We highlight some of the issues and surprising facts that anyone who wants to be a buy-to-let landlord should be considering.
Managing deposits
Recent figures released by the government show that just over £4 billion is now held by the three government-approved schemes on behalf of 14 million different tenancies.
It became a legal requirement for landlords to lodge their tenants' deposits with one of the providers in 2007 (1).
In England these are: the Deposit Protection Service, MyDeposits and Tenancy Deposit Scheme. Landlords have 30 days after they receive a deposit to lodge the money with one of them and also let the tenant know which scheme it's been lodged with plus details of how to get their deposit back at the end of tenancy.
But this is not optional - there are both financial penalties if a landlord doesn't follow the rules, and consequences - for example it is much more difficult to evict a tenant if their deposit hasn't been protected.
Read more about a landlord's responsibilities when dealing with tenants' deposits.
Picking the right tenant
There are plenty of different kinds of tenants to rent a property to, each with different upsides and downsides. But which is the biggest group? The answer is, couples.
This is despite TV sitcoms like Channel 4’s Fresh Meat and This Life perpetuated the myth that we’re a Friends-style nation of house sharers.
Research shows that only 14.7% of rented homes are ‘mates mucking in’. The most common type - at a third of all renters - is the childless young couple (2).
Stamp Duty
When George Osborne introduced the additional ‘landlord tax’ Stamp Duty levy in April 2016 on second homes and investment properties, it was sold to voters as a way to make the property market fairer by persuading fewer landlords to enter the market.
To some extent the opposite has happened – the number of buy-to-let properties hasn’t dropped off, and instead the Chancellor has pocketed £1 billion MORE from landlords and second homes buyers than was originally expected from the scheme (3).
Generation Rent
Many landlords worry about the ‘lost’ generation who are struggling to get on the property ladder and unlikely to ever own their own home.
And they CAN help their tenants, 47% of whom are likely to be saving for their first step onto the property ladder (2).
This can be done by enabling a tenant to pay their rent through CreditLadder, help them build their credit score and make a mortgage approval more likely - and/or on the best interest rate.
Will my tenants default on their rent?
Tenants who get into arrears are less common than you might think - the most recent English Housing Survey revealed that just 9% of private tenants had fallen into arrears over the past 12 months (4).
Also, CreditLadder sees arrears of less than 2% among the tenants that uses our service - while the national average is over 12.8% (see 'Evictions', below)
Right to Rent rules
Landlords can’t know about everything, but Right to Rent is a crucial piece of legislation that anyone offering rental properties MUST know about; the penalty for failing to check a tenant’s ‘right to rent’ in the UK is up to £3,000 (5) plus a possible prison sentence of up to five years (6).
But surprisingly few do. Recent figures obtained by the Press Association show that 62 landlords were fined a total of £37,000 during one seven month period in 2017 (7).
Making property pay
If you’re considering a move into buy-to-let property on a full time basis, then remember that very few landlords - 6% - rely entirely on the income from their rental properties for their livelihoods (8).
The rest of them either use the income to boost their day job; as a top up for the pension; or to finance the expansion of their buy-to-let portfolio.
Use an agent?
A lot of people do. Nearly 80% of landlords use an agent in one former or another, and just over half of those use a fully-managed service (9).
Most high street letting agents offer two tiers of service - a tenant finding only one or a full finding and property management service. Leading letting agent OpenRent generally offer just a tenant finding service, with some other legally required services such as Gas Safety inspections and EPCs offered as paid-for bolt ons.
Evictions
No landlord or tenant wants to go through the nightmare of an eviction. But despite being at an all time high, they remain relatively rare.
Approximately 40,000 households are evicted from their rented property every year, but the vast majority take place within the social sector. This means just 6,000 or 0.13% of the UK’s 4.5 million privately rented households experience an eviction every year (10).
And overall the proportion of rented homes in the private rental sector who are behind in their rent has been falling recently and currently stands at 12.8% (11).
Sources
1. DCLG research published on Dlighted.co.uk blog
2. Homelet, Right to rent: Tenants Survey, 2017
3. Daily Telegraph, August 2017
4. Section 1.48, English Housing Survey
5. Home Office, October 2015
6 National Landlords Association, Landlord sanctions come into effect, November 2016
7 Daily Mail, April 2017
8 CML, Profile of UK landlords
9. Homelet Landlord Survey, 2017
10. Joseph Rowntree Foundation, 2016
11. Your Move index, September 2017.
CreditLadder can help you improve your credit score
If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.
CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.
Remember the information provided in this article is for information purposes only and should not be considered as advice.
