Buy to Let - How Does it Work?

When someone purchases a property specifically to rent out,the process is known as buy-to-let.  It is an investment than can often pay dividends. 

Invest in buy-to-let?

People invest in buy-to-let precisely because it’s seen as an investment and therefore should make you money.  You can make money from buy-to-let in two ways:

  • Capital growth (the value of your property increasing depending on the state of the market)

  • Rental income

However, buy-to-let isn’t entirely straight forward and - as with any investment - there is no guaranteed return so there is a lot of risk involved.  Here are some of the benefits and disadvantages of investing in a buy-to-let mortgage:


  • Stable source of income from rental receipts.

  • Accumulation of wealth if house prices go up over time.

  • Attractive investment option in comparison to current low savings rates and stock market volatility.

  • Rent should normally be at least a quarter higher than your monthly mortgage payments, so as long as your property is consistently occupied your investment will be profitable.

  • If the housing market does well then your house could be worth more than the amount you paid for it, which will allow you to sell the property for a profit.


  • No guarantee, so there are risks involved.

  • Stigma associated with the practice, many commentators believe it has contributed to rampant house inflation.

  • Interest rates tend to be higher on buy-to-let mortgages, as do arrangement fees.

  • There’s no guarantee that you will always have tenants occupying the property.

  • You’re responsible for major repair bills such as boiler breakdowns or plumbing issues. This could present you with a substantial financial setback.

  • Property prices are subject to fluctuation.

Getting a mortgage

If you’re buying a house to rent out and you want to take out a mortgage, you’ll need a specific buy-to-let mortgage.  Although you should be aware that making this type of investment is risky, so you should only take out a buy-to-let mortgage if you can afford to risk it.

It’s a good idea to talk to a mortgage broker before you take out a buy-to-let mortgage, so you get to know the exact risks and benefit from their specialist advice. 

For starters, there are different types of buy-to-let mortgages - fixed rate, tracker rate, standard variable rate.

Buy-to-let mortgages work in the same way as standard mortgages, although their rates are often higher as they provide the lender with greater risk. More over, not all banks and building societies offer buy-to-let mortgages so you are limited in your choice. And you’re likely to find it harder to get a buy-to-let mortgage if you don’t already own your home.  It’s also important to bear in mind that lenders will take your income into account before offering you a mortgage.