Becoming A Landlord In The UK
Ever considered becoming a landlord? We have put together the benefits and pitfalls in our how to guide, so you can make an informed decision to see if it is the right path for you!
The private rental market has never been more buoyant; around 4.5 million households live in the private rented sector in England. With increasing numbers of younger people either unable to buy their own home, or preferring the freedom that renting brings, it is estimated that the number of households renting is only going to grow.
This means rental properties will be in high demand. And while much of this demand will be met by existing landlords expanding their portfolios, many of the properties will be owned by first-time landlords - either by choice or because they have inherited a property and become what’s known as an accidental landlord’. Whether you’ve chosen to become a landlord – or become one ‘accidentally’ this guide tells you everything you need to know to get started in the private rental sector.
What are the benefits of becoming a landlord?
Average rental prices have been growing steadily for years and hit a record high in July of £1,126 and a staggering £2,257 in London.
By renting out your property, not only can you benefit from a steady income (even if you have a large mortgage, given rising rental prices and the low interest rate environment, you should be able to cover your payments and make a profit), it is also a way of protecting your assets; remember, savings rates are dropping but property prices are rising.
Also, if you become a private landlord there can be even more benefits, read more here.
What type of property is best for renting out?
Not all properties will be suitable for renting, so if you have inherited a property, you may need to do quite a bit of work to it before it is ready to rent out. However, if you have moved in with a partner and are considering renting out your former home, it is probably ready to go.
You will also need to check if there is demand for rental properties in your area, and if so, whether the size of the property you have is likely to be popular – if you have a large home in a city centre, you could consider splitting it into multiple residences, for example, or rent to students.
How do you get started?
You do not need a licence to become a landlord, but you will need to register for self-assessment for tax purposes. You will then need to decide if you will rent the property out directly yourself or use a letting agency. You will also need to think about whether you want to rent the property out furnished or unfurnished – this may depend upon how you came to own the property – i.e. if it was inherited, or used to be yours, it may make sense to leave it furnished. You’ll also need to decide if you will allow pets, and what the rules will be around smoking etc.
What are the responsibilities of a landlord?
One of the benefits for tenants of renting over buying, is that they are not responsible for the upkeep of the property. As the landlord, you are responsible for repairs if something goes wrong, so you will need to ensure you have a good insurance policy in place to cover you for all eventualities.
Specialist landlord insurance offers comprehensive cover especially for rental properties.
A good policy will cover the building and contents against any damage. This, of course would be covered using a standard home insurance policy, but a standard policy would not cover the extras you need as a landlord i.e public liability cover, alternative accommodation cover, accidental damage, loss of rental income and eviction cover, which will cover the costs of having to remove a bad tenant.
If something breaks in the property, it will often be your responsibility to pay for it. You may be able to claim on the insurance for some issues, but whatever you do, keep a record of the cost, because these will be tax deductible.
You will also need an Energy performance certificate (EPC) –they cost anywhere from £50 to £100 and are a legal requirement if you’re renting or selling a property – but they last ten years, so you don’t need to get a new one every time a tenancy ends.
You may also want to become a member of a Landlord Association – this is not a legal requirement but can be useful for support and also to build your reputation – you need to meet certain standards to become a member, so it can help attract tenants.
How do I decide how much to charge for rent?
You will need to think carefully about how much you charge in rent. You will need to be able to cover the mortgage, leave extra to pay for any repairs and other costs, including a letting agent if you use one, and to be able to make a profit each month.
To reach a figure, you will need to take all of this into consideration, and then research the average rent for similar properties in the area to make sure you are competitive because rent differs hugely across the country. For example, in the Northeast, the average rent is £752 a month, but in London it is three times higher at £2,257, a difference of £18,000 a year. On average, rent across the UK is £1,126 a month.
Should I use a letting agency or handle tenants myself?
If you choose to use a letting agency, there will be a cost -usually 10-15% of your rental price - but it can take away a lot of the stress. A letting agent will advertise your property, find the tenants and vet them for you, manage the day-to-day management of your property and handle any repairs. They can also look after inspections for you and check your paperwork, which can give you real peace of mind – especially if you are new to the sector.
However, some people find it frustrating and want a more hands on approach, so this will need to be a very personal decision.
How can I attract a good tenant?
Once your property is ready to go, you will need to find a good tenant. The best way to do this is to present your property just as you would if you were selling. Get everything up to date, make it as neutral as you can – magnolia paint everywhere – and update bathrooms and kitchens if you can afford to. You can get basic white units fairly cheap, but an even more budget friendly way to update these ‘key areas’ is to just replace or respray the doors.
Once the place looks good, take photographs which can then be used on letting sites to attract tenants. There are loads of places to advertise rental properties – if you use a letting agent, they will do this for you on large platforms like Rightmove and Zoopla. If you advertise yourself, you might want to use smaller sites like Gumtree.
What sort of background checks do I need to run?
If you are not using a letting agent, you will need to vet potential tenants yourself. You will need to identify and verify the tenant, check their credit history, any debts or evictions, criminal record and any sanctions or links to people who could pose a risk – there are plenty of third-party compliance firms that can run these checks for you. If they have rented before, try and get a reference from their previous landlord.
How do I keep a good tenant?
Once you have chosen a tenant, and you are happy with them, make sure you look after them too – as you will want to keep good tenants as long as you can. This means making sure you respond to any issues they have, try and be flexible i.e. let them redecorate etc – and make sure you get repairs done quickly.
Being a landlord has number of benefits – not only does it provide you with an income but owning a buy to let is a long-term investment which can be used to fund your retirement. Plus, the security that if your own situation changes, you always have somewhere to live. But it can be a time consuming job, so make sure you are ready for the responsibility before you take the plunge!
Interested in learning more? Read our range of articles on our main blog page