The government may have recently increased the costs for some landlords by reducing the allowances that they can claim against their tax bills, but London remains the UK’s most vibrant and largest buy-to-let market in the UK. For example, out of the £26.1 billion that private landlords contribute to the UK economy, nearly 40% of that comes from London. And despite the extra tax burden, while interest rates remain at rock bottom and property values continue to increase, investing in property remains popular. So if you’re considering a move into the private rented market, here are some essential things to do before you become a landlord.
Know the market
Buy-to-let is all about tenant demand and the higher it is in an area, the better a landlord’s gross return on investment. This is the annual rent divided by the apartment’s purchase price, presented as a percentage. The ideal landlord purchase therefore is a property within an up-and-coming area where house prices have yet to lift, but rents have already reached a level that returns five percent or more gross ROI. But not everywhere does, of course and inside knowledge can be key.
Shop around for mortgages
The types, rates and costs of buy-to-let mortgages vary a lot, so it’s worth shopping around. For example, depending on how much a landlord is borrowing and their personal financial profile, lenders will ask for a deposit of between 25% and 40% of the purchase price. Also, landlords need to do their financials before applying – most lenders ask that the rent is 25% or more than the mortgage repayments. The advice of a letting agent is useful when attempting to work out how much the rent will be.
Decide who the tenants will be
Tenants come in many shapes and sizes, so a landlord needs to decide which they are going to focus on. These include UK or foreign students, couples with or without children, professional sharers, short-term or long-term lets and corporate rentals. Each vary in the rent they want to pay, how long they stay and how they use the property.
Choose the price point
Landlords need to decide how much they are going to charge, as this influences the type of tenant they attract and the how long it can take to rent a property. But it will also depend on local market conditions. In a subdued market a competitive rent will fill a property faster than a higher-priced one, but more expensive rents can attract more reliable and responsible professional tenants.
Study the law
In recent years the UK rental market has become increasingly regulated by environmental, admin, eviction, safety, tax, financial, landlord licensing (in some areas) and housing tenancy rules that must be adhered to by all landlords. This is one of the key expert services that we offer landlords when we manage properties directly. Find out more about our services.
Decide how to operate your buy-to-let
Recent tax changes that limit how much a landlord can claim against for wear and tear, and mortgage interest costs, have persuaded many landlords in London to purchase their buy-to-let property through a limited company instead of as individuals. Approximately a quarter of landlords in London now do it this way.
Draw up a contract
In the UK it is standard to offer a rolling Assured Shorthold Tenancy contract to tenants, but they are not all the same. There are many variables that a contract must include and a landlord needs to draw up one for each property that reflects their terms and conditions and each property’s different features. For example, although most ASTs are six months long they can be for any length and some landlords offer 12 month rolling contracts. And they should stipulate who looks after the garden should a property have one, and some landlords prohibit smoking within a property and/or pets.
If you’re interested in investing in a buy-to-let property, get in touch .