Updated 23rd June 2016
Over one in five households (22% of all households) rent their accommodation from a private sector landlord, according to research that was published in October 2015.
Even more telling is a statistic revealed by official government sources that the proportion of households renting from a landlord in the private sector will become one in three by the year 2032.
- suggests some of the qualities and commitment it takes to become a landlord;
- examines whether you are likely to take a professional or “accidental” approach to the role;
- underlines some of the legal responsibilities and obligations that go with being a landlord;
- stresses the importance of keeping your books straight; and
- identifies some of the ways you might go about keeping your property as fully let as possible.
Why be a landlord?
In terms of an investment opportunity – the opportunity to let your money work for you – buying to let could be hard to beat. The statistics tend to speak for themselves.
Actual returns on your investment of course depend on a whole host of factors – and success cannot be guaranteed, but figures released by the peer-to-peer investors LendInvest take into account regional variations when suggesting that average yields are currently being achieved as follows:
- 4 bedroomed properties – yielding an average of 4% across the country;
- 3 bedroomed properties – 4.7%;
- 2 bedroomed properties – 5.3%; and
- 1 bedroomed properties – 5.9%.
It is important to bear in mind that these are average yields and are affected by notable regional variations, with preferences for 1 and 2 bedroomed properties for example being skewed in university towns where multi-occupancy might make 4 or even 5 bedroomed properties more profitable.
It should be noted, too, that these figures were released prior to various legislative changes that were announced in 2015 and 2016 (i.e. , and changes to mortgage interest rate relief for landlords.)
In the majority of cases, however, investment in buy to let property may be likely to deliver a higher return than cash in your bank’s savings account, government bonds or shares.
Buy to let mortgages
Not only does it seem an attractive investment proposition, therefore, but you might also find it easy to access the market – buy to let mortgages are still relatively easy to obtain, provided you have the required deposit and the rental income you stand to make is sufficient to meet the mortgage repayments.
It is important to recognise the difference between a buy to let mortgage and the one with which you might be buying your own home. The former helps you to make what is essentially a business investment, on the basis of which you are planning to run a commercial enterprise (namely, letting the property to generate rental income). A residential mortgage, on the other hand is designed to help you buy the home in which you are living as your principal place of residence.
If you are thinking about arranging a buy to let mortgage, it is important to bear in mind at least two key considerations highlighted in advice given by the Council for Mortgage Lenders:
- it is important that you secure the correct mortgage for the appropriate use of the property you are buying so that if you going to be living there, it needs to be a residential mortgage and if you are planning to let, it needs to be a buy to let mortgage – your failure to inform the lender of these facts may amount to mortgage fraud;
- in a similar vein, it is important to arrange the appropriate kind of property insurance – since the risks are fundamentally different, landlord insurance and residential property insurance are not mutually interchangeable and your cover needs to reflect the use to which the dwelling is being put.
These may be especially important considerations if you are thinking of moving out and letting a property which was previously your main residence or if you are going to move into a home which you were previously letting.
Are you an accidental landlord?
Many landlords might set out with every intention of being just that – a landlord. Well in advance, they formulate a business plan, set about arranging a buy to let mortgage, have a carefully planned budget of expenses against expected income from rents and go about the whole affair as more or less any other business operation.
Then there are the others – the ones that might be called accidental landlords, who fall into the business of letting (usually just a single property) quite by chance, by accident and almost in spite of themselves. How might it happen?
- you might be left a house by a relative who has died and rather than sell the inheritance, choose to take advantage of the current lettings market;
- you might not have inherited the house property itself but, with the relative ease of access to buy to let mortgages, decide that the role of a landlord might be a useful money-spinner;
- with the children having left home, you might be suffering from empty-nest syndrome and decide to put those now spare bedrooms into far better and more productive use by letting them out to tenants under your own roof;
- that extra space in your home might have been created when you decided to split from your spouse or partner; or
- for several months or more, your work is taking you away from the area in which you currently live.
With so many reasons for becoming a landlord by accident rather than a design, it may not be surprising that research conducted by property agents Right Move indicates that nearly one in three of all buy to let owners are accidental landlords, says the blog Easy Property.
