Can I afford to be a buy-to-let landlord?

Find out if becoming a buy-to-let landlord is right for you

Felicity Hannah - Virgin Money Living Mentor

by Felicity Hannah | Independent Money Mentor

Award-winning personal finance and consumer affairs journalist


So you’re keen to embark on the glamorous existence of the buy-to-let landlord, are you? The lure of the high-flying lifestyle and those lovely rent cheques finally proven too great? We understand. But before you dive into the world of buy-to-letting, stop! It’s essential you thrash out the numbers first. How much will it cost to set up? What are the ongoing costs? Will this give you the best return or should you invest in something else?

It’s essential you look carefully at the local rental market to have a clear idea of the supply of rental properties in a particular area. Websites such as Zoopla and Rightmove provide that information free of charge.

You could also ring around local letting agents but remember that they will want your business and so may be tempted to over-sell the possible returns. There are other sources of independent research such as Association of Residential Letting Agents (ARLA) or the National Landlords Association (NLA).

So what costs do you need to consider before becoming a buy-to-let landlord?

The set-up costs

When you first become a buy-to-let landlord you will obviously look at the cost of the property and the monthly mortgage but there are several other set-up costs you need to include in your sums.

You will pay standard stamp duty plus an additional 3 percent surcharge on the entire property price. That’s likely to come to thousands of pounds alone, so it’s very important not to pay too much for the property.

There will be valuation fees, survey costs, legal fees and mortgage arrangement fees. If you intend to lease the house as furnished then you will also need to kit it out.

On top of that you will have to pay for an Energy Performance Certificate (renewable every 10 years), which is usually around £60-£75, a gas safety certificate (which must be renewed every year) at between £60 and £75 and if you are renting your property to multiple occupants, there could be a local authority licensing fee.

The running costs

It is incredibly important to look at the running costs. A survey carried out by Platinum Property Partners two years ago showed that almost one in eight landlords do not take any costs into consideration when they are calculating their returns.

What’s more, three-quarters of landlords did not factor in common costs such as fees and repairs, meaning their portfolio was providing a lower return than they thought.

Hopefully the tougher tax regime means that landlords are more on the ball than they were back in 2015 but it highlights how essential it is to stay on top of the numbers.

As a landlord, you will need to pay for building insurance, repair costs, refurbishment and redecorating, ongoing maintenance, cleaning costs between tenants, service charges if there are any, advertising and marketing fees when you come to re-let the property and mortgage interest.

It can also be a good idea to invest in a boiler servicing and insurance policy. That way if your tenants’ heating breaks down on Christmas Eve you can get it fixed without fretting over the cost.

You will also probably need landlords’ insurance, which will typically include normal buildings insurance but also extra cover for damage to the property caused by tenants and maybe even non-payment of rent.

Finally, don’t forget to include mortgage interest in your running costs. The tax relief on this is being phased out for buy-to-let landlords and so if you’re a higher rate taxpayer, in particular, you will need to work out how much this will cost you.

Other possible charges

There are other costs that you may decide to incur in order to make being a buy-to-let landlord easier.

For example, you could decide to use a letting agent rather than manage the property yourself. This will incur a charge of anything from 7 percent to 15 percent of your monthly rent, usually payable even if the tenant does not actually pay.

If you decide to include bills in the rent then they will also need to be included in your sums. You may choose to pay a cleaner or a gardener, particularly if you are renting out a particularly valuable property and are trying to attract premium tenants.

Spreadsheets are your friend – do your sums before you jump in and not after. There are also several online calculators. I like this one from Your Move online rental calculator.

I’m a landlord myself and I have found that paying a bit extra towards upkeep helps my yield in the longer term. For example, regular redecorating helps me attract the most reliable tenants. It’s certainly an extra cost to repaint the house in between tenants and to lay down new carpets as soon as they look a bit worn but doing so helps me have my pick of potential tenants.

What return will my mortgage lender need to see?

Maybe you’re buying a buy-to-let outright with no lending, you lucky thing. However, most landlords will be using a mortgage. Your lender will want to see that you have done your sums and can afford the investment.

Typically, they will want a higher deposit from buy-to-let landlords than they demand for residential mortgages, generally a minimum of 25%. They will also expect to see a rental income that is 30 percent to 45 percent higher than the mortgage payment.

You may also need to provide evidence that your expected rent is achievable, such as a letter from a local letting agent.

So that’s the lowdown. Do your sums, check you’ve factored everything in and, if it all looks good, prepare to join ‘Team buy-to-let’. Good luck!

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.