For first-time landlords starting a career in the UK buy-to-let sector, there are a few things you’ll need to do before taking on tenants. We get an insight from Adele MacGregor at Compare My Move.
A buy-to-let property can be a sound investment and a way to earn a monthly income. However, it is vital that you know what you are taking on. This includes the upfront costs of buying a property, the ongoing costs of maintaining it and the rights of your tenants.
Buying a property
First-time landlords purchasing a buy-to-let property will not only need the deposit, but will also need to be prepared to pay surveying and conveyancing fees.
The cost of conveyancing when buying a property in 2022 is £2,239 on average. Survey costs will depend on the survey and property type. Older or unusual properties would benefit from a Level 3 survey, which is more expensive.
You will also need a specialist buy-to-let mortgage, and some lenders offer specific products for first-time landlords. With this type of loan, you often only pay the interest each month. You will need to pay off the property in full at the end of the term. Lenders have stricter criteria for these mortgages as they come with higher financial risks.
To qualify, you must:
- Have a regular income of over £25,000
- Be 45 or younger
- Have owned your own home for six months (with or without a mortgage)
- Buy a property in the UK
- Have a good credit score
- Intend to invest in the property as a landlord
Lenders require a higher deposit for buy-to-let. This will likely be between 20% to 40% of the property price.
Taxes first-time landlords need to know about
When you take on a buy-to-let property, you will be subject to certain taxes. These include:
Income Tax
As a professional landlord, you will be earning income from your new property. As a result, you will need to pay income tax. The basic rate is set at 20%, with the higher rate at 40%.
Capital Gains Tax
Basic rate taxpayers will be charged at 18% on any increased value of the property when it comes time to sell. The rate for higher-rate payers is 28%. The capital gains tax-free allowance is currently £12,300.
Stamp Duty
As buy-to-let properties are classed as second homes, they will incur a higher rate of stamp duty. This is an additional 3% in England and Northern Ireland, with the rate at 4% in Wales and Scotland.
Insurance
It’s likely your mortgage lender will require you to have buildings insurance in place, so this is something all first-time landlords must factor into their costs. Landlord buy-to-let insurances can include buildings insurance in addition to covering:
- Contents
- Liability
- Alternative accommodation costs
- Rental income protection
Finding tenants
Although it is possible to rent your property without a letting agent, keep in mind they will have expert knowledge and tools at their disposal, which can be particularly useful for first-time landlords. They can also give you an idea of market rent prices, deposits and drawing up contracts.
You will want to be sure the correct checks have been done. This includes financial checks and references for prospective tenants. After all, this is your investment and you want to be sure it will be looked after by those living in it. Equally, you will want to ensure you are a fair and attentive landlord.
Your responsibilities
The property must be safe and habitable at a minimum. This includes meeting all your safety responsibilities as a landlord, ensuring:
- Gas equipment is safely installed and maintained (including an annual gas safety check)
- All appliances are safe
- Electrical systems are safe
- A smoke alarm is fitted on each storey
- A carbon monoxide alarm is fitted in any room with a solid fuel-burning appliance
- Access to escape routes at all times
- All furnishing and furniture are fire safe
- Fire extinguishers are available
You are also responsible for repairs to:
- The structure and exterior of the property
- Heating and hot water
- Gas appliances
- Pipes, flues and ventilation
- Electrical wiring
- Basins, sinks and baths
- Damage caused by attempting repairs
Dealing with disputes
Whether it is in regard to rent payments, damage or deposits, landlords will likely face disputes during their careers, so first-time landlords need to be prepared. Many of these issues can be resolved amicably, but if it escalates you may want to seek legal advice.
As the landlord, you must ensure you have met all the requirements expected of you. Being well versed in the rights of the tenants will also serve you well. Again, working with a letting agent can be beneficial when disputes arise.
