Investing in property can be a lucrative way to generate an income plus you may benefit from substantial increases to its value overtime too. But how much does it cost? What are the different ways of investing in property and what should you beware of?
KEY INFORMATION
How to invest in property: Summarised
- Investing in property can give you a regular income plus your investment could grow substantially over time if house prices increase.
- A good target for return on investment on property in the UK is 5%-7%.
Why invest in property?
There are a number of reasons why people invest in property including:
- Rental income: Investing in property can generate a monthly income.
- Capital growth: Assuming house prices go up, the value of your investment could increase significantly over time.
- Helping family members: The average first time buyer deposit in 2024 was £61,090, according to Halifax. So many parents and family members are looking at property investment to help their children get their own home.
- It’s easy to understand: Unlike with some other investments, some people feel happier investing in property because they understand how it works.
What are the ways of investing in property?
The different ways of investing in property include:
1. Buy to Let
Buying a property to rent out is a common way to invest in property.
Some 4.6 million Buy to Let properties are being rented in the UK, according to research by Finder.
If you’re not a cash buyer, you’ll need a Buy to Let mortgage. Buy to Let mortgage rates tend to be higher
than on standard mortgages, you’ll usually need a bigger
deposit and the amount you’ll be able to borrow is based on how much rent the property can generate..
2. Property development
This means buying a property and selling it on for a profit, usually after refurbishing it – you may
also choose to extend it. You can get house renovation mortgages designed to cover the cost of the property
and the money to pay for the renovations – find out more by speaking to a mortgage broker. But you’ll
need to research carefully to make sure you’re clear about the potential costs.
3. Investing in a holiday let
Owning a holiday let in the UK means you could get good returns on your investment and a property that
you can enjoy too. If you don’t have the cash to buy a holiday home to let out you can get specialist holiday let mortgages.
Holiday lets have become an attractive alternative to Buy to Let in recent years as they can often be let for
much more than normal rental properties.
Plus, furnished holiday lets are treated differently by the taxman – although this is set to change.
4. Buying property abroad
While buying a property abroad means you can potentially have a holiday home in the sun
that you can rent out when you’re not using it. Plus, you may choose to live there when you retire. But
buying property abroad comes with its own set of challenges, especially if you don’t speak the language. So having expert advice
in all aspects of the purchase will be crucial. So, for example, it may make sense to use a UK bank that operates
in the country where you want to buy a holiday let is. A mortgage broker will be able to advise you.
How much do you need to invest in property in the UK?
If you’re considering investing in a Buy to Let in the UK, there are a number of costs you’ll need to consider:
-
Deposit: Unless you’re a cash buyer, you’ll need a Buy to Let mortgage if
you’re investing in a property to let out. You’ll usually need a minimum
deposit of at least 25% to get a Buy to Let mortgage. So
on a property worth £300,000, you’d need a deposit of at least £75,000. - Stamp duty: If you’re buying a property worth more than £40,000 and the purchase will result in
you owning more than one property, you’ll need to pay the Additional Stamp Duty Rate in England and Northern
Ireland. Since 31 October 2024, the stamp duty rate for additional properties is 5% higher than for standard rates.
For example, if you’re buying a £300,000 house and it will be your only property, your stamp duty bill will be £2,500. But if you’re
buying an additional property as an investment you’ll need to pay the Additional
Stamp Duty Rate, taking your stamp duty bill to £17,500. The rates are different in Wales and Scotland. -
Conveyancing fees: You’ll need a conveyancing solicitor to handle the legal
side of buying your investment property. Find out more in our
guide to Buy to Let conveyancing. - Surveys: When you buy a property, we always advise getting a survey done so that you’re
informed about the condition of the property before buying. It’s more money to shell
out but it could save you nasty, and costly, surprises further down the line – the
last thing you’ll want is for your property investment to turn out to be a money pit. Costs vary but a RICS Level 2
Survey on a £300,000 house may cost around £600-£700. - Having a financial safety net: You should also have cash
set aside to cover maintenance costs and mortgage payments in case your property is empty for a period.
There are other costs you’ll need to pay, including landlord insurance and mortgage fees – read on for more on these.
Where are the best places to invest in property in the UK?
Prime locations to invest in property in the UK include London and major cities like Birmingham, Manchester, Liverpool and Leeds. Areas close to universities can also be good places to look, although you’ll need to jump through more
hoops if you’re letting out a house in multiple occupation (HMO).
When you’re considering an area, you’ll want to think about the demographic of
people who would rent your property and which types of property are most popular.
Try speaking to local estate agents to see if they can give you any advice on this.
Also Yield Calculator to get an idea of how much rent you could charge based on your
property type, location and local demand.
