Guide
How to analyse a property deal in the UK
The short answer. Check what similar homes sold for, then the rent, every running cost, the stamp duty, the mortgage and the lender's test, and how you will own the property. In the worked example below, offering £180,000 instead of the £195,000 asking price raises the cash flow from £59.69 to £111.25 a month.
Try the calculator Opens the buy-to-let strategy. Free to use, no account needed to see results.
Step 1: check what similar homes sold for
The asking price is what the seller hopes for, not what the property is worth. Before anything else, look up what similar homes nearby actually sold for. The house prices pages list the sales HM Land Registry has registered, by town, postcode district, postcode and address, free to read.
Use those sales to decide what you would pay. Every figure that follows depends on the price: the yield, the stamp duty, the deposit and the cash flow. The guide to checking a sold price shows how to read them.
Step 2: check the rent
Find out what similar homes let for now, from letting agents and current listings, and use a rent you are confident of rather than the best case. Gross rental yield is a year's rent divided by the price.
In the worked example, £1,000 a month is a gross yield of 6.2% at the asking price and 6.7% at the offer.
Step 3: count every running cost
Take off what it costs to keep the property let, before the mortgage:
- the letting or management fee, as a share of the rent
- a maintenance reserve and a void allowance for empty weeks between tenants
- landlord insurance
- ground rent and service charge on a flat
Net yield is the rent left after these, divided by the price. In the example they come to £270 a month, so the net yield at the offer price is 4.9%.
Step 4: work out the stamp duty and the cash you need
A buy-to-let or second home in England or Northern Ireland pays a surcharge of 5% on top of every stamp duty band. Add the deposit, the legal and survey fees and the lender's arrangement fee to find the cash you need up front.
At the offer price, stamp duty is £10,100 and the cash needed up front is £58,100. The stamp duty guide explains the bands, the company rules and the non-resident rate.
Step 5: check the mortgage and the lender's test
Work out the monthly mortgage payment at a rate you can actually get, then the cash flow: the rent less the running costs and the mortgage.
Then check the lender's interest cover test. The rent must cover the interest at a stress rate, which Deal Analyser starts at 5.5%, by a pass mark, usually 125% for basic-rate and company borrowers and 145% for higher-rate borrowers. Lenders vary. At the offer price the interest cover is 162%, so the rent passes, and it would support a loan of up to £150,470.
Step 6: decide how you will own it
Owned in your own name, mortgage interest is not taken off the rental profit before income tax. Instead you get a tax credit worth 20% of the interest: this is Section 24. Through a limited company the interest is a normal cost, and corporation tax is paid on the profit that is left.
For a higher-rate taxpayer in the example, the cash flow after tax at the offer price is -£684 a year owned personally, against £874 through a company with all of it paid out as dividends. This is not tax advice: take the figures to an accountant before you decide. The Section 24 calculator runs the comparison for your own deal.
Step 7: compare it with other ways to use the property
The same house can work as a buy-to-let, an HMO, a serviced let or a flip, and the numbers are different for each. The calculator runs all twelve strategies, and Compare, on a paid plan or during the free trial, puts one property through every strategy side by side.
A worked example
A house is for sale at £195,000. Sales of similar homes nearby suggest an offer of £180,000, and it would let for £1,000 a month. The buyer is a higher-rate taxpayer buying an additional property, with a 25% deposit and an interest-only mortgage at 5.5%.
| Asking price | £195,000 |
|---|---|
| Your offer | £180,000 |
| Monthly rent | £1,000 |
| Deposit | 25% |
| Mortgage rate (interest only) | 5.5% |
| Letting or management fee, share of rent | 12% |
| Maintenance reserve, share of rent | 8% |
| Void allowance, share of rent | 4% |
| Landlord insurance per month | £30 |
| Solicitor and legal fees | £1,500 |
| Gross yield | 6.2% |
|---|---|
| Net yield | 4.5% |
| Stamp duty (additional property) | £11,150 |
| Cash needed up front | £62,900 |
| Cash flow per month | £59.69 |
| Cash-on-cash return | 1.1% |
| Interest cover at the stress rate | 149% |
| After tax per year, owned personally | -£1,179 |
| After tax per year, through a company and paid out | £552 |
| Gross yield | 6.7% |
|---|---|
| Net yield | 4.9% |
| Stamp duty (additional property) | £10,100 |
| Cash needed up front | £58,100 |
| Cash flow per month | £111.25 |
| Cash-on-cash return | 2.3% |
| Interest cover at the stress rate | 162% |
| After tax per year, owned personally | -£684 |
| After tax per year, through a company and paid out | £874 |
Paying £180,000 instead of £195,000 cuts the cash needed up front from £62,900 to £58,100 and raises the cash flow from £59.69 to £111.25 a month.
Both prices pass the lender's test, yet for a higher-rate taxpayer owning in their own name the cash flow after income tax is below zero at either price. That is Section 24 at work, and it is why the question of how to own the property belongs in the analysis, not after it.
Questions and answers
How do I analyse a buy-to-let deal?
Check what similar homes sold for, then the rent, the running costs, the stamp duty, the mortgage and the lender's interest cover test, and finally the tax on the profit. The calculator works out each of these from the price, the rent and your costs.
Should I pay the asking price?
Not without checking what similar homes sold for. Work the deal out at the price you would pay. In the example, the lower offer cuts the stamp duty from £11,150 to £10,100 and lifts the gross yield from 6.2% to 6.7%.
How do I know if a property deal stacks up?
Deal Analyser gives every calculation a deal score. A deal is weak when the cash flow is negative or the rent fails the lender's test. It is strong when the cash flow is positive, the return on the cash you put in is healthy and it survives the stress tests.
Does the analysis include tax?
The yields and the cash flow are before tax. Choose your tax band and the calculator adds a comparison of owning personally and through a limited company, with Section 24 applied. It is not tax advice.
Do I need an account to analyse a deal?
No. The calculator is free to use and the results show without an account. You need an account only to save a deal.