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Landlord Guide

Landlord Guide

Introduction

There are many aspects to being a landlord beyond simply buying a property and finding a tenant. A whole range of responsibilities and issues will need consideration at the same time, and not doing so can create major legal and financial problems.

Due to this it is important to understand some of the main problems which landlords may encounter unexpectedly and prepare for them ahead of time. In this guide we have gathered together the top concerns that landlords have and provided tried and tested strategies for overcoming them.

Property investment is not cheap, but the potential rewards are high if you get it right. More than a third of landlords are planning to purchase more properties in the next year according to Rightmove, and by reading this guide you can make the most of your investments and minimise your stress and time commitment at the same time.

Falling rents and tenancy arrears

One of the main issues facing landlords in the UK is a tenant who fails to pay their rent on time. This is known as going into arrears and it can happen for any number of reasons, all of which can cause a problem for landlords. With the cost of living crisis squeezing people’s spending power, the potential for a tenant to go into arrears is increased, and therefore landlords should be aware and take action.

ARE RENTS FALLING?

This is the first and most obvious worry for landlords due to the cost of living crisis, especially given that the UK’s rapid rental growth is one of the most attractive things about buy to let investment. If people have less money overall can they still afford higher rents?

The answer appears to be yes. Recent figures from Rightmove show that the average advertised rent outside London is 11.8% higher than it was this time last year. Certain cities such as Manchester are reporting an annual rise of 23.4%, while the capital London is also reporting 15.8% growth in a year.

Chatham in the London Commuter Belt was also a big winner for landlords, with average year-on-year rental growth of 21.4%.

Places like this are seeing rent rises in spite of the cost of living crisis thanks to the imbalance between supply and demand. Rightmove reports that the demand for rental properties is up by 26%, but supply has only increased by 6%. The luxury apartment market is especially busy at the moment as there are nowhere near enough units for all the tenants who want them – leaving a good opportunity for landlords.

As will all aspects of property investment, doing your research and finding the right market is avaluable tool in finding the right investment. With a cost of living crisis ongoing, picking the right market is becoming essential, and areas like Manchester, Chatham and the wider London Commuter Belt are leading the way. Find out more about the UK’s best markets and emerging property investment hotspots by getting in touch with Opulent today.

WHAT CAN YOU DO TO TRY AND PREVENT TENANTS GOING INTO ARREARS?

  1. Screen tenants properly

Doing the correct background checks on potential tenants before they sign the contract is a good way of limiting your potential liability. If they have a history of paying on time and have a salary which is more than enough to cover the rent, they are less likely to default.

  1. Appropriate rent reviews

As a landlord you should carry out regular rent reviews to ensure you are charging a good amount of rent for the property. However, by ensuring that the rent is reasonable – as well as profitable – you are more likely to ensure that the tenant can afford it and carry on paying on time.

  1. Regular contact with the tenant

Having a good relationship with the tenant can ensure that you are aware ahead of time if there will be issues with rent payments. Likewise, if the tenant is in rent arrears you should make sure to chase them at regular intervals to give yourself the best chance of getting the rent paid.

  1. Be clear from the start

By making sure that the rental terms are clear from the start you can cut down on the likelihood of a tenant going into arrears. If everyone involved knows when the rent is due and how much it is, the chance of confusion is lower – and therefore the chance of the tenant going into arrears.

  1. Hire a lettings and property management agent

To avoid this, the best solution is to appoint a good lettings and management agent who will take care of all rent reviews, tenant screening and administration that is required. They will do this on your behalf for a small monthly fee which is likely to be a lot smaller than the value of the time you would otherwise spend dealing with a tenant in rent arrears.

Opulent’s management arm is a first-class option that works to ensure you achieve the highest possible returns and make the most of your investment. Our turnkey investment solutions allow you to avoid the most challenging and time consuming aspects of property management and add value to your investment instantly. Get in touch today to learn more.

