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What you need to know about becoming a landlord

If you’re wondering how to become a landlord, it’s not just a matter of buying a property, finding some tenants and waiting for the cash to roll in. Becoming a landlord involves big responsibilities and some uncertainty. So, is becoming a landlord worth it? We take a look.

If you’re wondering how to become a landlord, it’s not just a matter of buying a property, finding some tenants and waiting for the cash to roll in. Becoming a landlord involves big responsibilities and some uncertainty. So, is becoming a landlord worth it? We take a look.

Written by
Helen Phipps
Insurance comparison expert
Reviewed by
Rachel Lacey
Insurance and money expert
Last Updated
8 min read
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Why become a landlord?

It’s estimated that there are over 2 million landlords in the UK, serving a growing number of renters. Around 4.4 million households in England live in private rented accommodation, so there’s a lot of opportunity for budding landlords.

Not only that, but the combination of rising rent and house prices could make becoming a landlord a tempting proposition. Easy money, right?

Not necessarily. It’s important to be aware of the big picture before you become a landlord. There’s a huge amount of legislation for landlords to contend with and you also need to be confident that you can cover all the costs and expenses that come with renting out a property.

The cost of being a landlord

Being a landlord isn’t all about profit. Here are a few of the expenses you’ll need to consider:

  • Stamp duty – when buying a buy-to-let property, you’ll pay 3% on top of standard stamp duty rates. See more on buy to let stamp duty
  • Buy-to-let mortgage repayments.
  • Tax on rental income – you’ll need to pay tax on profit you make. Landlords now receive a 20% tax relief on mortgage interest, which is less generous than previously.
  • The costs of renovating the property, if necessary.
  • Letting agent fees – expect to pay up to 20% of the monthly rent, depending on what services you use.
  • Missed rent and tenancy gaps – it makes sense to have a slush fund to cover these, although landlord insurance can also help.
  • Maintenance costs – it’s your duty as a landlord to keep the property up to scratch.
  • Capital gains tax if you make a profit when you sell your buy-to-let property.

Finding a new buy-to-let property

When choosing a new buy-to-let property, there are a few factors to think about.

Getting a buy-to-let mortgage – you’ll need to have this lined up before you begin your search. Find out more about buy-to-let mortgages and who is eligible for them

Who will your tenants be? Deciding who you want to let to is one of your most important considerations. Students, professionals and families will each have very different needs from a property. Students and commuters, for example, might want access to good public transport links, while families could be looking at areas with good schools.

How much rental income do you need to make? Don’t forget to factor in all the costs of being a landlord.

The location – does the property need to be close enough to your home for you to manage it? Or can you use a letting agent? If the latter, can you afford it?

The type of property – older properties will probably need more upkeep, while newer flats may come with expensive service charges.

Buying your property – if you’re looking for a bargain you might find one at auction. But make sure you understand the process as it moves more quickly than buying through an estate agent. Read more about buying a property at auction

Letting an existing property

You may be thinking about renting out a property you already own. Perhaps you’re buying an additional property to live in. Or you’ve found yourself in the position of being an ‘accidental landlord’ because you’ve inherited a property or have moved and can’t sell your previous home.

But whatever the case, just because you own a property, it doesn’t necessarily mean you have the right to let it out to tenants.

If you have a mortgage on the property, you’ll need to check with your lender to see whether letting it is permitted – there might well be a clause that prevents you letting it out. If this is the case, you’ll need to switch to a buy-to-let mortgage.

With a leasehold property, even if you own it without a mortgage, there might be restrictions on letting your property, so check your lease.

If you’re only letting for a short time, you may be able to get consent to let from your mortgage provider.

Rental profit calculator

Rental yield shows annual rental income as a percentage of the value of a property. Knowing the rental yield of your property will help you understand if you can afford your buy-to-let mortgage repayments and whether the property is a good investment.

To calculate rental yield, divide annual rental income by the value of the property. Then, get a percentage by multiplying this figure by 100. So, for example:

Annual rental income: £15,000
Property value: £300,000
Yield = 5%

Understand your landlord responsibilities

There’s a huge raft of legal obligations that come with being a landlord, including making sure your property meets building regulations and fire safety regulations.

Important details to look out for include:

  • Ensuring your property is in a fit state to rent out and that your furniture, gas appliances and electrical equipment meet safety standards.
  • Having the right licence. Check with your local authority to see what you need. If you’re planning on renting to students or groups of friends, be aware of any restrictions on the number of houses in multiple occupation (HMOs) in your area and that you have the correct licence.
  • Getting a qualified gas engineer to complete a gas safety check every year. Fail to do this and you could end up with a £6,000 fine and six months in prison. 
  • Providing your tenant with an Energy Performance Certificate (EPC).
  • Fitting a smoke alarm on each floor and a carbon monoxide detector in any room with a fire or woodburner.
  • Providing fire extinguishers and alarms if the property is a large HMO.

Register as a landlord

If your rental property is in Scotland, Wales or Northern Ireland, you’ll need to register as a landlord. Registration is also usually necessary in England for HMOs and in some local authority areas.

How to register as a landlord:

Scotland – see the Scottish Landlord Register
Wales – see Rent Smart Wales
Northern Ireland – see indirect landlord registration
England – to find out whether you need to register as a landlord or need an HMO licence, contact your local authority.

Decide who will manage your property

You might relish the opportunity to manage your rental yourself, but if you don’t have the time or inclination you could hire an agent to do it for you.

Agents can do everything from finding prospective tenants and drawing up tenancy agreements to collecting rent and arranging repairs and maintenance. This will mean less work for you but it will eat into your profit – you could expect to pay between 10% and 20% of the monthly rent for full agent management.

