Buying my First Rental Property in the UK

Buying my first rental property in the UK has been my dream for the last couple of years, obviously buying my ‘now’ forever home was the top priority however, I also wanted to immediately after that, I wanted to purchase a rental property to add to my investment portfolio. I have spoken about my investment portfolio on my YouTube channel which is 100% stocks & shares (plus a few bonds) and now I am now excited to add my rental property. Buying this rental property was not as easy as I thought it was going to be because I had gone through the ‘process of buying a home‘. But this was completely differently and took me by surprise and I want to share my experience of buying my first rental property in the UK with you.

Whether you are buying your first property or your fifth, it doesn’t matter because the process is essentially the same in that, the majority of us will purchase the properties with the help of a mortgage, so deposit and possibly a mortgage advisor is required, will require a solicitor and much more. I have spoken before about things I wish I had known before buying my first house and now I can add more to that post because there is more I wish I knew even after going through round 2. Again, the process is essentially the same when purchasing a property but with each purchase you learn something new at every turning point. In this post I will share my experience buying my first rental property in the UK.

Disclaimer: I am not a financial advisor so please seek professional support for your specific personal needs.

Buying my First Rental Property in the UK

Over 5 years ago when I started saving up money to purchase my first property, I had always said I would buy a ‘big enough’ house so I could rent out a room or two. I did buy the ‘big enough’ property but then found as much as I wanted to rent out one room for additional income, I valued my peace and quite more. This then prompted me to think of other ways I could make additional income (other than the income on make on this blog) and the answer was ‘buying my first rental property in the UK’. I knew it wouldn’t be easy but with enough time, patience and savings, I would be able to achieve just that.

Deciding where I wanted to purchase my first rental within the UK was tough but was made easy by one simple question – do you want to manage the property yourself or hire a management company. I was quick to answer – I would manage it myself which meant I need to be within driving distance, I didn’t want the property to be up north when I live down south. I narrowed this down further by choosing to find a property where at least I had family members and in the end I choose for the property which is close to me. Once I found the property that I loved and wanted to purchase, the real deal begun and let me tell you, the last 6 months have been try to say the least.

Below I will share tips on how I went about purchasing my first rental property in the UK but I also made a YouTube video (currently) live on my channel explaining the costs associated with this purchase.

Deciding on the deposit I could afford

Normally when buying properties, people start off by thinking about how much in terms of a mortgage they could get from the mortgage lenders. In the UK, you can get a mortgage unto 4x your annual salary, so if you earn £50k a year 4x this equals £200k and you would start searching for a property around that range. When it comes to purchasing a rental property, its not so much about how much you can borrow (still important) but rather, you need to have at least 25% of the house value you choose as deposit. So, if you choose a property which costs £200k then you need at least £50k deposit to pay towards that mortgage and the lender will provide the other £150k.

I knew that I would comfortably afford a £50k deposit but no more otherwise I would put my personal finances at risk and even put my current home at risk as well. Using this information I knew that the properties I could afford with that deposit where those that were priced below £200k and the lower the better. I was fortunate to find a property around £190k which meant the deposit would be £47500 giving me a save of £2500 which I then moved to associated housing costs. These housing costs do add up pretty quickly, if you are purchasing your home and saved up £25k as deposit, I would actually recommend you only put down £15k or £20 case as you will need to pay a lot of closing fees.

Mortgage Broker Fees

When I first embarked on the property buying journey, I thought (after getting the mortgage agreement in principle) I would go at doing the mortgage application myself. I did not appreciate how exhausting and tiring the whole process could be and upon a friends recommending I weighed the pros and cons of a mortgage advisor and doing it myself, I choose the former because it was too time consuming and I would rather pay for a professional to do it. This mortgage advisor is now my financial advisor and I sought after him when making the decision to purchase my rental property. Mortgage advisors or brokers come with additional costs and this is something to plan for when budgeting for buying a home. Since he is my lifetime financial advisor, I only paid £99 for advisor and mortgage application support for the second property.

Legal Fees

Getting a solicitor when buying a property is a must and something I highly recommend but that doesn’t mean it is free – there is nothing free in this world. From my experience buying my first property, I knew I would require to budget at least £2000 for solicitor fees, admin, house associated searches, land registry and much more. Having that £2500 save from the deposit came in ready handy because it created a buffer for any ‘unexpected’ costs that would come up under the legal fees etc. Because the solicitor also does the stamp duty payment for you, don’t be surprised if instead of the fee being uptown £2000 for legal fees, its £8000 as this would include stamp duty (unless you don’t need to pay according to the rules at that time). Stamp duty is land tax that you need to pay when you purchase a property in the UK.

Additional Housing Costs

Whilst I knew there would be additional costs that I needed to save up for (and did), it is still surprising some of the things you need to pay for, are obligated to do and recommendations. Even though the rental property is a new build, I needed to check a surveyor to look over the house and see if there are any issues with the property before I committed to buying it. There were a few things that the seller needed to fix but the surveyor obviously cost money but this is not something I had planned to spend money on but having that buffer helped because I could easily run it through the budget.

Housing searches (like water and drainage) cost money although not a lot, registering the change in homeownership costs money, the government also want their share so they charge land duty and later on capital gains on the rent you receive or if you choose to sell the property. Some lenders also charge fees for getting a mortgage with them and whilst there is always an option to add that additional cost to your mortgage, it means you will pay interest on that too which in the long run costs more.

If the property you are buying is where you will be staying or intending to rent it out then you need to think about the decorating costs. Until I bought my home I did not think much about budgeting for my home and glad I had buffer money to help me with covering the decorating budget. Buying a house is not just about, ‘how much you can borrow as mortgage’ but you need to think about all the other associated costs which honestly add up pretty fast. I always recommend that if you intend to put down a deposit of £10k on a house, save another £5-8k to cover the additional costs.

My experience buying my first rental property in the UK has been bittersweet because I have had to use up all the money I saved for many years but also great that I have an ‘income generating asset’ in my portfolio. I hope you found this post insightful in the house buying process, it is definitely expensive but if you are in position to do so, then I highly recommend it for sure as it is a great investment.