All of the above are viable strategies for minimising the chance your tenant goes into rent arrears. However, they are also time consuming and may become stressful if they take up too much of your life.

Tax implications of being a landlord

*Please be aware that Opulent is not an authorised tax advisor and we highly recommend you talk to an independent financial advisor before investing in UK property.

Taxation is one of the hidden costs of being a landlord, and it is also one of the most significant. It is an unavoidable part of property investment which is important to bear in mind from the start.

The best strategy for dealing with the tax implications of being a landlord is to understand them thoroughly. By doing so, you can make them part of your initial calculations and avoid unpleasant surprises in the future.

Below we have made a list of the different types of tax that you will pay as a property investor in the UK for your convenience. While they may appear to be a significant cost up front, by investing in the best markets and in the right properties, you can achieve the maximum profitability and offset them.

For example, by investing off-plan in a market such as Manchester city centre, the additional Stamp Duty Land Tax cost you pay as an investor could be covered by as little as six months of rental yield.

Stamp Duty (SDLT)

Stamp Duty Land Tax (SDLT) is a tax applied to all residential property purchases in England and Northern Ireland worth more than £125,000. In addition to this, a 3% surcharge is payable by all investors purchasing a property in England or Northern Ireland, and an additional 2% levy is payable by overseas investors doing the same thing.

SDLT rates are calculated on a sliding scale that corresponds to value of the property when you purchase it, as per the below table:

Value of propertyNormal rateAdditional rateOverseas rate
£40,000 – £125,0000%3%5%
£125,001 – £250,0002%5%7%
£251,001 – £925,0005%8%10%
£925,001 – £1,500,00010%13%15%
£1,500,001 or more12%15%17%

The full Stamp Duty amount must be paid within 30 days of completing your purchase and a fine may be payable if you do not do so in this time period. Your financial advisor will be able to confirm the exact amount payable before you purchase.

Income Tax

Income tax must be paid on all of your income in the UK on a sliding scale from a basic 20% to a maximum of 45%. This will be the case for your monthly rental income, one of the two income streams you benefit from as a landlord.

A good accountant will work out the exact amount on your behalf, reducing your workload and making sure that that investment process is as easy as possible.

Capital Gains Tax (CGT)

If you choose to sell your property, you must pay a different type of tax on those profits. Capital Gains Tax (CGT) is levied as a percentage of the profit made over the original purchase price – the ‘capital gain’ which gives the tax its name.

It is charged to all sellers making a profit, including overseas owners, and the rate differs based on whether you are an individual (either 18% or 28% depending on the capital gain made by the sale), working through a trust (28% for trustees) or a company (20%).

As with rental income and Income Tax, your accountant will take care of this process on your behalf and make sure that the right amount of tax is paid in the required time frame.

Inheritance Tax

Inheritance Tax is a tax paid on the estate of someone who has passed away. The includes on the value of any property passed on. The only circumstances where it does not apply are:

  • The value of your estate is below £325,000, OR
  • Everything over £325,000 is left to your spouse, civil partner, a charity or a community amateur sports club

If neither of those criteria apply, your estate threshold becomes 36% if you leave at least 10% of the value to a charity after any other deductions in your will.

However, Inheritance Tax can be tricky and comes with other exceptions in specific circumstances. For example, the Residence Nil-Rate Band potentially allows you to pass on an additional £175,000 tax-free to your direct descendants on top of the £325,000 allowance, meaning you could pass a property worth £500,000 tax free to your children or grandchildren.

In this area of tax specifically, so much depends on your individual circumstances that we highly recommend you talk to an independent financial advisor to determine your responsibilities.

Council Tax

Council Tax is payable by the tenant of the property, however if there is a void period you will need to cover it until a new tenant moves in. This cost will be approximately £80-£120 a month, depending on where the property is located.

The relevant local Council will be able to advise on the exact amount you will owe for Council Tax each month if your property is lying empty.

Landlord regulation

There is a lot of legislation for landlords to be aware of and navigate as you let your property to a tenant. There are at least 150 separate bits of legislation that apply, and there are new ones being brought in or considered all the time.

