Property investment is one of the most common ways to invest your money. Buy-to-let can provide an opportunity to earn short-term income through rental yields and long-term gains through capital growth. In this guide, we cover how much money you need to invest in a buy-to-let property.
For starters, you’ll need enough money to either secure a buy-to-let mortgage or buy a property outright. Many investors rely on a mortgage to purchase a property, so they don’t have to tie up all of their cash. How much money you need for a buy-to-let naturally depends on the type of property you buy and where.
Average property prices
The average house price in the UK is between £200,000 and £300,000. If you are looking to use a mortgage, this means you will likely need at least £50,000 to £75,000 as a minimum for a deposit to start investing.
With the UK property market facing an unexpected mini-boom, the average house price has increased to a record high of £256,000, according to the Office for National Statistics. House prices are even rising at the fastest rate since 2007. While house prices are rising at these levels, mortgages with competitive interest rates are allowing buyers and investors to purchase properties.
Buy-to-let mortgages frequently asked questions
Buy-to-let mortgages are for investors wanting to buy a property to rent it out. While the rules with buy-to-let mortgages are similar to those for regular mortgages, there are some important differences.
How much of a deposit will I need to put down?
Buy-to-let mortgages usually require a 25% deposit of the property’s value to be put down. However, it can vary between 20% and 40%.
Can I use a normal mortgage for buy-to-let?
No, it would need to be transferred to a specific buy-to-let mortgage. And keep in mind that buy-to-let mortgages usually come with higher fees and interest rates.
Can I use Help to Buy for buy-to-let?
No, you can’t use the Help to Buy scheme for purchasing a buy-to-let. You would need a specific buy-to-let mortgage.
What kind of mortgage is needed for Airbnb or short-term lets?
Most of the biggest mortgage providers do not allow short-term lets with their buy-to-let mortgages. A specialist holiday-let mortgage is often needed depending on how often you Airbnb or let the property out on a short-term let basis.
If you let out your property as a short-term let rental without explicit permission from your lender, there can be serious consequences. Often, the lender will demand a fee penalty or raise your rate for violating your mortgage contract.
There could also be issues with your insurance provider if you don’t let them know you are letting your property out on Airbnb. Additionally, some local councils and leasehold agreements don’t allow Airbnb hosting.
What about cheaper properties?
In some areas there may be properties that are under £100,000 where you could invest with only £25,000. However, these are typically run down, and often you can expect to pay anywhere from £40,000 to £60,000 refurbishing them up to modern standards.
This is especially the case considering the standards you need to meet as a modern landlord. There are certain legal requirements you need to adhere to as a private rented sector landlord. The rental property must have:
- An annual gas safety check
- Smoke and carbon monoxide alarms installed
- A minimum energy efficiency rating of “E”
- Safe electrical installations and appliances
When investing in a property, it’s important to factor in and budget for other upfront costs, such as conveyancing, survey and mortgage product fees and Stamp Duty Land Tax. It’s also beneficial to have some extra cash in case any unexpected costs come up at the time or after the purchase of the property.
After buying a property investment, there will also be some running and maintenance costs you need to keep up with. And you need to ensure you can keep up with the monthly mortgage repayments.
In order to invest in a property, you need at least £50,000 to £75,000 to secure the appropriate mortgage, which is the main significant cost of investing. This is regardless of whether you are buying a new build or renovating an older property. Unless you have a time machine to go back to when property prices were cheaper!
If you are considering buying a property with a mortgage, we recommend seeking out advice from a mortgage advisor or broker to help you find the best mortgage deal for you and your financial situation.