Alternatively, you could just use an agent to advertise your property, find and reference tenants for you and draw up the agreement but manage it yourself from then on.

Join a deposit protection scheme

You must put your tenant’s deposit into a deposit protection scheme within 30 days of you or your agent receiving the money.

Deposit protection schemes ensure tenants get their deposit back when they move out, as long as they’ve met the terms of your rental agreement. This protects tenants from rogue landlords who may unlawfully withhold repayment of some or all of the deposit.

In England and Wales, your tenant’s deposit must be held in one of three schemes:

  • The Deposit Protection Service
  • mydeposits 
  • Tenancy Deposit Scheme.

Scotland and Northern Ireland have their own tenancy deposit schemes.

Decide whether to let furnished or unfurnished

Which you choose will partly depend on the type of tenants you want to attract. Short-term tenants, like students, may appreciate having everything provided for them, while longer-term or older tenants might prefer to bring their own furniture.

But just because you’re letting a property unfurnished, there will still be some basics you’ll need to supply, such as a cooker, fridge, carpets, bath, toilet and sink.

Find tenants

A lettings agent could help you find the right tenants for your property – just make sure you compare prices and services to find the best deal. Also make absolutely certain to check your tenants’ references. If you’re using an agent, they should do this for you, if not it’s easy for DIY landlords to arrange tenant reference checks quickly and cheaply online.

This could save you a huge amount of trouble further down the line.

You’ll also need to make sure that whoever you’re renting to has the right to live in the UK. If you don’t check and they turn out to be here illegally, you could be fined as much as £1,000.  
If you have an agent acting on your behalf, they can do this, but you could also check yourself using the GOV.UK website.

Consider landlord insurance

Landlord insurance is a type of buildings insurance that caters specifically to the needs of landlords. This means that in addition to the usual protection from floods, fire and storms, you’ll also get cover for the additional risks faced by landlords.

These are likely to include:

  • Accidental damage by tenants
  • Emergency cover for repairs
  • Legal expenses related to being a landlord.

You could also add optional extras, such as insurance for rent arrears or vacant periods when you don’t have a tenant.

Frequently asked questions

How much rent do I need to make?

The rent you charge will depend on the size of your mortgage. Mortgage lenders will typically want you to charge in the region of 125% of your monthly repayment.

You can be more flexible if you own the property outright but you still need to make sure you have enough money to cover all the expenses you may face as a landlord.

As well as maintaining the property, you’ll need to budget for any empty periods between tenants, not to mention agency fees and tax on your rental income.

How much can you borrow with a buy-to-let mortgage?

The amount you can borrow on a buy-to-let mortgage will be based on the amount of rent you’re likely to get for the property. Buy-to-let mortgages require a bigger deposit than standard residential mortgages – typically 25% but sometimes more, depending on the mortgage.

Do I need a tenancy agreement?

Absolutely. The tenancy agreement should clearly state:

  • When the tenancy starts and ends
  • How much rent needs to be paid and when
  • The deposit amount and how it should be protected
  • Landlord and tenant obligations
  • Who’s responsible for bills and repairs
  • Whether the property can be sublet.

If you use a letting agent, they can prepare the rental agreement for you.

Do I need an inventory?

It’s important to make sure you know exactly what state your property’s in when you let it, as well as what’s included. Don’t forget to include light fittings, toilet seats and roll holders, curtain poles and curtains – it might sound overly detailed, but it will help you whenever the tenancy changes. Take photos so you know the condition of everything at the start of the tenancy. Again, if you’re using a lettings agent they could arrange this for you.

How quickly do I have to complete repairs?

You’re obliged to carry out repairs within a ‘reasonable time’, although what that is isn’t precisely defined. However, it’s in your interest to carry out repairs as swiftly as possible, particularly where heating and water are concerned. It could help maintain good relations with your tenants. Plus, a speedy response could mean you nip potential issues in the bud and save yourself money in the long run.

If you fail to carry out repairs, your tenants could report you to the local authority’s environmental health department.

I want to see how my tenants are treating my property. Can I pop in while they’re out?

No, your tenants have a right to privacy. If you want to pop round to inspect the property or carry out repairs, you need to give your tenants 24 hours’ notice in writing.

What are the rules for HMO landlords?

If you rent a property to tenants who aren’t members of the same family, it might be considered a house in multiple occupation (HMO). You may need a licence and will have certain responsibilities to make sure your property is safe. There are different rules for HMO landlords in England and Wales, Northern Ireland and Scotland.

How much tax will I have to pay on my rental property?

That depends on your overall income. Any income you earn from your property will be added to your overall income for the year and taxed accordingly. However, rental income is eligible for certain reliefs and allowances. For example, all landlords can claim 20% tax relief on mortgage interest and the first £1,000 of rental income can be earned tax-free. There are also a host of deductible expenses, for example, maintenance and lettings fees.

Landlords will need to declare their rental income on a self-assessment tax return each year. You could do this yourself or employ an accountant to do it for you.

When you eventually come to sell your rental property, you may also have to pay capital gains tax on your proceeds.

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Helen Phipps - insurance expert

Having worked in both sides of the industry, Helen’s a real insurance expert. She’s worked directly with several insurance providers and now Compare the Market. She’s always searching for the cheapest prices for customers and is passionate about saving people money. Being married with two kids, Helen knows all about the cost of living and the benefits of having the right products and insurance for the whole family.

Learn more about Helen

Rachel Lacey - Insurance and money expert

Rachel’s a self-confessed money nerd who’s been writing about personal finance for more than 20 years. She spent 17 years writing for Moneywise, including a few years as Editor, and likes making complicated subjects like insurance, pensions, investing and tax, easy for people to understand.

Learn more about Rachel

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