Despite the turbulent real estate market in recent years, property remains a solid element of an investment portfolio. Even with the introduction of unfavourable tax laws on buy-to-let properties, there is still hope one can run a successful buy-to-let business.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
One of your responsibilities as a landlord is to understand and adhere to various tax laws that directly affect your business. There have been a few recent developments that impact the market that seasoned landlords will have heard about, but those in control of only a few properties may not be aware.
Stress test
Last year, the Prudential Regulatory Authority (PRA) introduced regulation that made the mortgage process tougher.
Lenders now need to apply an interest rate stress test that measures a borrower’s ability to repay their mortgage not only at the standard rate they offer after the introductory period, but also if the rate were to rise 3 percentage points above that. These stricter regulations may limit the amount of money professional landlords can borrow, hindering the purchases of any additional properties.
More tax rules
Most recently, the PRA is now requiring lenders to maintain a more rigorous underwriting process for landlords with four or more mortgages. Plus, the government is lowering the tax relief landlords will be able to claim on their mortgage payments and increasing the stamp duty surcharge on second and consecutive properties.
Despite these changes, a buy-to-let business can be incredibly successful if you keep abreast of the news that impacts the market and follow a few simple steps.
Steps to success
Before you embark on the journey to become a landlord, you should be armed with some knowledge and research about owning a property for profit, including potential rental income and possible capital growth that can come from the sale of the property.
Learn as much as you can so you know exactly what you’re getting into. Understand that you’re now running a 24/7 business where you’ll need to wear many hats and juggle multiple issues from various tenants.
The first official step you should take when beginning a buy-to-let business is to seek out a mortgage broker. Your prior research can help provide your broker with a starting point about the location and types of properties that would work for you.
Brokers also have a wealth of knowledge and experience that’s vital during property acquisition. They are an invaluable resource that can make a complicated mortgage application process easier as they have developed relationships with lenders that specialise in buy-to-let mortgages. This all gives you a better chance of getting a great deal.
In addition to finding a mortgage broker that will help you purchase properties, you’ll need to work with a letting agent who will help you rent them out. A great agent will help you deal with tenants, health and safety regulations, fire safety laws, etc.
After securing an agent, you need to purchase landlord insurance that covers you in the event of any issues arising because at the end of the day, you and you alone are responsible for your properties and tenant.
When looking for a policy, check that it includes public liability cover. This ensures you can make a claim for damage done to your property from shoddy repairs or insufficient fittings.
Additional tips
As there’s no way of knowing how many problems will crop up or how much they’ll cost you, it’s definitely useful to develop a good relationship with a reliable handyman, or other vendors that you can count on to make repairs quickly and cost-efficiently.
You should also endeavour to save a small amount – at least 10% of rental income – to put toward repairs so you’re not stuck with a huge bill you can’t afford.
It may seem like it takes a lot of knowledge and hard work to successfully own properties – and you’d be right. There are always new laws and regulations that affect your business,so you’ll need to keep up with news about the property market and adapt your plans.
You also need to build a team of experts around you to help run your business – from brokers and letting agents to handymen and insurance agents. But the hard work is always worth it in the end.
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