Buy To Let Guide: Top 5 things to know before letting out your property

Buy-to-let property investment is a great way to invest your money in a longer-term asset that can weather the economic lows we sometimes see.

Demand in the rental property market remains strong in London, 2023

The demand for rental property is unlikely to drop or diminish in the United Kingdom, especially in London. While there is a growing range of support mechanisms and schemes for first-time buyers, many households find buying a house to be unaffordable, regardless of the support systems in place. On top of that, fluctuations in the cost of living take a negative toll on buyers, making it difficult to save up for the deposit.

Add in the people who have no desire to own a home, and the people who don’t feel it is worth the aggravation. Then factor in the available housing supply, which simply can’t keep up with the demand and you’ll have a realistic investment strategy and be confident there is demand for rental properties which will not diminish.

So how to buy-to-let property in 2023?

To ensure that your buy-to-let investment is successful we have prepared a list of useful tips that will prepare you to act.

Buy-to-let mortgage

Getting a buy-to-let mortgage comes with a bit of a different challenge than buying a property you are planning to live in. Because there are a set of different rules applied and risks evaluated when lenders prepare to give you money.

• The main difference is that the lender will focus on the potential rental income rather than the value of the house while deciding how much they can lend you. Buy-to-let loans are usually interest-only, so you will be paying only the interest, not the loan itself. But do not get tricked, you will still need to pay the loan when the mortgage term ends. This can be done after you sell the property, or you can simply pay out of your savings if you have any.
• The deposits for buy-to-let properties are also, much higher than you would normally need when buying a house. Usually, the lender will request a 25% down payment, but to get a deal with lower interest rates and smaller fees you should be looking at about a 40% deposit.
• The amount of how much you can borrow will be based on the rental income of the property. 25-50% above your mortgage should be what you’re aiming for. If your monthly mortgage payments round up to £1000, your rent should be somewhere between £1250-1500 per month.

Buy-to-let taxes

Buy-to-let property of course comes with a package of beautifully crafted taxes that we can lay out into 3 main categories.

• Tax on the rental income – taxed at your relevant tax band. Keep in mind that owning a buy-to-let property might push you into a higher bracket. However, you can deduct certain costs from the tax payments, including council tax, insurance, utility bills, essential home maintenance, furniture damage or even agent fees.
• Stamp duty – in 2023 you must pay a Stamp Duty Land Tax (SDLT) if you buy a property or tax above a certain price. There are several price thresholds to be wary of when purchasing a property. £250,000 for residential properties, £425,000 for first-time buyers worth up to £625,000 and £150,000 for non-residential land and properties.
• Capital Gains Tax – this tax only applies when you decide to sell it. This tax applies if the house increased in value since you bought the property. Capital gains tax is paid at 18-20% depending on your tax band.

Buy-to-let insurance

There are three key types of insurance that sometimes first-time investors overlook. It is important to protect your building, and content and protect yourself from any liability in any unfortunate events that might occur on your property.

• Landlord Liability – this is a type of insurance covering you in the event of injuries or deaths of people that occupy or visit your property. This insurance is not mandatory, but we recommend having it, especially if you’re going to rent an HMO.
• Contents insurance – this type of insurance covers furniture and other fixtures of the property. Even if your buy-to-let property is unfurnished it’s good to protect the white walls, carpets, lamps, curtains, and other immobile parts of the house.
• Building insurance – this type of insurance is a requirement before you can score a mortgage with a lender. Buildings insurance will cover your property in case it gets damaged, destroyed, and ends up needing repairs. This helps protect you and mortgage lenders, so you’re sure the house is set to rebuild at the right value.

Increase the value with an EPC rating

It is important that your buy-to-let property is energy efficient. Ratings such as F or G are unacceptable, and you need to improve it to at least the rating E. But of course, always try to aim for a higher rating. Read more on how to improve your energy efficiency rating here.

Use a lettings agent to manage your rental property

Using a letting agent will take a lot of property management and administration work off your hands. A full management package covers pretty much everything from finding tenants and collecting rent to building and home appliance repairs. You can also lower your costs by selecting a partial service such as let-only or rent-collection only. Of course, all of this comes at a cost, so it’s good to calculate if these types of services are going to be profitable for you, but when you weigh in the time and other resources that you save it becomes a very attractive management option for you.

Before hiring a lettings agency it’s always important to do a background and credential check, so you are sure that your properties will be managed appropriately.

Thinking of investing in London property?

If you’re considering entering the London letting markets do not hesitate to contact our expert Lettings Agent team today. We have over 25 years of experience in Willesden Green, Neasden, Dollis Hill helping Landlords find a high return on investment with buy-to-let property in the area. Visit our Houses in Multiple Occupation case study page to find out more about how the Regal team can maximise the rental yields for any investor.