Pros of investing in Buy to Let property
The advantages of investing in a Buy to Let property include:
- Do it right and you could get a healthy monthly income
- You could also benefit from decent house growth over the years
- It could be a way of buying your holiday home
- Low Mortgage rates
Average gross rental yield of areas in the UK
| City | Average gross rental yield | Average monthly rent | Average price of a buy-to-let property |
|---|---|---|---|
| Sunderland | 8.96% | £626 | £83,842 |
| Aberdeen | 8.03% | £689 | £102,920 |
| Burnley | 8.00% | £566 | £84,869 |
| Dundee | 7.96% | £774 | £116,690 |
| Glasgow | 7.95% | £951 | £143,617 |
| Middlesbrough | 7.92% | £613 | £92,862 |
| Blackburn | 7.52% | £661 | £105,460 |
| Hull | 7.45% | £612 | £98,617 |
| Newcastle | 7.45% | £833 | £134,245 |
| Liverpool | 7.44% | £801 | £129,172 |
| Stoke | 7.38% | £735 | £119,562 |
| Grimsby | 7.16% | £608 | £101,883 |
| Barnsley | 7.15% | £684 | £114,805 |
| Bradford | 7.02% | £692 | £118,267 |
| Blackpool | 6.98% | £692 | £119,049 |
| Wigan | 6.96% | £752 | £129,656 |
| Swansea | 6.92% | £867 | £150,377 |
| Preston | 6.91% | £784 | £136,148 |
| Rochdale | 6.85% | £815 | £142,781 |
| Bolton | 6.80% | £790 | £139,483 |
| Doncaster | 6.79% | £678 | £119,911 |
| Leeds | 6.67% | £969 | £174,269 |
| Coventry | 6.66% | £1,015 | £182,782 |
| Nottingham | 6.64% | £947 | £171,146 |
| Cardiff | 6.59% | £1,119 | £203,663 |
| Wakefield | 6.56% | £737 | £134,826 |
| Birkenhead | 6.54% | £713 | £130,914 |
| Manchester | 6.53% | £1,070 | £196,603 |
| Huddersfield | 6.42% | £704 | £131,596 |
| Mansfield | 6.41% | £732 | £137,105 |
| Plymouth | 6.39% | £878 | £164,771 |
| Sheffield | 6.38% | £809 | £152,051 |
| Southampton | 6.34% | £1,121 | £212,118 |
| Newport | 6.32% | £879 | £166,835 |
| Warrington | 6.30% | £863 | £164,258 |
| Derby | 6.28% | £798 | £152,479 |
| Gloucester | 6.28% | £945 | £180,449 |
| Peterborough | 6.24% | £907 | £174,548 |
| Belfast | 6.16% | £751 | £146,190 |
| Ipswich | 6.16% | £879 | £171,273 |
| Portsmouth | 6.14% | £1,161 | £226,802 |
| Birmingham | 6.10% | £934 | £183,628 |
| Medway | 6.09% | £1,176 | £231,635 |
| Luton | 6.08% | £1,145 | £226,150 |
| Northampton | 6.08% | £977 | £192,858 |
| Edinburgh | 6.03% | £1,263 | £251,423 |
| Swindon | 6.03% | £969 | £192,908 |
| Telford | 5.92% | £809 | £164,075 |
| Norwich | 5.83% | £1,065 | £219,141 |
| Leicester | 5.77% | £924 | £192,229 |
| Bournemouth | 5.68% | £1,243 | £262,577 |
| Bristol | 5.66% | £1,389 | £294,503 |
| Hastings | 5.58% | £1,016 | £218,348 |
| Worthing | 5.52% | £1,171 | £254,618 |
| Reading | 5.48% | £1,412 | £309,293 |
| Aldershot | 5.47% | £1,325 | £290,646 |
| Crawley | 5.46% | £1,376 | £302,547 |
| MiltonKeynes | 5.41% | £1,202 | £266,589 |
| Brighton | 5.39% | £1,616 | £360,102 |
| York | 5.22% | £1,111 | £255,222 |
| Southend | 5.15% | £1,152 | £268,305 |
| London | 4.95% | £2,047 | £496,124 |
| Oxford | 4.79% | £1,667 | £417,737 |
| Cambridge | 4.50% | £1,527 | £407,603 |
If you decide to buy a property this comes with a range of costs, including:
- Solicitor’s fees
- Estate agency fees
- Land Registry fees
- Surveys
- Mortgage fees
- Stamp duty (land and building transaction tax in Scotland; land transaction tax
in Wales) – you’ll pay an extra 5% when buying an ‘additional’ property in England, Northern
Ireland and Wales. In Scotland it’s 8%. The threshold depends on where in the UK you are. - Insurance
If you’re thinking about investing by buying property, make sure you look closely at the costs involved to decide whether it’s worth it.
The risks of property investing
A number of variables could affect how your property investment performs.
- House prices and demand: Your capital return is dependent on house prices going up,
while your income depends on how much rent you can charge,
and both are reliant on a steady, or increasing, level of demand for your property. - Long-term investment: You need to be ready to invest for the long-term in
order to make sure you earn back what it has cost you to purchase your Buy
to Let and to allow time for your returns to be smoothed out. - Unforeseen circumstances: Even if the property market is booming, there could
be issues with specific properties that cause problems. For example, the recent
cladding crisis couldn’t have been predicted by the people that invested in those properties. - Property prices could fall: It’s not guaranteed that property prices will always go up.
Challenges and Considerations:
- Financing: Non-residents may face stricter mortgage criteria and higher deposit requirements from lenders.
- Tax: You may be subject to different tax rules, including a higher rate of Stamp Duty Land Tax (SDLT).
- Identification Checks Lenders and solicitors may conduct more rigorous identity checks.
- Legal and Tax Advice It’s advisable to seek legal and tax advice specific to your situation as a non-resident buyer.
- Capital Gains Tax Be aware of capital gains tax implications when selling the property.
- Property Management: If you plan to rent out the property, you’ll need to consider property management and potentially the non-resident landlord scheme.
- Residency: Buying property doesn’t automatically grant you the right to stay in the UK; you’ll need to apply for the appropriate visa if you wish to live there.