Breaking the law as a landlord can lead to fines and more severe punishments. As per the English Private Landlords Survey 2021: “Since 2010, there have also been a number of policy changes affecting private landlords. These include tax changes for Buy-to-Let landlords, changes to the Stamp Duty Land Tax, tightening lending criteria on Buy-to-Let mortgages and the growing role of the Build to Rent sector. More recently, the government has announced plans to reform the private rented sector, including the removal of ‘no fault’ evictions under Section 21 of the Housing and Planning Act.”

Below is a list of the most important of the many pieces of legislation that landlords must abide by in the UK. If you want to rent out your property, you must:

  • Keep your rented properties safe and free from health hazards
  • Have all gas equipment and electrical equipment installed and maintained
  • Provide an Energy Performance Certificate
  • Protect your tenant’s deposit
  • Check you have the right to rent your property in England
  • Provide your tenant with a copy of the How to rent guide at the start renting from you (you can email it to them)

Those are the basics that all landlords must abide by. You can find out more about each section via the links to the government website embedded in the text.

Additionally, there are separate rules around fire safety which are extremely important to make sure you understand and get right. They are as follows, with links explaining further:

  • Install smoke alarms and carbon monoxide alarms
  • Follow fire safety regulations for purpose-built block of houses and property adapted into flats

Finally, the major news for landlords moving forward is the Renters Reform Bill which will remove ‘no fault’ Section 21 evictions to “provide greater security for tenants while retaining the important flexibility that privately rented accommodation offers”. Landlords will no longer be able to evict tenants for no reason.

Instead, the Renters Reform Bill will abolish Section 21 evictions and simplify tenancy structures by moving all Assured Tenancies or Assured Shorthold Tenancies onto a single system of periodic tenancies.

Under this new bill, a renter would have to provide two months’ notice when leaving a tenancy to allow landlords adequate time to find a new tenant and hopefully avoid a damaging void period. Tenants can still be evicted in “reasonable circumstances” as defined by the law, but these will be much more limited than they currently are.

In addition to the basic national laws stated above, there are various powers that Councils have on a local level which landlords should be aware of.

It can be overwhelming for even the most experienced landlords, and that is why the best way to make sure you are on top of landlord legislation is to appoint a professional letting and management agent.

They ensure that your property meets all requirements and that all safety measures are up to date, as well as keeping you informed of any relevant legal changes which affect your investment. For the price of a small percentage of the monthly rental income, you will not have to worry about any of it.

Those local Council powers include being able to carry out an inspection if your tenant has asked for one or if a survey of local properties is underway and there is reason to believe yours may be hazardous. The rating is based on 29 criteria, and if your property is found to be unsafe, the Council can:

  • Issue an improvement notice
  • Fix the hazard themselves and bill you for the cost
  • Stop you or anyone else from using part or all of the property

Those are just the most major pieces of legislation that you need to be aware of, but there are plenty more including furniture standards, local Council landlord registration schemes in some areas, and much more.

Cost of finance

Financing a buy to let property is largely similar to financing a property as a homebuyer, but there are some differences. You should be aware of these before starting, and should also take into consideration how the latest economic news may affect financing options in the UK.

The easiest way to purchase a buy to let property is to buy in cash. If you do so, you will own the property outright straight away and all monthly rental income will be profit for you rather than go towards paying off a mortgage. Similarly, you will be able to benefit fully from capital appreciation once you sell the property.

However, using a special buy to let mortgage also has its benefits. They are available to domestic and overseas buyers, and using them can help you spread your capital around more widely. This gives you the potential to build a larger portfolio in a shorter timeframe.

