
It may be more tax-efficient to set up a limited company to buy and own the property through it.
They are reasonably easy to set up, and holding properties in a limited company can provide several tax benefits. For instance, you can offset your mortgage interest against profits. However, it does come with certain obligations, including account filling and extra fees.
Higher-rate taxpayers will benefit the most from the tax efficiencies it brings. The income tax on rental income as a private landlord can be as much as 45%. Landlords who set up a limited company pay themselves via a salary and dividends. You will pay income tax via PAYE on your salary and dividend tax on dividends.
You will pay corporation tax on the profit. The corporation tax rate is currently 25% for companies with taxable profits over £250,000. The rate is 19% for companies with a taxable profit of £50,000 or less. Companies with taxable profits between these amounts will benefit from marginal relief. Dividends are paid from the remaining profits after corporation tax has been deducted.
Find our buy to let guide useful?
We hope that our beginner’s guide to buy-to-let investment in London has answered some of your questions. However, there is no substitute for personalised advice. Before buying in Baker Street, St Johns Wood, Primrose Hill or a London commuter town – contact us to discuss your plans and the local market. On the other hand, if you’re looking to rent a property for the first time, look at these questions you should ask as a tenant.
Kubie Gold Associates is an independent local firm of estate agents specialising in lettings and property management in north-west and central London. We can advise on all aspects of buy-to-let investment, from choosing a suitable property to day-to-day management. Get in touch today.
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Kevin Gold
Kubie Gold Associates are an independent local firm of estate agents specialising in the Rental, Sale and Property Management of Residential Property in the North-West and Central London market
