How to make buy-to-let work for you
Know what's changing
Recent changes to second home stamp duty rates—all such purchases are now liable for an additional 3% levy—have truly taken the froth off the buy-to-let market (BTL).
In the first quarter of 2016, BTL mortgages represented 21% of total lending; that dropped to 13% in the second quarter. It should be noted, however, that throughout 2015 the level was 16%. The first quarter spike being caused by a last minute rush from investors keen to beat the hike.
Nonetheless, it’s still a big market. Not least because it’s estimated there are five million privately rented properties in the UK. And, in September, the Royal Institution of Chartered Surveyors (Rics) suggested that the UK is facing a critical shortage of rental properties, forecasting that at least 1.8m more households will be seeking rental accommodation by 2025.
The government is also in the throes of changing the tax relief on BTL properties. From 2017, tax relief will gradually be cut to a flat rate of 20% (compared to the 40% or 45% that higher rate tax payers already enjoy).
Some commentators have predicted a rush to sell. Others think landlords should hold their nerve and take the long-term view. Certainly, areas with limited rental stock are likely to see the problem become more acute while rising rents could well offset higher running costs.
The changing rental landscape
The average age of first-time buyers is rising. According to the Halifax it now stands at 30. The lender also reported a marked difference across the country. The youngest first-time buyers, aged 27, were in Carlisle and Torfaen. The oldest, aged 34, were in Slough, Barnet and Ealing.
This means there are many more people renting long term, including affluent professionals, whose student days are far behind them. They want new appliances, spotless kitchens and freshly decorated rooms. Many are looking for en-suite bathrooms too.
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The most costly part of being a landlord is having your property sit empty. So, keeping your tenants happy is key. Do you really need to increase the rent every year? Assuming you wait four weeks for a new tenant, that’s 8% of the year’s income lost. And most tenants don’t want to move. Especially if you respond to their needs fast. Nothing will encourage a tenant to leave faster than a broken boiler—put a service plan in place.
Some tenants will sign up for two or more years. Make your intentions clear from the outset. You’re looking for someone to let your property long term. This is where the money is at: you avoid voids, make it easier to remortgage the property and therefore you are more likely to benefit from future price rises.
Keep the costs down (but spend when necessary)
Shop around for landlord and boiler insurance and consider renting privately. When decorating, choose trade paint and stick to one or two colours throughout. It’s hard to beat Leyland trade emulsions.
Having your property professionally cleaned between lets is essential, don’t skimp at this point. You’ll soon get the money back if you rent the property for an increased monthly rate.
Read the news
Buy-to-let is a moving feast. Make sure you keep abreast of the latest news.
The easiest way to do this is to sign up for one of the numerous newsletters that cover this market. As they say, knowledge is power.
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