As with any mortgage, a buy to let product is available to you whether you are looking to purchase a new build or an existing property. This is not an exhaustive list, but you are generally able to get one if the following criteria apply:

  • You already own a home outright or with a mortgage
  • You have a good debt repayment record and a positive credit score
  • You earn more than £25,000 a year
  • You can pay off the mortgage before you reach the upper age limit
  • You can pay a 25% deposit and have further funds for stamp duty and associated fees on hand

Buy to let mortgages tend to operate in a similar way to homebuyer mortgages, but there are some key differences:

  • The fees can be much higher
  • Interest rates on buy-to-let mortgages are usually higher, which has implications in the current climate – please read on below for more information
  • The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value, and can be as much as 40%
  • Most products are interest-only which means you pay the interest each month, but not the capital amount until the end of the term, when you will pay it in full. Repayment buy to let mortgages are also available
  • Affordability is judged based on the projected monthly rental income of the property rather than your personal monthly income

As with a homeowner mortgage, your eligibility will vary depending on your personal circumstances Consult with your financial advisor and mortgage broker to get information that is right for your individual circumstances.

Cost of mortgages going up

A major consideration for investors looking to finance their property purchases via a mortgage is the increasing rate of interest. As the cost of living crisis continues to unfold in the UK, the Bank of England has responded by raising interest rates – most recently by a further 0.5%, for a total of 1.75% as of August 2022.

Put simply, if interest rates are higher, you will pay more to borrow via a mortgage. This is especially the case with buy to let mortgages which are mainly interest-only. Landlords looking at their next property purchase should be aware of this and factor it into any affordability calculations. Make sure to consult with your financial advisor and mortgage broker before buying to fully understand the financial implications of higher interest rates on your preferred mortgage.

Another factor to bear in mind is that buy to let mortgages are based on predicted rental income, as mentioned previously. This means that your application may be refused if the bank is not confident that your property will be tenanted consistently, or at a high enough rent.

The most practical solution to the above issues is to choose your investment market carefully. The higher rates of interest, and the costs they create for mortgages, can be combatted by focussing on markets where rents are rising and projected to continue doing so far into the future.

For example, Manchester and the London Commuter Belt are both hugely popular areas where demand is far ahead of supply because people are moving there in large numbers and the economy is growing fast.

Rents and property prices are growing in these areas faster than any costs you will have to deal with, and so they offer mitigation for the rising price of mortgages – allowing you to invest and stay profitable even in this tougher time. Such markets also offer a higher likelihood of consistent tenancy thanks to the overwhelming demand. This will help the banks to have confidence in your purchase and approve your mortgage application.

The rising cost of financing your buy to let property investment is a valid concern and something that you should take seriously as you do your research. However, there are ways around it for savvy investors who understand the market and pick the right places to invest.

EPC requirements

An Energy Performance Certificate (EPC) must be provided as part of every property purchase in the UK according to the law. It measures the energy efficiency of a property on a scale of A-G and gives detailed information about its sustainability and carbon emissions.

In April 2018, new Minimum Energy Efficiency Standards (MEES) were introduced which made it a legal requirement for all privately owned properties to have an EPC rating of at least an ‘E’ before they are sold or let. This legislation applies to both domestic and commercial properties, although there are some exceptions around properties which are Listed and therefore may not be suitable for energy efficiency works.

However, it applies to 98% of residential properties in the UK and as a landlord you should assume that you will need to achieve an EPC rating of at least E. Those who fail to meet this standard could be charged up to £5,000 for each residential property.

In future, these regulations are set to become stricter as the need to increase the sustainability of the built environment becomes more urgent. New government legislation means that all residential properties which are rented out will need to achieve an EPC rating of C or above by 2025. If they do not do so, they are not eligible for rent.

Similarly to previous legislation, this will first be applied to all new tenancies by the initial 2025 date and then be expanded to all tenancies including existing ones by 2028.

The final thing to note is that the penalty for not having a valid EPC will increase from £5,000 to £30,000 from 2025.

New builds more attractive for investors

Over the past decade, energy efficiency measures have improved significantly in all areas and are now being incorporated as standard into new properties. Improved insulation, more efficient boilers, electric panel heaters, decentralised energy and more sustainable building materials are just a few of the sustainability features that new build homes typically include in 2022.

