Investing in buy to let property

Buy to let is an investment where you buy a property – usually with a mortgage – and rent it out. Over 80% of landlords cite investment as a key motivator in deciding to let property.

If you’re looking to invest, you should consider buy to let property. Let’s weigh up the pros and cons of buy to let alongside other types of investment:


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Type of investmentProsCons
  • Possible dual income – a monthly rental income as well as capital growth.

  • Rents are rising

  • Returns are increasing

  • Mortgage repayments are likely to remain low, due to current low interest rates
  • No return on investment guarantee – property prices can go up as well as down

  • If empty you may not receive any rent for some time

  • There are ongoing costs and responsibilities such as property maintenance
  • An investment with a bank or building society is generally considered to be safe

  • Typically less volatile than other investment options

  • Easy to access your money should you need to
  • Currently offering low returns

  • The value of your investment can be eroded by inflation

  • Protection of investment limited to £85K under FSCS (Financial Services Compensation Scheme) if provider gets into serious financial difficulty
  • Potential greater returns, especially over a greater period of time

  • May offer better protection against inflation

  • Shares/equities have produced very attractive returns over the last 10 years
  • The value of your investment could be effected by economic and company trading conditions and can fall as well as rise

  • No return on investment guarantee or even that you will get back what you put in

  • Generally considered to be the most volatile form of investment

Choosing to pursue buy to let investment? Here are some things to consider before you get started...

Understand what you are trying to achieve

Are you wanting to buy to let for capital appreciation, or for the rental income? Decide which as this is key to where and what you buy. It is unlikely that you will achieve both unless you have a substantial deposit.

Is there a lettings market in the area?

Look at the number of letting agents nearby as this will show you how buoyant the lettings market is. You could either do this yourself or talk to a letting agent to understand the demand for rented properties in your area.

Choose your location

Research the potential rental income and also look at how close the property is to shops, transport links, schools and any other amenities you think would be important to tenants.

Don’t be sentimental – approach it as a business

By becoming a landlord you are essentially running a small business. This property is not going to be one that needs to reflect you and your tastes, so be practical.

Think long term for growth

Refurbishments can offer capital growth in the short term only if you have the expertise.

Don’t forget potential additional costs

There will be numerous day to day maintenance and management costs you will need to factor in such as letting agent fees, landlords insurance, safety checks, rent insurance, general maintenance and more.

Buy to let mortgages – things you need to know

A buy to let mortgage is specifically designed to finance a property that is to be rented out. Mortgage lenders will look at the market value of the rent a property could attract as well as the size of the borrower’s income and their credit worthiness when assessing a mortgage application.

  1. Loan-to-value (LTV) is generally 60%-85% for buy to let mortgages.
  2. Your rental income will need to be around 125% of the monthly mortgage payments.
  3. You can expect a buy to let mortgage to be 1%-2% more than a residential mortgage.
  4. Many landlords prefer a buy to let interest only mortgage. The lender will base affordability on the rental income which will need to be 125% more than the monthly payments.
  5. One thing to consider if you are planning to create a lettings portfolio – some lenders will place a cap on the number of properties it will mortgage.
  6. The best way to measure your investment is your rental yield. You can calculate this by dividing your annual rent income by the capital value of your property and then multiplying by 100.

For example:

 Property value £150,000
 Monthly rent £600
 Annual rent £7,200
 Rental yield 4.8%

Choosing the right buy to let property

The right property can often depend on your original objective for buying to let. If you’re investing for capital appreciation then you’re best opting for property hot spots where your return is most likely to be greatest. However, if you are looking for rental income, consider areas where property is cheaper.

In general cities with universities tend to offer reliable returns for buy to let.

If you are going for capital growth then stick to established areas which can appeal to singles, couples and families, especially for your first buy to let purchase.

You don’t necessarily need to limit yourself to your local area. Go where the market looks to offer the best return and remember there are local letting agents like Your Move who can deal with any queries on your behalf.

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