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Five buy-to-let pitfalls to avoid

Chris Torney / 22 April 2020 ( 22 February 2022 )

Becoming a landlord has the potential to be very lucrative, but there are a number of possible pitfalls to watch out for as well.

A key in a house door to represent a buy-to-let investment

Investing in buy-to-let property in order to generate extra money in retirement has grown in popularity since new pension freedoms were introduced in 2015.

Becoming a landlord has the potential to be very lucrative, provided rents remain high and house prices continue to rise.

However, there are a number of possible pitfalls to watch out for…

1. Your risks are concentrated

If you invest in a single property, you are in a sense putting all your eggs in one basket: any fall in the value of the housing market could put a serious dent in your capital as well as reduce the amount of rent you are able to charge.

In recent years, property prices and rents have risen steadily in much of the UK. But there is no guarantee this will continue.

Can I buy to let if I'm retired?

2. Your money is locked up in bricks and mortar

If you use a large chunk of your savings or pension fund to buy a rental property, it may be hard to get your hands on your cash if you need it in an emergency. 

Property is much less liquid than even money in stock-market funds – so only invest what you can afford to leave untouched for five or 10 years, say.

Five things that make a good buy-to-let property

3. Tax bills can reduce your gains

The government has been cracking down on the buy-to-let sector, partly to prevent the housing market overheating as rents and property prices rise. This has resulted in higher taxes for landlords, most notably in the form of stamp duty when you buy a rental house or flat.

In England landlords now pay an extra 3% duty on top of the normal rate, which is likely to cost you several thousand pounds. It's a similar situation in Scotland and Wales, where landlords pay an additional 4% on top of Land and Buildings Transaction Tax or 3% Land Transaction Tax respectively.

The rules around buy-to-let mortgage interest tax relief have also changed. As of 2020, mortgage expenses from your rental income can no longer be deducted from your tax bill. This has been replaced by a tax credit of 20%, which is less beneficial to those on higher incomes who would have received tax relief of 40% under the old system.

And don’t forget that, when you sell your property, you’ll probably have to pay capital gains tax as well.

4. Being a landlord comes with responsibilities

As a landlord, you’ll be responsible for keeping your property in decent repair and dealing with any problems your tenants face. This includes making sure you have working smoke alarms and carbon monoxide alarms, making sure gas and electrical equipment is safe and protecting your tenant's deposit in a government-approved system.

You can employ a managing agent to deal with matters such as these, but that will eat into your profits.

5. It’s easy to overlook extra costs

The prospect of benefiting from house-price growth and rising rents means you can often overlook the expenses attached to being a landlord. As mentioned above, stamp duty is particularly expensive and you face extra purchase costs such as legal fees, surveys and possibly also furnishing or equipping the home with domestic appliances.

There are also ongoing maintenance costs, insurance, and the possibility of void periods where you have no tenants but a mortgage that still needs to be repaid.

It's a good idea to keep some savings to cover months without a tenant and pay for essential repairs such as boiler replacement.

Find out about Saga Landlord Insurance


The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.