Due to this, new build properties will tend to have a much higher EPC rating than existing properties. Approximately 94% of new builds are rated at band C or above, and therefore they are cheaper to run and more attractive to tenants. Additionally, they will retain their value and be future-proof in this way against further legislation changes for many years to come.

Cladding

One of the most pressing questions facing buy to let landlords in the UK concerns cladding. This is the biggest story in the industry and it is attracting a lot of attention as many people – including landlords – are beginning to face mounting bills and increased uncertainty due to a problem they did not cause.

The Grenfell Fire disaster made it clear that not only is a lot of existing cladding ineffective, but it is also flammable and often dangerous to life. This has led to a rush to replace flammable cladding on high rise and other buildings before another tragedy occurs.

In practical terms, this means that expensive retrospective work is being carried out on buildings across the country and there has been a huge row over who is paying for it, with developers trying to make leaseholders pay to fix a problem they did not cause.

The government has brought in the Building Safety Act 2022 to protect leaseholders in law for the first time and prevent the costs of replacing unsafe cladding being payable by them. Instead, the Secretary of State at the time the law was written, Michael Gove, has shifted the burden onto the developers and freeholders of buildings up to 11m in height. The bill also opens up a new phase of the Building Safety Fund (BSF) – a £5.1bn pot for the next 10 years to fund the removal of dangerous, flammable cladding from buildings.

Landlords were initially excluded from the list of leaseholders who could apply to the Building Safety Fund, however this was amended to say that landlords who owned two or fewer properties would benefit from a cap on how much they could be asked to pay.

This still leaves portfolio landlords with huge potential costs and it is the unfortunate truth that these people will face mounting costs as they have to replace cladding under the new laws.

The process of working out how the cladding scandal in UK property will be solved is still ongoing. In the meantime, there are some types of landlords who will benefit, and a strategy to take for your next investment that will help limit your exposure.

How can landlords benefit?

The first group that could benefit are smaller or new landlords who will only have two or fewer properties in the same building. Cladding relief will be available to these landlords in the form of a cap on the cost of cladding work – £10,000, or £15,000 in London. This will help smaller landlords keep costs down and incentivise new landlords to keep investing in a limited number of properties.

The second group are those landlords who purchase new build properties. New developments will have to meet the new, higher standards of cladding in order to complete and will therefore not come with any concerns about flammable cladding.

Ground rent abolition

Investing in UK property comes with a range of additional costs, the most contentious of which in recent years has been ground rent.

Currently, if you own a long lease on a property in the UK – as is often the case when buying a new property under a leasehold – you will normally have to pay an annual fee to the owner of the freehold. This is known as ground rent, and the amount will vary depending on the terms of the leasehold you have purchased.

Ground rent rates can be fixed or they can escalate, and the latter scenario created a situation where buyers were trapped in leaseholds where the cost was doubling every five or 10 years as part of the purchase agreement.

Ground rents are a cost that does not provide a service, making them unjustifiable, and so these charges have been banned on most new leases purchased as of 30th June 2022.

The Leasehold Reform (Ground Rent) Bill 2022 restricts ground rents on long leases of flats and houses to a token peppercorn rent each year – to all intents and purposes, the value of this new ground rent is zero.

How does this benefit landlords?

The removal of ground rents on new leases should automatically move new-build properties to the top of your list due to the inherent benefits you will receive. Crucially, it is important to note that the legislation will not apply retrospectively to existing properties with leases that are already signed and in effect.

In effect, this creates a two tier market. One the one hand you will have new properties with effectively zero ground rent costs, and on the other you will have existing properties which will continue to have ground rents which could cost you hundreds or even thousands of pounds a year.

Furthermore, selling an existing property which does require these payments will only become more difficult. By purchasing an existing property you potentially pay more during your ownership period thanks to ground rent, and you are also more likely to lose out when you come to sell it.

