Research by insurer Aviva has found that 10 per cent of UK adults aged between 35 and 45 plan to buy an investment property within the next 12 months.
With strong demand for rental properties and some shortage of available homes as stock levels have decreased, buying a property to rent out is looking attractive to millennials who may have extra savings to invest following the lockdowns of the past year.
Plans to buy investment property
While it is more expensive than ever to become a landlord, the number of buy-to-let mortgage deals available for first-time landlords is rising.
An investor mortgage is usually available for around 70-75 per cent of the cost of the property, meaning the buyer will have to find a substantial deposit to enter the market.
There is also a Stamp Duty surcharge of 3 per cent payable on second and subsequent properties. This is not deductible from profits, although it can currently be offset against Capital Gains Tax when a property is sold.
Interest on the amount borrowed cannot be offset against rental income as an expense any more, meaning that tax is payable on the gross rent.
You should make sure that you will realistically be able to afford to be a landlord. You cannot assume that you will receive rental income each month, but there will be substantially expenses, including your mortgage and insurance to be paid as well as the costs of keeping the property in good repair. You may also want to use an agent to manage the rental, which will involve a monthly fee.
Taking on a rental property
It is important to do some research before buying. Generally, a terraced home is cheaper than a semi-detached or detached property. Alternatively, you may want to consider a house in multiple occupation or a shared house where the kitchen and bathrooms are used by everyone.
Different tenants will have different expectations of you and your property and you should make sure you understand what they will want you to provide. While students might be happy with fairly basic facilities, professionals will be looking for a good quality, clean finish.
You should look at the location of your property and consider whether it will be easy to rent it out to your ideal tenant. You may also want to consider the likely increase in the property’s value over time as, for investors with only one or two properties, this could be where the biggest profit is to be made.
Be aware of what you are taking on
There are a number of regulations that landlords must comply with. As well as keeping the property in a habitable condition, there are annual safety checks to be carried out and you will need to ensure you obtain the correct safety certificates.
Your tenant’s deposit should be placed in a government-approved tenancy deposit scheme if the lease is on an assured shorthold tenancy basis.
There is a chance that you will encounter difficult tenants at some point. This could involve you in legal action to try and recover unpaid rent and remove them from the property.
If you are considering taking on an investment property and you would like to speak to one of our expert lawyers, ring us on 0333 305 5189 or email us at info@lpropertylawyers.co.uk
