A Guide to Buy-To-Let

There are about 2.8 million people who run a side-hustle of renting out a property in the buy-to-let market. And together they earn around £47 billion a year, which means they are each earning around £17,000 a year.

But that money doesn’t come easily and renting out properties has become more difficult over the past few years – so it is good to know some of the hidden problems would=be landlords should be aware of.

Q: So, if you are thinking of becoming a private landlord – what are your general responsibilities?

 General Responsibilities

• keep your rented properties safe and free from health hazards

• make sure all gas equipment and electrical equipment is safely installed and maintained

• provide an Energy Performance Certificate for the property

• protect your tenant’s deposit in a government-approved scheme

• check your tenant has the right to rent your property if it’s in England

• give your tenant a copy of the How to rent checklist when they start renting from you (you can email it to them)

There are different rules for:

• landlords in Scotland

• landlords in Northern Ireland

In the nations of the UK housing policy is a devolved issue but generally they are stricter than rules have been in the past in England.

Q: Is renting out a room in your own home any different?

The Rent a Room scheme is the big perk

• You can earn up to £7,500 a year tax-free

• That’s per home, not per room

• Applies whether you rent to:

• a lodger

• a student

• someone long-term

You don’t pay any tax on that income and don’t need to declare it unless:

• you earn more than £7,500, or

• you choose to opt out and deduct expenses instead

You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return. You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.

 This year marks a new chapter with the introduction of the Renters’ Rights Act. Touted as a bill to help tenants, it’s already becoming clear the opposite is true: supply is dwindling and rents are soaring.

Q: There is new legislation that has changed many rules, what are some of the big changes that have happened as a result of the new laws?

The rules come into place in stages with the first stage coming into force on 1st May 2026 and then in staged phases after that.

Rolling Contracts

Rolling contracts were introduced under the Renters’ Rights Act, and have reportedly been putting some landlords off, although I think the evidence may be mixed.

1. Fixed‐term contracts will be abolished

Under the Renters’ Rights Act, landlords will no longer be able to grant fixed-term assured shorthold tenancies (ASTs). Instead, all tenancies will be rolling — normally month-to-month with no fixed end date.  

2. Tenancies automatically become rolling

Existing agreements will automatically convert into periodic rolling tenancies on 1 May 2026, even if they previously had an end date. The fixed-term clause becomes legally ineffective. 

3. Tenants can give notice at any time

Tenants will be able to end the tenancy whenever they choose, although they usually have toi give some sort of notice period.

4. Landlords need a valid reason to regain possession

Since Section 21 “no-fault” notices have been abolished, landlords can no longer end a tenancy without legal cause. To regain possession landlords must therefore grounds such as rent arrears, the fact that the landlord is selling the property or a limited range of other reasons.

Q: How restricted are landlords in changing the amount of rent the tenant has to pay?

Under the Renters’ Rights Act, a landlord can only increase the rent once increase per year.

Landlords must give at least two months’ written notice of a proposed increase. 

There’s no formal legal cap to how much a landlord can raise the rent, but any rent rise must be in line with the local open market rent. Tenants can challenge increases that they think are above market rates through the First-tier Tribunal (Property Chamber). 

Q: Because of the shortage in rented property – there has been a pattern of rent bidding – where one tenant offers more than the asking price to get the property. What are the new rules around that?

Once enacted, the Renters’ Rights Act will require landlords and letting agents to publish an asking rent for their property. It will also prohibit them from asking for, encouraging, or accepting any bids above this price. Housing is a devolved matter. The rental bidding provisions apply only in England.

Q: What about getting a mortgage to fund the purchase of your buy-to-let property?

Yes, you need to get a Buy-To-Let Mortgages. Usually they charge a higher fee and there is less competition amongst the providers and the minimum deposit for a buy-to-let mortgage is usually 25%.

Q: What about estimating the costs for running the property?

Maintenance

Research by Towergate Insurance claimed that, on average, landlords spend £1,374.07 each year maintaining their rental properties.

Letting agent fees

If you use a letting agent to find tenants and collect rents, they may charge you around 10% of the monthly rent. A fully managed tenancy by an agent, will usually cost around 15%.

Landlord insurance

Landlord insurance is a specific type of home insurance for people who let out a property to tenants, rather than living in it themselves.

Void periods

If you have taken out a buy-to-let mortgage, you will be paying off a mortgage, whether or not you are getting any income. So in working out your finances, take into account the fact that you might have a period where you have no tenant and therefore no income.   

Deposits

You will need to protect that deposit within a Government-approved scheme within 30 days of that payment being received. While on the surface it seems to primarily benefit tenants, deposit protection schemes are helpful for landlords too. If landlords disagree on what deductions should be made from the deposit at the end of the term, they'll be able to access free adjudication services to come to a verdict.

Q: What about tax?

Because the cost of the mortgage reduces the profit you make from renting out the property – you used to be able to claim the cost of the mortgage, for tax purposes. That is no longer true and I have certainly heard of landlords paying more in their mortgage than they have got in rent and yet still being charged tax on the rent as if they were making a profit.  

That’s because one of the biggest shifts in rental taxation was the removal of mortgage interest relief, which was phased in from April 2017 to April 2020.

• Before: landlords could deduct 100 % of mortgage interest and other finance costs from rental income before calculating taxable profit.

• After: individual landlords can no longer deduct mortgage interest in that way. Instead they receive a 20 % tax credit on interest against their tax bill — regardless of whether they’re a basic, higher or additional-rate taxpayer.

This change means more of the gross rental income is taxed.

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