The abolition of ground rents on new-build properties is good for investors overall, and acts as yet another incentive to buy a new property.

Cost of living crisis

Britain is facing a cost of living crisis thanks to high inflation and rising energy prices squeezing the spending power of millions of households up and down the country.

This situation has left many wondering about the state of the overall economy and whether its reliability should be called into question. One area that is proving to be resilient in the face of the cost of living crisis is the UK property market, and perhaps here we can see that there is some potentially good news for many people.

The latest figures from the Nationwide house price index show that annual house price growth actually increased in August to 11%, from 10.5% in July. Prices rose by 2.1% in total month-on-month when seasonal changes are taken into account, and overall prices are now 13% higher than they were in 2019 before the COVID-19 pandemic began.

Lack of supply the key factor

The outlook for the property market is still cloudy, though the housing market’s fundamentals remain strong. Underlying demand is likely to stay strong in the near future as the basic principles of supply and demand remain in place. There are nowhere near enough homes being built to meet demand and that won’t change in the foreseeable future. Due to this, prices in the housing market are likely to retain stability and growth prospects.

Likewise, employment rates are at their highest in decades (over 75%) according to figures released recently by the Office for National Statistics, and that has given more people the kind of certainty that is needed to contemplate a new property move or purchase – leading to a stronger market.

While there is a danger that spending power will decrease, and that this will have an impact on the affordability of new mortgages, experts believe that a potential slowdown is far from assured. 

Indeed, the past behaviour of the housing market and people buying property in the UK suggests that fears could be overblown. The aforementioned factors which are serving to increase the value of property in the UK – especially the lack of supply and the accompanying low rates of new construction – are long-term factors which are not going to be resolved. This should give confidence in the housing market through any possible tough times in the short-term. 

While nothing in life is ever completely certain, the property market’s reliability is more certain than most, and that remains the case even in the face of a cost of living crisis.

Why invest with Opulent?

At Opulent, we manage your property investments and portfolios as if they were our own. This dedication and attention to detail guarantee a personal service with tailored investment advice built to your exacting requirements. 

Our team of experienced property investment advisors work tirelessly to identify and present the very best investment opportunities to maximise the return on your investment. 

Whether it be identifying new property and off-plan developments for future resale or attractive rental properties with regular returns, we have complete confidence and proven expertise in delivering exceptional returns.

A superior investment proposition 

There is no shortage of investment advisors in the UK but, sadly, not every one of these will place your needs above their own desire to turn a profit. This is the precise reason that we set up our business in 2014. 

It is witnessing poorly researched property investments lacking a strategic framework and companies willing to recommend developers without thorough due diligence checks, that led us to the comprehensive property investment service we are so proud of today. We call it ‘the Opulent Way’.

Adding value, creating wealth 

The ‘Opulent Way’ means adding tangible value based on a number of critical variables. It includes a research process second to none that allows us to make informed recommendations rooted in facts and figures and presented in a no-nonsense, easy-tounderstand format. It involves working with hand-selected, reputabl e developers with unblemished track records right from the very start. This ensures that property investment plans can be shaped to your needs and delivered with a confidence that we are prepared to stake our brand on. Our primary goal is to create wealth and longterm financial security for you, and we are proud to do so transparently and ethically.

Total management 

We set out to create turnkey opportunities that are fully managed and require minimal input. There’s no corner-cutting, but by acting decisively we can circumvent the most decisively we can circumvent the most challenging part of the property investment process for you. An aftersales team will guide you through your property investment purchases, absorbing most of the administrative burden. Forget timeconsuming legal paperwork or preparing your property for rental. We’ll take care of it while you sit back and contemplate your next investment.

Start your investment journey today 

Property investment is an astute choice for many and includes retirement fund planning, nest eggs to finance university education and experienced property investors seeking portfolio contraction or expansion. Get in touch today to find out more about our latest investment opportunities in Manchester.

Click here to download our Landlord Guide in PDF format.

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