Boost your retirement income
Returns from buy-to-let property can generate a decent income at a time when interest rates remain ultra low and the stock market is volatile. Estate agency Knight Frank expects a 20% rise — one in five households — to be in the private rental sector by 2020, up from 18% today.
But becoming a landlord comes with lots of obligations and financial pitfalls. It may sound daunting, but can be very rewarding.
What is a buy-to-let mortgage?
Here are five things every buy-to-let investor should know:
1. Work out the costs of being a landlord
Before you take the plunge, make sure you have crunched all the necessary numbers. Landlords receive £678 in rent each month on average, totalling nearly £28 billion a year across the country, according to LV=.
Landlords in London and the south east collect the highest rents, at £1,079 and £816 respectively. In the west Midlands monthly rents average £678 and in East Anglia £676.
It is important to factor in borrowing costs, management fees and maintenance costs. The study says landlords spend approximately 60% of this on costs, leaving them a pre-tax profit of 40% on average. Don’t forget to budget for void periods in between tenants.
Is buy-to-let a good investment?
2. Read up on the tenancy deposit scheme
Landlords are legally required to keep a deposit in an approved deposit scheme which offers security for both tenant and landlord.
There are three approved schemes to choose from and you must supply a tenant with a host of information, such as the name of the authorised scheme you are using, how they will apply to get the deposit back at the end of the tenancy, an explanation of the purpose of the deposit and what to do if there is a dispute.
If you don’t comply you can face legal proceedings and a fine of up to three times the amount of the deposit in question.
Your deposit when renting
3. 'Right to rent' – check whether prospective tenants are legally in the country
Finding the right tenants is crucial. As well as affordability checks, new requirements for a landlord to obtain proof of identity and nationality came into force in December 2014.
Private landlords will have to check the right of prospective tenants to be in the country, in order to avoid fines of up to £3,000.
The new measures – part of the Immigration Act – became law in Birmingham, Walsall, Sandwell, Dudley and Wolverhampton on December 1, 2015 as part of a phased introduction across the country.
The “right to rent” checks are designed to make it more difficult for immigration offenders to stay in the country when they have no right to be here.
For more information, visit gov.co.uk or call 0300 069 9799.
4. Take out landlord insurance
Standard home buildings insurance will not usually cover homes that are tenanted.
Almost a third of landlords say their rental property has been damaged at some point and has had to be repaired, which has cost them £1,200 on average. Of those who have had their property damaged, the main cause has been damage by tenants.
Tell your insurer that you have tenants, and consider other types of insurance, such as landlords’ liability and loss of rent cover.
5. Don’t forget the gas and energy checks
There are a handful of things that landlords must attend to every year.
By law, you must ensure you have gas and electrical equipment installed and then checked annually by a registered engineer.
Almost 500,000 landlords have not had their property checked by a gas safety engineer in the last 12 months, risking prosecutions and fines of up to £20,000.
You must also pay for an energy-performance certificate, although this is only required when marketing a property for rent.
Find out more about Saga's landlord insurance packages
An increasing number of the over-50s are investing in rental property. Known as ‘grandlords’, they are turning to the rental and the buy-to-let markets to supplement their retirement income.
For more information about becoming a landlord, download our free guide.