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The real costs of being a landlord

Buying to let can cost way more than you expect. Get clued up on landlord costs: from letting agent fees, to property maintenance, to tax.

If you’re buying a place to let, you might have dollar signs in your eyes right now – and looking at rent figures, it’s easy to see why. The UK’s average monthly rent is £794 and in London, a whopping £1,665.

But one in eight prospective landlords underestimates all the costs that come with buying to let – by as much as £8,359 a year.

Don’t be one of them! Always make sure you understand the costs and plan ahead.

There are five main types of costs to consider if you’re thinking of buying a rental property:

  • A buy-to-let mortgage
  • Letting agent fees
  • Legal and admin costs
  • Maintenance costs
  • Tax (including stamp duty)

We’ll go over all of these here – but keep in mind, this is just a generic overview. Always check things like your legal requirements and tax with a professional adviser.

Buy-to-let mortgages

Owning a rental property can be risky. Your tenant might lose their job and find it difficult to pay the rent on time. Or you might have trouble finding tenants in the first place, and end up with an empty property for months.

But you still have to pay your mortgage and other expenses, even if that happens. All that means buy-to-let borrowers are more likely to become unable to pay back their mortgage compared to other types of borrowers.

Lenders are extra wary about these risks, and factor that in to the price of your buy-to-let mortgage. That means buy-to-let mortgages:

  • Need a larger deposit
  • Tend to have higher interest rates than residential mortgages
  • Have more expensive fees

The deposit

On a residential mortgage, you can usually pay as little as a 5% deposit. But for a buy-to-let, you’ll typically need to put down at least 20%.

In the last year, people in the UK paid an average of about £280,000 for a property. That means a buy-to-let deposit could set you back as much as £70,000.

Expect to pay a lot more in London, where the average property is worth £628,416.

Interest rates

Roughly speaking, there are three interest rate types you can get on your mortgage:

  • Fixed rate mortgages, where the interest rate is locked in for a set amount of time
  • Variable rate mortgages, where the interest rate (and so your monthly repayment) can go up or down
  • Tracker mortgages, a type of variable rate mortgage where the interest rate follows a particular interest rate, like the Bank of England’s base rate

Tracker and variable rates tend to be slightly cheaper than fixed rates – with a fixed rate, you're paying a bit extra for certainty.

The type of rate you go for depends on what you need from a mortgage – a mortgage expert can give you guidance there.

Most buy-to-let mortgages are interest-only, which means you'll only be paying the interest on the mortgage each month. But importantly, you’ll still owe your lender the full amount you borrowed when your mortgage term is up. So you’ll either have to save up with the money you earn from your tenant, or sell the property to cover it.

Fees

Like with residential mortgages, you’ll have to pay some fees up front:

  • Arrangement fee: This covers the administrative cost of setting up your mortgage. Not all mortgages have one, but out of those that do, some bill you a percentage of your mortgage (1%–2% on average), and others charge you a flat fee (£1,504 on average).

    You’ll normally have two options for paying the fee: pay it in full out of your own pocket when your mortgage application is complete, or add it to your monthly mortgage repayments.
  • Non-refundable booking fee: This is a fee which some (but not all) lenders charge to “reserve” your mortgage while they process your application. It can cost anywhere between £99 and £250. Unlike an arrangement fee, you pay the booking fee at the start of the process. Even if your mortgage application falls through, you still have to pay.
  • Valuation fees: Before your lender approves your mortgage, they’ll want to value the property to validate that it’s really worth how much you're paying, and that you'll get as much rental income as you've estimated you would. Your lender will usually charge you for this.

    As a general rule, lenders will want your rental income to be at least 125% of your monthly mortgage repayment, so you have a buffer when your property is between tenants.

    Valuation fees are usually £150 or more, but exactly how much varies between lenders and depends on the size and value of the property.

    Lenders’ valuations are usually pretty basic. If you’d like to get a more detailed report for yourself, usually called a homebuyer’s survey, you can pay extra for one (they usually start around £400).
  • Exit fees and early repayment charges: The exit fee is the cost of maintaining and closing your mortgage. It can be anywhere between £75 and £300.

    If you take out a fixed rate mortgage and leave the deal early, or decide to overpay during the initial period, you might also have to pay an early repayment charge (ERC). An early repayment charge can be as low as 1% and as high as 5% of the mortgage you’ve got left to pay. Some lenders also make you pay back the cost of the valuation, and some other fees too.
  • Solicitors' fees: You’ll need a solicitor to take care of conveyancing – the legal side of buying a property. Conveyancing can cost anywhere between £850 and £1,500.

    Your solicitor will carry out searches to find out if there are any problems with the property – for example, they'll check the area for risk of flooding. (They might charge you extra for these searches, depending on the solicitor.)
  • Stamp duty: If your buy-to-let property isn’t the first property you've bought, then you’ll need to pay a higher rate of stamp duty on it than usual.

