Buy to let Property Investment: Your Definitive 2021 Guide

buy to let investment

With saving rates at a historic low this year and with negative interest rates still a possibility, many landlords-to-be ask the question: ‘Are buy-to-let investments still worth it?’ Investing in property can be a good option for those looking to earn higher interest than what you would otherwise get from savings accounts. However, there are some things to take into account before investing in property in 2021.


Investing in Buy-to-let property in 2021

In the months following lockdown, buy to let investment remain one of the most popular and lucrative investment methods out there. Purchasing a buy to let property lets you generate attractive returns and reap the benefits of the ownership of a valuable asset in the UK property market.

The buy to let scheme has been popular since 1996. By 2007, there were over a million outstanding buy to let mortgages – a dramatic increase from half a million in 2004. Today, buy to let property investment is one of the best property investment strategies for people who want to make a lucrative income thanks to buy to let returns.

However, several changes in the regulatory framework surrounding buy-to-let properties mean you need to bring yourself up-to-date with all information before you proceed. So let’s look in depth at buy-to-let investment strategies in 2021.


What is Buy to Let?

Buy to let is a term used to refer to a property people purchase with the intention to let it out. Buy-to-let investors most commonly take out a mortgage to buy a property and make money from the rent paid by their tenant. As such, there is certain criteria you need to meet in order to invest in a BTL property.


How has buy-to-let changed?

We have seen property prices growth slowing in recent years. This has, understandably, put some investors off buying to let. Furthermore, the UK government has introduced new restrictions on the buy-to-let market in recent years with changes to the tax system. In 2016 the government added a 3% surcharge in stamp duty on additional properties, such as second homes and buy-to-let properties.

Since 2017 the government has also been reducing mortgage interest relief. Previously, landlords were able to deduct the interest they pay on their mortgage before paying tax. This meant a 40% tax relief on their mortgage payments. However, following the change, landlords receive a flat-rate tax credit based on 20% of their mortgage interest.

This doesn’t necessarily mean a negative outcome for most landlords who were already basic-rate taxpayers. But it will affect those who are higher or top-rate taxpayers. The bottom line is that landlords will have to declare the income used to pay their mortgage on their tax return. This apparent income rise can result in a change from the basic rate to the higher rate, which would mean a higher tax bill.


Is buy-to-let still a worthwhile investment?

A buy to let investment can be very lucrative and rewarding as it offers a lot of potential to those who wish to increase their cash flow over time. While there are periods of slowdown in the market due to economic turmoil and housing price increases, the benefits of buying a buy to let property far outweigh these risks. Once you have the money for a deposit and have studied the risks and rewards, you can move forward with your buy to let UK investment to take advantage of the opportunities on offer.

Of course, buy to let investment returns depend on multiple factors. One of them is the type of investment you’re looking for, and the ultimate goal of your investing activities. Let’s look at the pros of buy-to-let as a way to generate a return.

You’ll earn rental income. In some areas of the UK, such as Liverpool, Glasgow and Leicester, rental yield is as high as 8%, while others are around the 3% mark.

You could generate capital growth as your property value increases.

You can take out insurance to cover against loss of rental income, damage and legal costs.

Despite the economic uncertainty and high levels of redundancies during 2020, the rental market remains strong according to a report published by the Royal Institute of Charter Surveyors (RICS) in September. As such, a buy-to-let (BTL), especially outside London, maybe a good investment opportunity in 2021.

While it is true that BTL can offer a good return on investment, there are many factors to consider before doing it. For example, you need to calculate the rental yield – which can be done using any online rental yield calculator – to ensure that the investment is profitable. In addition to this, you need to factor in the ongoing costs of maintaining the property and covering costs for periods when the property may remain unoccupied.


How do I get started with buy-to-let?

You need to know a few things when selecting buy to let properties. To make sure you most out of their investment, we recommend focusing on the following criteria to increase your chances of success. Before deciding on a property to buy to let, make sure you know how to identify the best buy to let opportunities.


Look for High Rental Yields

High rental yields are important because they allow you to generate the kind of desirable returns you’d like.

The higher the rental yield, the better. In the UK, rental yields of around 5 to 6% are generally accepted. However, you’d want to look for higher yields of 7 or 8% as they are ideal. Buy to let investors who can generate yields of an even higher percentage are onto a highly lucrative venture.

If you are investing through a property company, rental yield percentages for buy to let properties are made clear from the start. These yields are also usually assured for a set number of years. This means that buy to let investors don’t have to worry about losing out on income once their investment begins. But if you’re buying property to let privately, you’ll need to calculate rental yields yourself. You can do this by dividing the expected annual rental income of the property by the property value, and then multiplying this figure by 100.


Consider Tenant Demand

Tenant demand should be the deciding part of your decision-making process when finding a buy to let property. You can’t secure tenants if demand for your property is low, and long void periods will end up costing you money. There is also the greater possibility of ending up with low yields.

Some UK cities have seen a shortage of properties available to meet levels of demand. This is particularly true of university cities where students and young professionals look to rent. Younger generations prefer to rent rather than to buy and end up renting for longer periods. Therefore if you buy a property in a high-demand area, you are likely to generate consistent rental income for many years.

Look into population statistics to find out whether the areas in the UK have good levels of demand for rental properties. This kind of information can be easily found online. You can also look at the details on student numbers on the universities’ websites for each city to determine the best place to buy to let student accommodation.

If a city’s population statistics suggest significant long term growth in the near future, along with a high population of young people, this could be a good indication that levels of demand will be high.


Think About Capital Growth

Rental returns are the main factor behind buy to let investments but you should also incorporate capital growth into your decision. Capital growth or capital appreciation is the growth in value of a property over time.

High capital growth can benefit buy to let investments if you choose to sell your property further down the line. Provided that the property has seen an increase in value, this will translate into a return on your investment as you will end up earning more for the property than the price you paid for it.

Long-term investment capital growth should always be factored in when you’re looking for the best buy to let areas. You can recognise areas with a potential for growth by looking at those with big regeneration schemes underway. Regeneration consists of plans to improve a city by redeveloping it. This could include transforming current attractions, introducing new ones, improving infrastructure, and more. 

House price growth is a big factor in making or breaking a buy to let decision. For example, some areas in London with negative growth have seen a cooling in investors’ interest.  Others such as North London, are enjoying an increase in the search for buy to let properties with the average selling price having grown by 5.60 per cent in the year to November 2018.



All in all, buy to let investments remain a sought-after way to create another stream of income in these uncertain times. But if you want to make the most out of your investment in buy to let property, you need to take some time to consider the demand and capital appreciation prospects in your area of interest. This way, you will be able to benefit from more than just rental returns.  Look at the average growth rate in both the city and the region as a whole, and factor in any regeneration plans to make an informed decision.