Buy to let landlords have been under pressure somewhat in recent years due to changes in legislation, making it increasingly difficult for many to realise the profits once so often available through such a business enterprise.
The financial pressures come as the result of a general tightening up of the regulatory framework. They include:
- the steady erosion of tax relief on mortgage interest payments;
- increased Stamp Duty on the purchase of buy to let properties;
- the loss of tax relief on certain running expenses;
- greater difficulties in obtaining buy to let mortgages; and
- a requirement to meet higher energy performance ratings in let
Although buying to let remains an attractive and rewarding way of investing your money, the business needs to be conducted with greater effort, care and attention. That means knowing your market and maximising rental yields by controlling and managing every operating cost.
So, here are some of our top tips for BTL landlords.
Choosing the property
Choosing a suitable buy to let property is critical. That means deciding on not only the most suitable town, city or area but the particular location or even the right street.
There are known hotspots for buy to let landlords, of course, and careful research may help you to find them. Here at UKinsuranceNET, for example, we have published pages and pages of suggested hotspots and written thumbnail sketches of the opportunities for buy to let landlords in all the key towns and cities of the UK.
Your research needs to be focussed on a suitable area, an appropriate property and the type of tenant you are likely to be able to target – in other words, understanding your market.
You also need to consider whether you will be self-managing the property (so you won’t want it too far away) or whether you will be out-sourcing its management.
Knowing your market
There is the whole of the so-called “generation rent” out there for you to target – the Independent newspaper, for example, devotes a whole section to this generational phenomenon.
Research by online lettings agents HomeLet suggests that millennials now make up the largest part of the private rental market and that proportion is likely to grow still further during the course of 2018. If they are included in your target market, therefore, it is important that you take a tip or two from HomeLet’s research by taking note of what they are likely to be looking for in the property they rent.
Whatever your target market, you need to have a clear picture of what your tenants really want from you as their landlord – and careful research into that question is likely to pay off (research to which our Knowledge Base has in the past also referred).
Buy to let mortgages
When you have identified a suitable property in a likely location and determined its market potential, you are probably going to need a buy to let mortgage to make the purchase.
Choosing a suitable and competitively priced buy to let mortgage is critical since the repayments are likely to represent your single most expensive outgoing and the cost is going to significantly affect the return on your investment – a factor taken into account by any mortgage lender before approving your application.
Be aware that buy to let mortgages are likely to prove both more expensive and more difficult to get.
In a story published on the 23rd of March 2018, the Telegraph newspaper warned buy to let investors to prepare for higher mortgage interest rates. No one knows, of course, precisely when the Bank of England is likely to announce an increase in the base lending rate, but it has been on the cards for some time.
This will come at a time when a surge in demand, referred to by the Daily Mail on the 9th of March 2018, is also increasing the availability of buy to let mortgages – as those who sought to beat the Stamp Duty surcharge on buy to let properties are now coming to the end of the two-year fixed-rate loans they arranged.
On top of all this, the affordability tests which mortgage lenders are required to make before granting a buy to let mortgage have been getting steadily tougher since September of 2017, following new rules on lending imposed by the Prudential Regulation Authority (PRU) of the Bank of England. Your rental income from let property must now be at least 145% of the cost of your mortgage repayments.
A further major expense for any landlord running a buy to let business is landlord insurance. There are many products on offer, they are by no means the same, and each represents a variable degree of value for money.
To make sure that you secure the landlord insurance that provides all the safeguards and protection to suit your particular needs and requirements, at a competitive price that represents good value for money, you might want to consult the specialists with the expertise and experience in arranging such cover – such as ourselves here at UKinsuranceNET.
Landlord insurance needs to provide protection for the structure and fabric of the building, of course, but also the contents which you own. You might even want to take up our option of including protection against malicious damage caused by your tenants.
Your buy to let insurance also needs to incorporate indemnity against claims that might be made by your tenants, their visitors, neighbours or members of the public who are injured or have their property damaged through some alleged negligence on your part as the landlord. Whilst many landlord insurance policies include landlord liability indemnity insurance against claims of up to £1 million, those offered by UKinsuranceNET cover claims of up to £5 million.
Finally, your landlord insurance also needs to provide some level of compensation for any loss of rental income following a major insured event which leaves the let property temporarily uninhabitable. Therefore, you may need to consider whether the amount of compensation paid out is sufficient to cover your needs in any such eventuality – the limits are typically defined as a percentage of the total building sum insured, for a specified maximum period of time, or up to a prescribed cash sum.
In summary, there are still opportunities for landlords to enjoy a profit from their investment – we hope these above tips help steer you in the right direction.