The team at Keywest letting agents Leicester are here to help you with our buy to let landlord guide

The UK’s buy-to-let sector is currently booming and it’s not difficult to understand why. Providing an excellent return on investment when compared with other options, the property sector is still a safe and profitable choice in most cases.

Rising house prices are making it more difficult than ever for first-time buyers to own their own home, with the affordability testing now required for mortgage applications meaning fewer and fewer young people are able to secure loans to buy property. The deposits required are a higher percentage today than they have been in decades, making it difficult for buyers to raise the necessary funds.

In addition to attractive rates of return and an increase in demand from renters in most parts of the country, there are also now a wider range of buy-to-let mortgages for would-be landlords. According to Moneyfacts, there are around 300 more buy-to-let mortgages on the market today than there were just two years ago. This is great news for investors as it means there is a far greater choice and it’s easier than ever to find a suitable mortgage.

Types of mortgage

Buy-to-let mortgages differ from standard mortgages in that the availability of funds is influenced to a large degree by the projected rental income from the property. In the majority of cases, the required rental income needs to be upwards of 125 per cent of the monthly repayment, although this does vary between different lenders. Deposit percentages and thus loan-to-value (LTV) vary from lender to lender but 25 per cent is a common minimum.

Choosing your property

As with any property purchase, location is key when it comes to buy-to-lets. It might help to decide what type of tenant you wish to target. If your preferred tenants are families, you will need to think about access to schools and public transport links. Families will also prefer to rent in areas with easy access to good quality leisure facilities. In addition, you will probably find it easier to let to families if your property has a decent-sized garden and a designated parking space.

If you plan to target young professionals, this group is more likely to focus on areas with facilities for commuters, as well as pubs, bars, restaurants and shops. At the very top of the rental market is the executive or corporate field. High-end renters will expect luxurious fixtures and fittings, as well as good security, a concierge and possibly gym, swimming or other leisure facilities for residents.

You will also need to consider whether you want to let to individuals, couples and families, or large sharing groups.

Rental yields

On average, houses will produce better yields than apartments or flats. The National Landlords Association reveals that the average yield for a flat is 5.9 per cent, while it jumps to 6.3 per cent for a house. The properties with the lowest rental yields are generally executive lets where the property is used exclusively by a company’s employees, often while they are visiting or re-locating.

Use your head, not your heart

It’s vital that you remain objective when selecting a rental property and you are aware of all the expenses with being a landlord. It might be difficult to look at it purely as an investment, but force yourself to think as a landlord and not as a homeowner. You may initially prefer to buy in your own area as you know it well, but think about whether this is the best location for your target group of renters. Speak to local letting companies and ask what types of renters typically live in the area in which you’re focusing your search. You will also be able to get a good idea as to going rates in the region.

Your responsibilities as a landlord

There are a few basics you will need to be aware of before you start letting out your property. Almost without exception, landlords need to put an assured shorthold tenancy agreement into place. This contract between landlord and tenant ensures that both parties are aware of their responsibilities and rights. The contract will include vital information such as details of the rent, where responsibility for repairs lies, who pays which bills and for how long the tenancy agreement will remain in force.

There is a statutory requirement that landlords organise protection for their tenants’ deposits. There are currently three schemes approved by the Government in order to protect deposits. Landlords have 30 days in which to place the deposit in one of these schemes after which they must provide details of the scheme to the tenants.

As a landlord, you are also responsible for ensuring that the property meets electrical and fire safety standards, and that it has an annual check for gas safety carried out by a registered engineer. You must also give at least 24 hours’ notice if you intend to visit a rental property that you own.

Tax basics

You will need to be aware of, and understand, five different types of tax as a landlord. These are Stamp Duty, Income Tax, Capital Gains Tax, Inheritance Tax and Council Tax. Speak to a tax accountant or advisor if you require information as to how any of these taxes may affect you as a landlord.

Expanding your lettings business

If you already own a rental property and are thinking of growing your portfolio, it’s important to make sure that you can afford to expand. You should discuss your financial situation thoroughly with your lender, or with an IFA, and be absolutely certain that you can cover the costs associated with buying additional property. In addition to the financial considerations, you will also need to think about the additional time required to deal with more than one property.

It is usually advisable to grow your portfolio slowly, rather than rushing ahead and expanding too quickly. You should make sure that your current property is running smoothly and giving you a good return on your investment before looking to further invest. In particular, your financial plans should allow for periods in which property is empty: you will still be expected to make the mortgage repayments and to cover the bills.

In order to be a successful property investor, a good business plan is essential and you may want to consider landlord insurance cover. This becomes increasingly important the more properties you own. Remember that you are running a business, and treat it as such. Over 50 per cent of landlords own just one rental property, and large property portfolios are relatively rare. If you are focused and determined, however, there is no reason why you shouldn’t grow your own portfolio over time.

If you’re looking to invest in property and want the support of an experienced team of property manager, call Keywest today on 0116 254 4555.