What does buy to let mean?
Buy to let, or BTL, is a term used for properties that are used specifically for letting or renting out. Generally it relates to single dwellings on a single letting
Is buy to let still worth it?
Of course, all investments involve taking a huge risk. The same goes with property investment. Buy to lets can be worth it in the long run, as your property will go up in value. It’s also worth mentioning that the demand for affordable housing is rising. However the rental income versus the cost of ownership is the main short term requirement. Will the the costs of the mortgage, void periods, maintenance, etc be lower that the rental income. If not, why bother?
Can you live in your buy to let property?
The answer is no. Buy to let mortgages are specifically designed for landlords, meaning they can only be let out to tenants. With that being said, landlords may get permission from their residential mortgage lender to stay in the property for a short period of time.
You may need to re-mortgage if you wish to stay in the property – check with your lender.
How much profit do landlords make in the UK?
Landlords can make around £15,000 annually, before tax and other reductions. For most landlords, rental income accounts to 42% of their rental gross income. A little over 26% of landlords, however, report a gross rental income of £20,000-£49,999 and 13% report an income of £50,000+.
Are there any legal obligations for a buy to let landlord?
There’s a few requirements for landlords when it comes to their buy to lets.
- Protect deposits
- Insure the property
- Ensure gas and electrical equipment is safe
- If furnishings are provided, they must comply with the latest fire regulations
- Provide energy performance information
- Repairs and upkeep
- Smoke alarms and carbon monoxide detectors – not a legal requirement but best practice
How much deposit is required for a buy to let mortgage?
There varies depending on the market and strength of property prices. It has been possible to get a BTL mortgage with a deposit of 15%. With that being said, the rates will be much higher, and there are not that many products available within this bracket. In other words, most lenders require experience in property investment and a portfolio. So, new landlords may not qualify for high LTV products. In a strong economic climate 80% to 85% LTV is possible. In a challenging climate expect more like 75% LTV
How is the rental income taxed?
Tax is paid on the profits made from the rental properties. Profits are based on the sum the landlord is left with once the expenses or allowances have been deducted. There are two types of income tax; Corporation and Personal Income Tax.
The tax you will have to pay depends on how you have set up the rental property. If you own the property personally, then you will have to pay personal income tax. Income tax is paid by a UK resident that earns over the tax threshold. How much tax you will have to pay depends on how much you earn.
However, if you set up a limited liability company to manage the rental property, then the business will have to pay corporation tax. Corporation tax is paid by UK companies and is a tax based on how much the company makes in profit annually.
So, what counts as rental income?
The income is generally the rent paid to the landlord. But, it also covers any other payments from tenants for services that are normally provided by the landlord. These include cleaning, utility bills, repairs etc.
Non-refundable deposits to the landlord also fall under this bracket and are seen as rental income. So is any money kept from a deposit at the end of a tenancy.
What repairs are landlords required to make in their buy to lets?
The landlord is legally required to ensure that the property is of an acceptable standard for someone to live in. Therefore, they have to maintain the property and make sure that the premises are safe. Landlords must also ensure that gas appliances, electrical appliances and everything within the property such as furniture is safe. Also, repair or replace them if necessary.
Are tenants’ security deposits protected?
All security deposits have to be protected. However, there are some instances where it doesn’t have to be. For example, if you’re a lodger or a student living in halls.
There are three schemes which have been authorised by the government to protect security deposits. These are:
- Deposit Protection Scheme – landlords may use this method to hold a tenants deposit in a bank account. Providing that there has been no damage caused to the property at the end of the tenancy, the money is returned to the tenant in full. This scheme is free and there are no charges to the landlord or the tenant.
- MyDeposits – this scheme is insurance-based and can only be used by members of approved trade associations. This service is free for tenants, however the landlord or the agent will be paying a fee that funds the insurance. The landlord/agent can hold the deposit, but if failure to repay occurs, the insurance will pay it back to the tenant in full.
- Tenancy Deposit Scheme – this service works in the same way as MyDeposits. It is insurance-based and the tenant does not pay a fee.
What if a landlord fails to repay a deposit?
If a tenant has paid a deposit at the start of the tenancy, no matter the amount, they are legally obligated to get it back. The landlord/agent can only take money off if there is a good reason – ie. damage caused to the property, missed rent, or lost or broken items.
An important factor to note is that deposits paid by the council are not returned to the tenant. Any damages caused to the property are taken off the deposit and paid back to the council. This means the remaining balance will have to be repaid by the tenant.
What happens if the tenant fails to pay rent on time?
Firstly, the landlord/agent should immediately contact the tenant and ask why their rent hasn’t been paid. There are several paths the landlord can go down if rent cannot be paid:
- Negotiate. If the tenant is going through a temporary financial hardship, agree on smaller payments, until they can afford to repay the remaining balance. Communication between landlords and tenants is essential, as it avoids confusion and further problems.
- Eviction. Provided that the landlord has let the property using an assured shorthold tenancy, they may be able to evict the tenant. It all depends on the circumstances, such as the notice period required or how many months worth of rent is owed.
- Court action. This is the last option for many landlords, as it involves a lot of money and time. However, if the tenant has missed multiple payments, landlords can take legal action to recover any money they have lost.
Can landlords inspect the property during a tenancy?
The simple answer is yes. Landlords SHOULD inspect the property regularly, mainly due to their maintenance and repair obligations. With that being said, it is advised that landlords inspect their properties anyway, simply to see how their tenants are treating it. The landlord’s rights of entering the property should be settled and agreed on with the tenant at the start of the tenancy.
What checks do landlords perform on tenants before letting a property?
A lot of the time, landlords/agents will ask the tenant to provide some references. These could be references from a previous landlord, an employer or their bank. Landlords can also run a credit check on future tenants to authorise their affordability.
There are multiple checks the landlord must run on a prospective tenant before letting them rent. Under the “Right to Rent” rules, every tenant/lodger needs to pass the immigration status checks, to make sure that they are legally allowed to rent property in England. (Please note that these rules do not apply in Scotland, Wales and Northern Ireland). Landlords found letting property to citizens who are not allowed to stay in the UK can face fines of up to £3,000.
Tenants must also show proof of identity and residency in England. This can be a valid driving licence, passport or a visa – please note that they must be in date. To find out more, head over to GOV.UK “Right to Rent” rules.
What are the advantages and disadvantages of buy to let?
There are many advantages and disadvantages to investing in property. Some of the disadvantages include stamp duty, rental voids, drops in property value or simply the amount of responsibilities.
However, there are also many advantages. These include pros such as generating extra income, building up a portfolio or potential house price growth. Property is still overall a great investment in the long term.
Can family members live in a buy to let?
The answer is yes, they can! If they will occupy less than 40% of the property there is no issue. If the landlord wants to rent the entire property to family members, rather than a standard buy to let mortgage, a regulated buy to let mortgage is required. This may come with more detailed checks particularly around affordability
What properties class as Home in Multiple Occupation (HMO)?
It’s crucial for landlords to know if the property they are letting is an HMO. This is because of the specific rules that only apply to HMOs, in comparison to other types of property. So, a property will be classed as an HMO if:
- The building, flat or house in which more than one household shares basic facilities, such as a bathroom, kitchen, and living area.
- At least three tenants live at the property and form more than one household.
- The building has been converted and does not comprise self-contained flats.
Talk to a Promise Money adviser for more details
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