With rental prices on the rise and a thriving economy, buy-to-let can be an excellent way to generate income and build wealth. But before you jump into the buy-to-let market, there are some key points to consider. Find the best mortgage deals with Moving Buddies
The buy-to-let market in the UK is an increasingly popular investment option for landlords. 2023 was a year of transition for the UK property market, with significant challenges confronting investors and intermediaries alike.
The Bank of England’s dramatic rise in rates elevated the base rate by 1.75 percentage points in the first eight months of the year, resulting in a 15-year high of 5.25 per cent. As such, balancing rapidly rising mortgage repayments with rental income has been one of the prominent difficulties for landlords in the past 20 months or so. Despite these hurdles however, there are indications that suggest a positive swing in the market.
So Let’s look at what it takes to become a successful landlord in the UK.
How Do I Budget For A Rental Property?
Buying a rental property with a mortgage usually means putting down a substantial deposit. Therefore, affordability is probably the first thing you should address.
- Mortgages: Buy-to-let mortgages are more expensive than standard mortgages and require a minimum deposit of at least 25% of the property’s value. Furthermore, the best rates often come with high arrangement fees.
- Rental Yield: Rental yields are how much you earn from a property investment. Lenders usually want the rent to amount to between 125% and 145% of your mortgage payments. So if your mortgage payments are £500, the rental income would need to be between £625 and £725.
- Upkeep: Remember to budget for the maintenance of the property and for periods when the property might be sitting empty between tenants.
What Makes A Good Buy-To-Let Investment?
What is your overall aim? – Are you focused mainly on long-term capital growth or making money from the sale of your property in the future? If so, you will want to look for a property in an area with strong growth potential. To receive a monthly income whilst owning the property means choosing an area with the potential for a healthy rental yield.
The good buy to let investment property may be completely different to what you would buy for yourself to live in. Therefore it is important to think objectively, with your head rather than your heart. If you want a property with broad appeal, think about the following:
- House Or Flat? – This will determine the type of tenant you’ll get. Young professionals or singles may want an easily maintained flat but a growing family may rather rent a house.
- New Build or Not? – There may be fewer issues with a new build property and they are less costly to maintain, but older buildings have more character and may be cheaper to buy, particularly if they need some initial work doing.
- Layout – A large communal space may suit students, but families may want gardens and more bedrooms for children.
- Gardens have a fairly broad appeal – provided tenants are willing to maintain them. For some, it could be an unwanted hassle.
Understand Tax Implications
The first step towards becoming a successful landlord is understanding your tax obligations. It’s important to know that you’ll be liable for income tax on any profits you make from renting out your property. You may also be responsible for capital gains tax if you sell your property or if it appreciates in value over time. It’s best to consult with a financial adviser or accountant who can help you understand all of your tax obligations and how to maximise your profits as much as possible.
Research Prospective Tenants
Once you have decided on a property, it’s important to research prospective tenants carefully. Check references, credit scores and other factors that will give you an indication of how reliable tenants will be when it comes to paying rent on time each month. This can help save you from costly mistakes down the road. Also keep in mind that, as a landlord, you are obligated by law to ensure that your properties meet certain safety standards and regulations; this includes providing smoke detectors and carbon monoxide detectors where necessary.
Set Up Your Property Management System
Finally, once everything is ready to go, it’s time to set up your property management system. This includes deciding how rent payments will be collected (such as direct deposit), setting up maintenance schedules for repairs or renovations, and creating systems for communication between yourself and tenants when problems arise or requests need to be made. This can seem like a lot of work at first but having organised systems in place will make managing your properties much easier over time—not just now but even down the line when more properties are added!
Stamp Duty On Buy To Let Properties
When you’re buying a property to let out, you usually pay 3% extra in stamp duty. The main exception to this is people who’ve never owned a property before and are investing in buy-to-let property as first-time buyers
Buy-to-let investments offer many advantages including potential long term growth through appreciation of the property value as well as steady monthly income from rental payments . However, being successful requires careful research ahead of time regarding taxes, prospective tenants, and setting up efficient management systems which will save landlords both time and money in the long run . If done correctly , buy -to – let investments can provide landlords with great returns on their investment while giving them peace of mind knowing their properties are taken care of properly . With these tips , landlords can get started on their journey towards becoming successful within the booming UK buy -to – let market !
Working with a mortgage advisor means they will do a lot of the hard work. They often work ‘whole of market’ which means they have access to any mortgage lenders on the market giving you the most choice of product and lender.
A mortgage advisor will give you advice on affordability, what mortgage amount you are likely to get and if there are any potential problems in your finances that you might need to address. Find the best mortgage deals with Moving Buddies