It’s been said before but the buy-to-let market is currently thriving. A report released this summer by PricewaterhouseCoopers (PwC) revealed that “the proportion of people living in private rented accommodation had doubled from around 10% to 20% overall since 2000, but for those in the 20-39 age bracket it has jumped from 20% to 50%,” suggesting a significant increase in the number of UK landlords. To support this notion, research published by the National Landlords Association (NLA) last year found that part-time landlords “make up more than 70 per cent of the sector.” But with this rising number of landlords, comes the risk of making mistakes. So we take a look at how to avoid four of them.
- Treat it as proper business
The majority of people may view the role of a landlord as a mere hobby. But if treated correctly, it has the potential to flourish into a fledgling business that will cover your monthly mortgage costs whilst garnering a profit for you.
It’s best to concentrate on a small number of properties – all nearby to one another – before gradually increasing the size of your portfolio and expanding to different areas. This will give you the scope to understand what it initially takes to make letting property a lucrative prospect, in terms of an area’s popular amenities, reasonable rent rates, finding the right tenants etc.
For instance, you’ll be able to concentrate on the type and length of tenancies you offer. It’s pointless to settle on more tenants who only intend to stay for a short while, as this will result in long void periods. Agreeing on fixed-term tenancies which end near Christmas or the New Year is not advised as you’ll struggle to find new tenants quickly enough, meaning yet another long void period.
Ultimately, your buy-to-let mortgage will only be repaid so long as you have tenants occupying your property and paying you rent when it’s due. So make sure to prioritise long-term tenants over short-term ones. If you want to capitalise on the latter, you could consider short-term lets for students or seasonal workers as these types of tenants are always readily available.
- Choose the right location
Following on from the previous point, location is the sole unique selling point of any property. It’s easy to invest in property in an unknown area based on face value. But this doesn’t guarantee buying property in the right area – putting you at potential risk of incurring losses, rather than gaining profits.
So the beauty of starting off with a small number of properties – in areas familiar to you – lies in small-scale trial and error. By focusing on these, you can judge the strength of these locations and whether they appeal to the expected demographic of tenants. If not, you’ll be able to identify which factors weren’t appealing – knowledge that you can later apply when expanding your portfolio to various other areas.
- Take care of the legal side of things
The legal side of things isn’t limited to ensuring your tenants are residing in a safe property – one of many responsibilities you have as a landlord – but also extends to notifying HRMC that you’re letting property, as well as paying the necessary tax. You’ll be required to pay tax on the rent received from tenants if your total income for the tax year exceeds the current personal allowance of £10,600. Failing to pay will result in heavy fines or, worse, imprisonment.
You’ll already be aware of your current right to claim tax relief on mortgage interest payments at the level of income tax you pay but this will change soon. Over the duration of four years – starting in April 2017 – landlords will only be able to claim at the basic rate of tax at 20%. Another change will soon impact on your right to claim 10% of your rental income against general wear and tear. From April 2016, you’ll only be able to claim for maintenance that actually took place, so you’ll need to keep thorough records of these should you wish to claim. These key changes are important to accommodate for when budgeting to ensure you don’t suffer from any avoidable losses.
- Carry out Right to Rent immigration checks
Following a trial period of the Right to Rent scheme in the West Midlands – as we reported earlier this year – the Home Office has now announced that the scheme will be rolled out nationwide from 1 February 2016. As professional services firm Ernst & Young (EY) explains, this will mean that “landlords will need to check all prospective occupiers’ right to rent before granting a residential tenancy agreement” that begins on or after the mentioned date. The move is designed to prevent illegal immigrants from securing residency, whilst taking advantage of the private rental sector.
In the case of tenants who are British citizens, EEA or Swiss nationals, or have an indefinite right to stay in the UK, any of the following documents are acceptable;
- A valid UK passport;
- EEA passport or ID card;
- A permanent residence card;
- A Home Office immigration status document showing the named person has the right to remain in the UK for a limited time; or
- A certificate of naturalisation as a British citizen.
For the full list of documents that are acceptable, please see here. Landlords who fail to comply with the checks risk being fined £3,000.
Call 020 7078 0214 to talk to one of our expert letting agents here at Kingsley Hamilton Estates – the name you can trust to provide you with the wealth of knowledge required to remove the stress of managing your tenancies.