• How do you decide what sort of landlord you want to be?
  • Reductions in the tax relief and a new stamp duty levy are being introduced soon
  • A rented property is a great asset and can provide a steady source of income

One in five households in the UK is privately rented, according to PwC. Moreover, the majority are owned by people with just one or two properties to their name – many relying upon it as a second income or  pension.

It’s a well-established sector, and carefully regulated to ensure tenants as well as landlords are properly protected. However, a flurry of recent changes in regulations and tax regimes might leave many people wondering whether the sums still add up.

As with all these things, homework is critical, and what you need to know will depend upon why you are considering becoming a landlord.

“I want to rent out a room in my home”.

Becoming a “resident” or “in-house” landlord is an increasingly popular option for those looking to support the costs of buying or owning their own home. There’s an excellent section on the Government’s website with information on becoming a landlord and the rights of you and your tenants, which will depend upon whether your tenant lives in a self-contained area. If they share your living space, they have far fewer rights should you wish them to leave at any time, for instance.

To encourage this practice, the Government recently announced it will increase the threshold that you can receive (from £4,250 pa now to £7,500 pa from April) before that income is taxed. However, your council tax will be affected, so make sure that you notify your local council when you become a landlord.

While there can be many plus sides of sharing your home, carefully checking personal references is essential. Setting out clearly what your expectations are in terms of tidiness, jobs, guests and noise is best done in advance of them moving in.

“I have an empty property – should I let it out?”

Each year many people find they have a property available and wonder whether to sell it, leave it vacant or become an “accidental landlord” and let it out. This can be because of an inheritance or perhaps because two individuals move in together. 

Leaving it empty does leave the property vulnerable and you will still be paying some charges – council tax, buildings insurance, utility standing charges and so on – so generating an income can be appealing. 

If you don’t want the hassle of managing it yourself, a letting agent will take on all the responsibilities of finding and vetting tenants, carrying out regular inspections, handling repairs, collecting rent and (if problems do arise) evicting tenants. Make sure they are ARLA and SAFEAgent registered to protect your interests and those of your tenants.

Tenants will typically sign a six or 12-month lease – allowing you to sell it at a later date if you feel the time is right. Deposits must be lodged with a registered tenancy deposit scheme, and safety obligations adhered to – including smoke alarms and regular boiler maintenance.

“I want to be a buy-to-let investor”

Buy-to-let landlords have been in the press a lot recently, with changes to the tax rules and stamp duty making it a slightly less attractive option for investors going forwards. Reductions in the tax relief of buy-to-let mortgages, a less generous allowance for wear and tear and a new 3% stamp duty levy are all coming into force over the next few years.

That said, with a return on investment of typically 4-5% around the country, as well as the prospect of capital growth, it’s still an investment worth considering. Buy-to-let mortgages are available, which allow you to just pay back the interest: although lenders will expect a substantial deposit and want to see that you could withstand a few months’ void period without struggling. 

Appointing an agent will allow you to get on with your day job, or invest in a distant part of the country where returns are better. If you plan to do the work yourself, make sure you understand fully what your obligations are and how to get a contract drawn up.

As with any investment, careful research is vital – check out:

  • Local demand for rented properties (furnished and unfurnished)
  • The rent you could expect to receive
  • How much you’ll need to invest to pass the safety regulations (which your local council will help you with when you register with them)
  • What you will need to allow for if you appoint a management agent for maintenance and repairs
  • What you can sensibly expect to see as an annual return on investment after all the costs are allowed for

Speaking to a selection of local letting agents will help. They may also have rented properties on their books they know are coming up for sale, perhaps with sitting tenants.

The highest returns are often to be achieved with Houses in Multiple Occupancy (HMOs) where tenants (often students) share facilities, but these require more involvement from the landlord or their agent. The yield on your investment will often be higher in areas where house prices are lower (Manchester and Cardiff came out top in a recent survey), but capital growth may not necessarily be as strong. 

If you have an accountant or financial advisor, then speaking to them is a sensible step. Talking to your home insurance provider could also help, as they may be able to point you towards their landlord insurance department.

Above all, remember that property is a relatively “illiquid” asset, and should you ever need to get your money out quickly, you may not get full market price. However, if you stay on top of the letting market, you should be able to make the most of your investment in property as a landlord, without having to think about selling.