Making the decision to become a landlord is an exciting one, but it’s also pretty big so it’s important to ensure you’ve done your research beforehand. Luckily, at Simpson West, we have almost two decades of experience in the local rental market and know the answers to all your burning questions. To give you a head start, we’ve put together this simple guide outlining just some of the key things you should know before becoming a landlord.
Buy-to-let mortgages vs residential mortgages
If you are buying a second property with the intention of renting it out, you’ll need a buy-to-let mortgage. Essentially it’s the same as a residential mortgage in that a bank or building society will loan you the money you need to buy the property, but that’s where the similarities end. Buy-to-let mortgages are normally interest-only although there are plenty of options on the market. The reason interest-only is so popular is that it means you as the landlord will keep more of the rental income from the property each month as your monthly mortgage payments are smaller. However, you will be left with a loan for the full amount of your mortgage and the end of your term so it’s important to weigh out all the options.
Additionally, buy-to-let mortgages often require at least a 25% deposit as they do present more of a risk than a residential mortgage as the ability to pay it back isn’t based on your income, it’s based on the rental value of the property. This high-risk factor also means interest rates are often slightly higher than residential mortgages.
Additional fees to consider
Letting out a property comes with a lot of responsibility and with that, extra cost. If you’re planning to become a landlord, make sure you’ve budgeted for all the additional costs associated with letting out a home. These include things like gas and electric safety certificates, admin fees paid to your lettings agent, landlord insurance, initial and on-going maintenance costs, as well as stamp duty.
Find a tenant only or full property management
Most estate agents will offer both tenant-find-only and full property management contracts for their landlords. Both options have their benefits and it depends on how hands-on you would like to be. If it’s your first let property, it’s likely you’ll have the time to manage it yourself and may just need an extra hand finding your perfect tenant. If you’re planning to invest in a portfolio of properties, full management will ease the load and allow you to enjoy the benefits of having someone else take care of everything from tenancy agreements to inspections to repairs and maintenance.
HMOs need separate licenses
Maximising the profit you get from letting your property is high on most landlord’s agendas as many consider the benefits that renting individual bedrooms can have. However, it’s important to remember that if two separate households live under your one roof, you will need an HMO license to ensure you are properly insured. Licences are granted by your local council and are there to protect the occupants of your property.
Capital gains tax when you sell a second home
When it comes to selling your residential home it doesn’t matter how much value it’s gained, you get to pocket the profit. However, things are slightly different for additional properties. Capital gains tax is paid on profits gained on a property when you sell. For example, if the house you bought for £150,000 is now worth £200,000, you will be expected to pay the relevant tax on the £50,000 gain. Some costs can be deducted from this gain including solicitor fees, estate agent fees, and improvement works such as extensions, conservatories or loft conversions for example, but not general maintenance costs like redecorating.
We highly recommend you speak to a financial advisor before making any decisions to do with buying and selling your property.
Becoming a landlord can be extremely rewarding. If you have further questions about becoming a landlord or would just like to speak to one of our lettings team about how we would handle the letting of your property, call us today on 01536 202007 or email info@simpsonwest.co.uk.