Whether intentional, professional or accidental, however, all landlords are likely to share many of the same concerns:
- the need for adequate landlord insurance – this might be an essential consideration if you are letting a self-contained dwelling, but might be almost as important even if you are letting only a bedroom or spare room in your own home;
- select your tenancies carefully, only after conducting background checks with which you can be satisfied and know your respective rights and obligations as landlord and tenant – tenants right are considerably wider for example if you are letting an entirely self-contained unit to those enjoyed by a lodger or tenant of a room or rooms under your own roof;
- it might not be the most glamorous aspect of being a landlord, but keeping your books in order and accounting for every item of income and expenditure is going to be vital for keeping the tax man off your back – and may be a way of securing the £7,500 tax allowance granted by the government under the Rent a Room scheme (for the period April 2016-2017); and
- knowing your legal obligations as any type of landlord.
By accident or otherwise, therefore, there are a number of important concerns which any aspiring landlord may do well to pay close attention.
Read our Accidental Landlord Guide for more information.
Know your legal obligations
Having other people paying you rent for the privilege of living under the roof of property you own may be a greater responsibility than you might imagine. The responsibilities you have towards your tenants are reinforced by law and other regulations imposed by the government generally to protect the rights, health and safety of the home in which your tenants are living.
The following are a selection of what you need to be aware and are based on laws in England and Wales. Different legislation typically applies in Scotland and Northern Ireland.
Responsibility for your tenants’ safety
- the government website on renting in the private sector identifies three principal areas to which the landlord must pay particular attention;
- ensure that all gas appliances and fittings are installed and maintained only by Gas Safe registered engineers;
- the gas installation and appliances must also be inspected annually and the safety check record completed by a registered engineer;
- the report itself must be made available to your tenants, with a copy being given to them at the time of moving in or within 28 days of the date of the inspection;
- although no annual inspection is required, electrical supplies, cables and switches all need to be safe and so too do all appliances you supply – such as cookers, electric kettles and so on;
- as the landlord, you have an obligation to follow fire safety regulations and to ensure that any furniture and furnishings you supply are fire safe;
- if you are the landlord of a House in Multiple Occupation, you must install and check the working order of extinguishers and fire alarms;
- Smoke detectors and carbon monoxide detectors are required;
- in addition to these formal, legal obligations, under common English law the landlord also bears a more general duty of care towards his or her tenants;
- any alleged breach in this care which causes injury to or damage to the property of a tenant, one of their visitors or indeed a member of the public, might result in your facing a claim for substantial sums in compensation;
- for that reason, you might want to make sure that the buy to let insurance you arrange also includes adequate landlord or property owner’s liability cover – which typically offers protection against claims of up to £1 million or more;
Following on from the general principle that landlords must provide accommodation that is safe and in a reasonable state of repair, you are expected to carry out as and when necessary all repairs that are required to;
- the exterior and structure of the property;
- all bathroom and toilet fittings, including the related pipework and drains;
- electrical wiring, hot water and heating;
- gas appliances, flues, pipes and ventilation;
Tenancy Deposit Scheme
- the law now requires that any deposit you receive from a tenant (as security against any damage or breakages that may be caused) is deposited with a recognised safe keeping agency within 30 days of it having been received;
- the tenant is entitled to receive back that deposit on condition that he or she has kept to the terms of the tenancy agreement, has caused no damage to the property and has paid up to date all rent and bills relating to the tenancy;
Right to Rent
- this legislation requires all landlords to check the immigration status of potential tenants – and hence “right to rent” in accordance with the Immigration Act – before granting any new tenancy;
- failure to comply could result in a £3,000 fine. Find out more at the government website here:
Keeping the books
Keeping your books and financial records straight is an important part of being a landlord. This is true not only for the purposes of keeping the taxman off your back but also for the opportunity of winning him over as the sort of friend who is actually able to grant you some valuable benefits.
What you will owe the taxman, of course, is tax on the profit from your business – that is to say your taxable profits, which your arrive at by deducting your expenses and qualifying allowances from the rental income you receive.
What records do I need to keep?
