The True Costs of a Buy to Let Investment

As a buy to let investor, it’s all about the numbers and making sure the deal stacks up. So when it comes to budgeting for the cost of the purchase, you’ll want to capture all the items that may factor in. In this article, I wanted to share the real costs that are associated with purchasing a property as a buy to let investment if you are overseas or domestic. We’re going to assume a purchase price of £1M and that you are an overseas landlord that already owns another property, anywhere in the world. 

Stamp Duty

Besides the purchase price, the most significant cost you will pay is stamp duty.  But that is not a straight forward calculation as it is a tiered pricing.   Based on the stamp duty calculator which we’ll include in the notes, the estimated stamp duty tax will be £93,750, for an effective rate of 9.4%.  This is based on being an overseas investor and that you already own another property somewhere else in the world.  

The chart here shows that you will be paying government required surcharges on 2 fronts: one as a 3% premium as a BTL investment and the second as a non UK based resident (overseas landlord) which incurred an additional 2% surcharge that took effect April 2021.  

Mortgage Fees

If you’re securing a mortgage, there will be costs associated with it.  Obviously, there will be interest costs, but also perhaps costs to arrange the mortgage.  This will vary quite widely so I haven’t budgeted for it but it is something you want to make sure you factor in if it does apply to you.  

Conveyance Fees

In addition to stamp duty, you will have conveyance fees which can vary widely.  We’ve estimated £2500 for properties up to £2.5M.  

Also, be prepared to pay for land registry and searches from the local council.  We’ve budgeted £1500 for that.  

Surveys

You may want to consider booking a survey, which depending on which you choose,  for many Americans this will be similar to an appraisal.  

First is the valuation survey.  This is usually requested by the bank or mortgage company and only looks at how much the property is worth – it doesn’t check for structural issues, and won’t unearth any problems with the property.   We’ve seen properties down valued of late as surveyors calculate a value less than the agree purchase price.  But remember that this one surveyors opinion but the banks will usually accept it.  

To protect yourself from buying a house with defects, you should consider having an independent property survey done, too. The most common types of survey are: The RICS HomeBuyer Report, which examines the general condition of the property you’re going to buy.  Alternatively, a building survey, also known as a structural survey, which provides a more in-depth analysis of the condition of the property and its structure. However, if you’re confident that the building is in good order and don’t plan to do any work to it, you could opt for the more basic RICS Home Condition Report, which is only suitable for modern homes in good condition. 

If you’re buying a new-build property you should have a professional snagging survey done. This should cover everything from minor issues like a door not closing properly to serious structural problems. Survey costs range from £300 up to about £1500 depending on property value and scope of work. 

As you can see, giving the tiering of the stamp duty costs and all the other costs, for a purchase price of £1M, you need to further budget almost 10% for other costs to secure the property.  Now, remember if you get mortgage financing, you don’t have to come up with the entire purchase price yourself.  So while you will e securing a £1M property, you may be able to do so with 15 – 25% of the purchase price and get mortgage financing for the rest.  

So are you thinking of purchasing a buy-to-let property any time soon?  Drop me a message in the comments section.  And if you have any questions about buying an investment property or even a second home in London, please get in touch.