While there are risks involved and it can be hard work, buying a property to rent it out can be a good source of income.
Those planning to purchase a property to rent out could compare buy-to-let mortgages to help secure the funds they need to do so. However, the rules on buy-to-let mortgages are slightly different to regular ones, with some important differences.
Let’s look into some of the most important statistics surrounding buy-to-let mortgages, such as how many people have them and how much has been borrowed.
Total value of new buy-to-let mortgages: £40 billion (2019)
Number of new buy-to-let mortgages: 247,000 (2019)
Average buy-to-let deposit: 25% (2022)
Average buy-to-let property value: £258,900 (2021)
Average buy-to-let interest rate: 3.41% (two-year fixed rate) (2022)
The UK buy-to-let market has certainly been on the rise, with more people looking to buy properties to rent them out.
According to the most recently available UK Finance data, the total value of buy-to-let mortgages taken out in 2019 was £39.5 billion, £10.2 billion of which was attributed to the purchase of new properties and £29.3 billion for remortgages.
More recent estimates show that in the first quarter of 2022, £8.5 billion worth of buy-to-let properties were bought by landlords.
This shows that the private rental sector is seeing some incredible growth post-COVID. While the pandemic had far-reaching effects, it appears that it did little to dampen the appetite of buy-to-let investors.
UK Finance data shows that in 2019, 247,000 buy-to-let mortgages were taken out. October was the most popular month with 22,800 new loans, while June was the least common, with 18,700.
In 2019, there were 177,100 remortgages in the buy-to-let sector, with 13,300 in December. That’s 2.3% more than the same month in the previous year.
The remortgage trend is also set to grow towards the end of 2022, as many five-year fixed-rate mortgages were taken out back in 2017, when the new PRA rules were implemented, making it harder to get approval on shorter-term deals.
On the other hand, buy-to-let mortgages for home purchases are a little less popular, with 69,900 over the same period. That’s 61% fewer home purchase buy-to-let mortgages than remortgages.
As of December 2019, there were 5,700 home purchase buy-to-lets, which was 3.6% more than in the previous year.
There are standard residential mortgages that allow you to put down as little as 5% deposit for a property purchase. Due to the higher risk involved with investment properties, however, they are significantly higher.
Generally the minimum deposit that you’ll have to put down is between 20-40%, with the majority of borrowers needing around 25% of the property’s value.
Due to an increase in buy-to-let products coming to market generally, as of January 2022, there were around 28 buy-to-let mortgage products available to those with a deposit smaller than 25% of the purchase price available, compared to eight in 2017.
It’s also worth noting that some lenders will look at high value financial assets, such as other properties within your portfolio, if you’re an existing landlord.
The average buy-to-let property value was £258,900 as of March 2021, increasing in value by 5.6% in the year that followed the beginning of the pandemic.
Between March 2020 and 2021, buy-to-let prices went up by about £14,500, following a nationwide housing market boom.
By region, it’s of little surprise to note that London is the most expensive place to buy a buy-to-let property. However, prices only increased by 2.5% between 2020 and 2021.
Interestingly, that’s far less than in the likes of Wales and the North West, where the average buy-to-let property value increased by at least 10%.
This could be due to a rising trend over the last few years of people leaving bigger cities for a more rural setting, as working from home becomes the norm.
The typical buy-to-let mortgage requires you to put down a deposit of around 25% of the property value. This means that you’ll have to borrow the remaining 75%.
With an average buy-to-let property value of £258,900, a typical mortgage size is, therefore, somewhere around £195,000.
Another report estimates that for the average non-portfolio buy-to-let landlord, the average loan amount is 45% (up to 55.8% for those with four or more properties).
The average landlord holds 4.8 buy-to-let mortgages. It’s estimated that around 60% of all landlords fund at least part of their portfolio through a buy-to-let mortgage.
35% owned all of their properties via a buy-to-let mortgage, while 24% owned some outright, with others through a mortgage.
Up until 2016, buy-to-let properties had to pay the same Stamp Duty Land Tax (SDLT) as all other properties.
However, in the 2015 Autumn Statement, it was announced that any additional property purchases in England and Northern Ireland in addition to the one you live in would be charged an additional 3%. Scotland and Wales have separaye property taxes and do not pay Stamp Duty.
As most buy-to-let landlords typically own their own home prior to purchasing an investment property, since April 1st 2016, they have been liable for 3% additional tax on buy-to-let purchases.
Exactly how much Stamp Duty you’ll pay depends on the value of your buy-to-let property. The tiers of Stamp Duty are shown below.
|Property or lease premium or transfer value||SDLT rate|
|Up to £250,000||3%|
|£250,001 to £925,000||8%|
|£925,001 to £1.5 million||13%|
|Above £1.5 million||15%|
Currently, around 5.4 million houses in Great Britain are privately rented, with a further 2.9 million through Private Registered Providers and about 2 million through local councils.
The number of homes that are privately rented has increased by 24% in the ten years between 2020 and 2010, and as much as 126% since 2001.
Given that it's the most expensive place to buy a house, London, unsurprisingly has the highest number of privately rented properties, at 27.3%. This also makes it one of the most lucrative places for those looking to invest in buy-to-let.
However, while it has a large rental market, the high property prices in London may make it hard for potential landlords to purchase a property.
Generally speaking, areas with the most private renters are located in the south, with people more likely to own their own homes further north.
Yorkshire & the Humber is an exception to this, with 20.2% of its homes being privately rented. The East of England also has a lower number of renters than its fellow regions in the South.
As you can see, purchasing buy-to-let properties for the UK market remains popular across most areas. If you’re looking to buy your own investment property to offer for rent, be sure to get a whole-of-market mortgage broker to compare buy to let mortgages to find the most suitable deal for you.
There are many different ways you can purchase a house, whether you're a first time buyer looking to get on the property ladder or are looking for your forever home, our mortgage experts have put together these guides to help you make your next move.
Getting a mortgage can be more difficult when you get closer to retirement. Here is how to find one whether you want to move house or remortgage your current home.Read More
The two main ways to pay off your mortgage balance are interest only and repayment. Here is how to work out which best suits your finances.Read More