- income from rents – the dates during which you let the property, the rent charged and received, and any income from additional services (laundry or meals, for instance);
- allowable expenses – these are potentially more complicated to compute and provide one of the main reasons for keeping your books entirely straight. For example, it typically includes the interest you pay on any borrowing for the property (i.e. a mortgage), insurance for the building and its contents, professional fees (legal, accountants and any letting agent’s fees), utilities, Council Tax, and advertising;
- capital allowances – tax allowances are made against so-called capital items of expenditure, such as equipment and furniture within the let property or equipment more generally used for the upkeep or maintenance of the property;
- remember, however, that if you decide to sell the property, you may be liable for capital gains tax (CGT) on the difference between the price at which you bought it and its current selling price.
From time to time, you may find that HM Revenue & Customs takes the view that landlords are for some reason especially untrustworthy or incompetent when it comes to declaring their liability for tax. This coincides with a general blitz on landlords’ profits and the tax due.
In defence of any undue interest by the taxman in the affairs of your own particular buy to let business, this represents yet another reason for ensuring that you keep your books straight.
Finally, your careful bookkeeping may actually pay off when it comes to reviewing just how your business is performing. From well-kept books, you might tell at a glance whether rental income is being maintained at its anticipated level, whether you are keeping control over business expenses and whether you are claiming all of the tax allowances to which your business is entitled.
Self-manage or use a letting agent?
Do you want to be an essentially hands on landlord, or would you be entirely happy to hand over certain core functions of a buy to let business to some other suitably qualified agent?
Your answer might help you to decide how to choose between the following three basic options:
Do it yourself
- if you have just a single let property, are handy when it comes to essential repairs and maintenance and trust your own good judgement when it comes to selecting reliable and trustworthy tenants, you might want to take on the whole range of a landlord’s duties;
- even with just a single property, however, you might be surprised by how much time and effort this entails – to the point of it becoming a full-time job;
- perhaps one of the riskier elements of the job is the selection of tenants who are going to prove themselves responsible when it comes to caring for your property and for paying their rent when it falls due;
- the Residential Landlords’ Association provides an online service for checking tenants’ credit worthiness, but you might still find that the advertising, showing prospective tenants around and actually collecting the rent proves too strenuous by far;
- if that is the case, you might want to consider paying for the services of a lettings agent;
- such an agent is able to handle every aspect of dealing with your tenants – from advertising the letting, interviewing prospective tenants, showing them around, taking up their references on your behalf, drawing up the tenancy agreement, conducting inventories at the beginning and end of each tenancy, arranging the safe and legally required deposit protection and handling enquiries from tenants during the course of the tenancy;
- this might be a major burden lifted from your shoulders as the landlord and give you time to manage any running repairs and maintenance that may be required from time to time;
Property management agents
- you might prefer to take things still one step further and contract out not only the letting of your property, but its general and ongoing maintenance and upkeep, too;
- this is a service provided by property management agents, who like lettings agents, typically charge their fees as a percentage of the rental income due – but in the case of the full service property management, of course, those fees may be expected to be rather higher.
Whether you decide to go it alone or to employ other agencies to help out with core aspects of your business, the role of a landlord requires serious commitment, time, effort and the possible input of trained professionals in order to generate the financial rewards you anticipated.
Being a landlord may prove a satisfying and rewarding experience. It provides opportunities for testing your acumen in property investment and in all likelihood demonstrates your ability to balance the requirement to generate rental income with the demand for monthly repayments of a buy to let mortgage.
Statistics suggest that the private sector rental market is continuing to grow and may soon account for a third of all households – the future opportunities for the landlord, therefore, seem buoyant indeed.
Whether you are a single-minded professional landlord or some who has fallen into the role by accident rather than by design, there are nonetheless a number of legal obligations and responsibilities that all landlords share towards their tenants.
As with any business – even a small scale, part time one – it is important to keep a written record of all your transactions, incoming and outgoing and to be prepared to make your declaration of all taxes that fall due.
Being a landlord might prove a tiring, not to say exhausting job. If and when it all gets too much, though, there are experienced agents and professionals – such as letting agents and property management companies – who may be able to lighten the load.