Renting out property can be an excellent way to supplement your income – or even give you a new career. Perhaps you’re considering investing in property in Hackney, East Ham or Plaistow, or letting out a place you already own in Woodford or Forest Gate. Whatever your plan for being a landlord, you won’t be alone as a new entrant, with the English Private Landlord Survey revealing that almost half of landlords have been in the business for a decade or less.
However, it’s essential to do the maths and work out the costs of being a landlord. To help you get started, we look at thirteen costs landlords need to consider when deciding if buy-to-let is right.
1 Buy-To-Let Mortgage Costs
If you rent out property with a mortgage, you will need a specific buy-to-let product rather than a residential loan. Sadly, buy-to-let mortgages come with higher interest rates than residential ones, so don’t base your decision on what you’re currently paying for your home.
Buy-to-let mortgages also tend to be interest only rather than repayment, meaning you won’t have paid off the original loan at the end of the term. You may need to pay an arrangement fee of around £1,000 too. Check comparison sites for the best deals, and consider using a specialist mortgage broker to help you.
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2 Stamp Duty Land Tax (SDLT) Cost
If you’re buying the property, you must pay stamp duty land tax (SDLT) on the purchase. Remember that as of 31st October 2024, you will pay the additional 5% second home surcharge if you own property already.
3 Costs Of Buying The Property
Prepare for higher fees and larger deposits of at least 20% when you purchase a buy-to-let property, plus agents’ fees, solicitors’ fees and survey fees. Expect to pay a booking fee of £100-£300, valuation fee and arrangement fee, and average costs of £450 on a homebuyer survey, and £500-£1500 on conveyancing fees.
4 Landlord Income Tax
As a landlord, you must pay income tax on the profit you make from your property business at the basic or higher rate, calculated on your landlord profits and any other income. If you aren’t registered for self-assessment, you must do so by 5 October following the tax year you received rental income.
You will pay tax on the profit after allowable expenses have been deducted. Allowable expenses include building insurance, contents insurance, repairs and maintenance (not improvements) and utility bills. If you make a loss, you can usually carry this forward and offset it against the next tax year’s profits.
It’s usually best to get advice about property taxes and self-assessment from an accountant with experience in property and tax. This could save you from making expensive mistakes.
5 Landlord Insurance Fees
As with any property, you must take out building insurance, but you may benefit from other types of landlord insurance too. It is essential to look for a policy designed for landlords, and ensure that your insurer knows you are renting the place to tenants.
Landlords may consider other insurance, such as:
rent guarantee insurance, in case your tenant fails to pay their rent.
breakdown insurance for your heating system, plumbing and electrics.
accidental damage cover in case the tenants cause damage beyond wear and tear.
contents insurance to cover any items you have supplied in the property.
landlord legal cover can insure you for legal costs including evictions.
6 Tenant referencing and credit checks
Tenant referencing and credit checks can lessen your chances of costly rent arrears or problem tenants. You’ll pay a fixed fee, and your letting agent can arrange these services to vet your new tenants.
7 Letting Agent Fees
Most landlords rely on a letting agent to find tenants, as only agents can add a listing to the main online property portals. Sites like Rightmove and Zoopla are potential tenants’ first port of call.
Tenant-find services cover promotion to help get potential tenants through the door, conducting viewings, the inventory and the tenancy agreement. Aside from convenience, their expertise can avert costly errors in the long run.
If you appoint your letting agent to cover property management, the cost typically ranges from 6-14% of your rental income, depending on the level of service you opt for. You can save money by going it alone, but using a property management company can save time and stress.
With a property management service, your letting agent will be your tenant’s point of contact for maintenance calls and queries throughout the tenancy. Your agent can also handle rent collection, and follow-up missed rent payments.
8 Repairs And Maintenance
Like any homeowner, you must factor in repair and maintenance costs. Maintaining the rental property can help prevent problems further down the line. You must also comply with the law when providing your tenants a decent and safe place to live.
Ensure your property is fit for human habitation and meets minimum energy efficiency standards and regulations around gas, electrical and fire safety (e.g. fitting a carbon monoxide alarm). Cutting corners in these areas could put you on the wrong side of the law.
Make sure you budget for regular refurbishment of the property – this will help you let the place quickly and save you money in the long run.
9 Void Periods
Void periods are times between tenancies when you don’t have a tenant paying rent on the property. They could happen because you can’t find a suitable tenant, or you can’t rent the place because you need to carry out repairs or refurbishment.
Many landlords factor in voids of four to eight weeks per year, and budget along the way to meet the mortgage payments if the property is vacant. Remember, you will need to pay council tax and bills for the property while it is empty.
10 Rent Arrears
Tenants failing to pay monthly rent is a common hazard of renting out property, so budget just in case. You can also take out insurance to cover lost income, and help minimise the chance of this happening by carrying out thorough credit and referencing checks.
If you need to take your tenant to court to gain possession of the property, this will involve legal costs. Check the gov.uk website for the latest information on notice periods for an idea of how long this may take – as well as the costs relating to different parts of the process.
11 Landlord Responsibility Costs
As we’ve said, you are obliged by law to carry out specific duties, each of which comes with a cost. To meet landlord legal requirements, you need to arrange and pay a fee for:
energy performance certificate (EPC) inspection and possibly improvements to make the property more energy-efficient
gas safety checks by a gas-safe registered engineer for gas boilers and appliances each year
You may need a landlord licence, depending on the property size and your local council.
Selective Licence – In certain areas, selective licensing schemes apply where there’s one household or two unrelated tenants in a standard residential rental. Costs vary, but the Newham Council selective licence costs £750, while Redbridge Council’s fee is £860.
Mandatory HMO Licence – Large HMOS with 5 or more people sharing facilities will need a mandatory licence. Fees increase according to capacity and start at just under £700 in the London Borough of Tower Hamlets, and £1,500 in Barking and Dagenham.
Additional HMO Licence – This covers smaller HMOs of 3-4 people from at least two households. Costs generally rise according to the number of rooms, starting at £669 in Tower Hamlets, £1,250 in Newham, and £1,608 in Redbridge.
We hope this breakdown of costs has helped to give you a clearer picture of the realities of being a UK landlord. If you’re thinking of investing in property in Silvertown, Rainham, Collier Row or Newbury Park, talk to us. We’d be happy to share our years of experience working with landlords in east London and help you decide if it’s right for you.
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Azeem S.
I began as a junior apprentice in a corporate estate agents in 2006 have been working in the property sector since, so over 14 years of experience. I have worked in a range of industries from Property sales and lettings, to construction, development, commercial sales and lets as well as facilities management and maintenance. I have a degree in Economics, enjoy keeping fit and healthy, support Man Utd and have a young family.
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