If a landlord is also a first-time buyer, they would be an exception to the rule and not be subject to the second home stamp duty surcharge. However, they would also not qualify for any first-time buyer tax relief and would instead have to pay standard rates.
It’s important for first-time buyers to be aware that purchasing an investment property may cause issues with mortgage lenders. These lenders typically prefer buy-to-let borrowers to already own their own property.
According to Mr. Mendes, “If you are a first-time buyer applying for a buy-to-let mortgage, some lenders will either decline it or require an additional party on the mortgage who isn’t a first-time buyer.”
Now read: How much stamp duty do buy-to-let landlords pay – and how to reduce it.
What amount should I set aside for maintenance?
Prudent investors should have a cash reserve for maintenance costs and unexpected gaps in rental income, advises Robert Jones of Property Investments UK.
According to Jones, “We recommend that investors have a separate fund for unexpected costs. In the best case scenario, this fund should cover six months of mortgage payments in addition to maintenance and repair costs.”
“A middle ground would be enough to cover unexpected repair and maintenance costs, but not enough to cover mortgage payments in the event of a rental void,” he added.
As a general guideline, landlords should set aside 1% of the property’s value to cover annual repairs and maintenance. For example, if the property is valued at £213,000, landlords should allocate approximately £2,130 per year for upkeep.
The initial investment required for an investment property will be higher if it needs renovation or has a poor Energy Performance Certificate (EPC) rating. The government has proposed that new lets should have a minimum EPC rating of C by 2025, and existing lets by 2028, although these deadlines have not been confirmed.
Now read: How landlords can meet their new EPC targets at the lowest cost.
Is a pension or buy-to-let property better for retirement funding?
The average gross yield on a new buy-to-let purchase is a healthy 6.2%, compared to a target income rate of 4% from a typical pension pot in drawdown.
Investing in real estate can be profitable, especially with house price growth that significantly increases returns. The average landlord in England and Wales sold their buy-to-let property in 2021 for £91,270 more than they purchased it for, after owning it for just under 10 years, according to Hamptons.
However, investing in buy-to-let comes with numerous pitfalls and serious consequences if mistakes are made. Failing to comply with the extensive rules and regulations that landlords must follow can result in heavy losses, fines, and legal troubles.
There are currently over 160 pieces of legislation that investors must abide by, according to the National Residential Landlords Association, and this number is expected to increase in the future with the introduction of new energy efficiency standards.
Landlords must also consider the emotional strain of their investment. There is a risk of problematic tenants damaging the property or not paying rent, which can lead to rental voids and cause stress for the landlord. Real estate investments require more hands-on involvement compared to investing in the stock market.
Now read: Pension or buy-to-let – which is the better option for retirement funding?
How often can I raise the rent?
There are strict rules regarding how frequently landlords can increase rent, depending on the type of tenancy in place.
Fixed-term tenancies, which the Renters’ Reform Bill intends to ban in favor of rolling tenancies, can include rent increases at the end of the term or earlier if agreed upon with the tenant.
For periodic tenancies that roll on a month-to-month or week-to-week basis, landlords can typically raise the rent once a year, unless a different agreement has been made.
If the tenant pays rent weekly or monthly, the landlord must give at least one month’s notice for the rent increase. For yearly tenancies, six months’ notice is required.
Regardless of the tenancy type, it is advisable to include any rent clauses in the tenancy agreement to prevent disputes in the future. Rent increases should be fair and in line with local averages, and maintaining good communication with tenants can help keep both parties satisfied.
Now read: The five key rules every landlord should be familiar with.
Can evicting a tenant be done easily?
Evicting a tenant legally requires following important steps. In England, it is likely that you have an assured shorthold tenancy agreement with your tenant, as these are the most common types of rental agreements.
However, eviction rules in England are changing with the Renters’ Reform Bill. The bill aims to eliminate Section 21 evictions in order to provide tenants with greater protection. Currently, serving a Section 21 notice under the Housing Act 1988 allows landlords to regain possession of the property without providing a reason, following a written notice period of two months once the fixed term ends.
Even with the proposed changes, it will still be possible to evict a tenant using a Section 8 notice if they have breached the terms of the rental agreement, such as failing to pay rent or causing disturbances to neighbors.
If a tenant refuses to leave, the landlord will need to initiate repossession proceedings in court. However, court processes are often delayed, leading to a complex and lengthy process.
Now read: Dealing with difficult tenants: Understanding your rights as a landlord.
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