    Stamp duty is a pretty meaty topic so we’ve written a whole guide about it. Scroll down to buy-to-let to see exactly what you’d pay in England, Wales and Scotland.

Hiring a letting agent

So you’ve got the keys to your property. Step one, done. Now to start reaping the rewards, you have to find tenants.

You can go about this two ways:

One, you could do everything yourself. This means you'll have to advertise the property, arrange and conduct viewings, handle admin, conduct credit and reference checks, draw up tenancy agreements, route your tenants' deposits into a deposit scheme, collect rent, and manage the property, repairs, and any tenant concerns, yourself.

Two, you could hire a letting agent to do all that for you. Going DIY is usually the cheaper option. For example, you can list your property on a listing site for free. The flip side is that it can be stressful and time-consuming. And you’ll need to make sure you understand all the rules, regulations and procedures around being a landlord.

Letting agents tend to offer three levels of service. Here they are, in order of least to most expensive:

Tenant-find, or Let-only

For a one-time fixed fee, your letting agent will advertise your property, book viewings, arrange the let, and take care of tasks such as checking references, running credit checks, drawing up the inventory, drafting the letting agreement, and collecting the security deposit.

Fees vary by region (as you’d expect, it costs more in London, for example). And they’ll also depend on the agent. For example, the Edinburgh Letting Centre's fees start at £295 plus VAT. Compare that with Foxtons' let-only fee, which is 13.2% of your annual rent.

Rent collection

The letting agent will collect rent on your behalf and chase late payments. Fees vary from one agent to another. Expect to pay around 5% of the rent or more for this service.

Full property management

With this option, your letting agent will take care of everything – from finding tenants to collecting rent, addressing tenant queries and complaints, and organising maintenance and repairs.

Again, fees vary from agent to agent. But you can expect to pay around 12% of the monthly rent or even upwards of 20%.

And for all these options, if your tenant decides to extend their lease, you’ll have to pay a renewal fee.

Legal and admin costs

To set up the tenancy and make sure all the legal boxes are ticked, you’ll have to pay a handful of charges. (That’s whether you use a letting agency or not.)

Referencing, credit checks and admin

Expect to pay an average of £400 to cover these costs. If you use a letting agent, they might pay it for you – but probably raise their fee to make up for it.

Deposit Protection Scheme registration

This protects your tenants’ security deposit during the tenancy. Fees can vary quite widely from scheme to scheme, and depend on the size of the deposit. For example, myDeposits costs £19.12 for deposits of up to £500 and £26 for deposits over £500.

Energy Performance Certificate (EPC)

An Energy Performance Certificate shows how energy-efficient your property is. You need to get one every 10 years and right now, it costs between £60 and £80.

Gas Safety Certificate

If you’ve got any gas-powered appliances and fittings, you’ll need to get them all checked by a Gas Safe-registered engineer once a year. This can cost £80 or more.

Landlord registration

Private landlords in Scotland have to register with the council where their property is located. Private landlords in Wales and Northern Ireland have to register with the Landlord Registration Scheme.

If your property’s in England, it depends on the council. You can check your local council’s rules here.

Registration costs between £34 and £80, depending on where you are.

ICO registration

As a landlord, you’re technically a ‘data controller’ under the Data Protection Act, because you’re handling your tenants’ sensitive personal data. By law, data controllers have to register with the Information Commissioner’s Office to confirm they’ll process and manage people’s data responsibly. Registration costs £40, and you’ll have to renew it every year.

Buildings insurance

This isn’t a legal requirement, but most lenders won’t give you a mortgage unless you agree to get buildings insurance. The average buildings insurance policy costs £111.83 a year.

Maintenance costs

Your tenants will do the simple maintenance stuff: like day-to-day cleaning, mowing the lawn and testing smoke detectors. But it’s your responsibility as the landlord to make sure the property stays safe and fit to live in.

By law, you have to carry out gas, fire and electrical safety checks every year. You also have to make sure that any furniture or electrical equipment you provide meets a certain standard of health and safety.

More importantly, you have to make sure your property is in good repair, everywhere, including:

  • The tructure and exterior of the building, including walls, stairs and bannisters, the roof, and external doors and windows
  • Common areas
  • Sinks, baths, showers, toilets, pipes, and drains
  • Chimneys and vents
  • Heating, including hot water, the boiler, and gas pipes
  • Electrical wiring

How much does all that cost? UK landlords spend an average of £765 a year on maintenance.

Letting property and income tax

You’ll have to pay income tax on any profits you make from renting out your property.

How much tax you pay depends on a few things, but a big one is whether you’re buying your property as an individual or through a company. We’ve written more about that here. If you like thorny taxation issues, you’re going to love it.

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Alex Winn

Mortgage Expert | CeMAP, CeSRE

Alex decided to become a mortgage broker after he used one to buy his flat. Was he inspired by the amazing service? No. He just figured he could do a much better job. Today, Alex leads one of Habito's biggest teams of brokers, giving people the expert, savvy advice they need to make buying their homes a breeze.

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