Close up real estate agent with house model hand putting signing contract

Is now the right time to become a buy-to-let landlord?

The UK has officially entered its first recession in 11 years, which has caused a lot of people to hesitate over whether or not to take the leap. However, there are several signs that appear to indicate this is, indeed, a good time to become a landlord.

Gorilla Accounting work with clients from various backgrounds, including buy-to-let landlords. We stay on top of relevant news and legislation that can impact our clients’ business, which helps us to understand why you should start your business now.

Second Source of Income

Due to the current pandemic, having a second source of income can be a great idea so, if you’re considering becoming a buy-to-let landlord, now appears to be a good time to do so.

Choosing the right property is necessary to get a good rental income, as you’ll be able to charge a little more if you buy a home that is ideally located and if it’s in a nice area, for example. Other features that can boost the rental value of the property include having bedrooms or bathrooms, as well as a garage, yard and conservatory.

If you’re looking to make a profit when purchasing a property, then, it’s important that you consider location, safety of the neighbourhood, proximity to schools or (if you’re looking to rent to students) universities and proximity to transport links, as well as whether the home has a garden, attic and space to park the car.

All of these can raise the price of the property, of course, which can be troublesome when buying – but it also allows you to set a higher rent. You can learn more about being a buy-to-let landlord in our “A Guide to Becoming a Landlord” and “Top Buy-to-Let Landlord Pitfalls to Avoid” articles.

House Prices are Falling

Due to the pandemic, many people are less likely to be able to afford a mortgage as it can be difficult to invest in something as costly as a new home. This means that prices are expected to fall, and you may be able to get a great deal if you’re planning on becoming a landlord.

While sellers may struggle to get a good price on their homes during a recession, buyers may find it easier to purchase a home. Many sellers may be willing to quickly sell their property at a lower price as well.

While this may change in the future, you may still be able to secure a good price when shopping around for a buy-to-let property.

It’s worth remembering that the value of the property can rise over time as well, which means that you could generate capital growth.

Tenant Demand is Up

Letting a property can be really profitable at the moment, as many people are looking to rent.

As property prices appear to be falling, tenant demand is going up. According to Rightmove’s survey on the UK rental market, tenant demand grew by 33% in May 2020 when compared to the same time period in 2019.

This can mean a good opportunity for landlords; if you’re still undecided about becoming a landlord, knowing that more people are renting should help you feel at ease. After all, this means the chance of ‘running out’ of tenants interested in your property is very low.

Of course, as mentioned above, it’s crucial that you make a good investment from the get-go in order to see a nice return. If you’ve found a nice property on a safe, popular area and are able to meet all landlord responsibilities, 2020 appears to be a good year for buy-to-let investment so far.

Renting House

Reduced Stamp Duty

One thing that may make you consider becoming a landlord is a reduced Stamp Duty, which aims to help the property market. This is a great incentive for anyone on the fence, even if it’s just a temporary measure (the initiative applies until March 2021), since it means serious savings.

If you’re purchasing property in England or Northern Ireland, you’ll be able to pay a reduced rate of Stamp Duty Land Tax or none at all if the amount you pay for your main home is below £500,000.

In essence, until March 2021, you’ll have to pay Stamp Duty only on the value of the property that falls within each band:

  • If the price of the property is between £500,001 and £925,000, you will pay 5% in Stamp Duty.

  • You’ll have to pay 10% if the price of the home is between £925,001 and £1.5 million.

  • You’ll pay 12% for properties worth over £1.5 million.

But if you’re buying extra properties – for example, if you’re planning on becoming a buy-to-let landlord – you will have to pay an extra 3% in Stamp Duty on top of the rates above. This tax is applied to both freehold and leasehold homes, and it doesn’t matter if you’re purchasing it outright or with a mortgage.

This means that, if you’re purchasing a second home:

  • You’ll pay 3% in Stamp Duty if the price of the property is less than £500,000.

  • You’ll have to pay 8% in Stamp Duty for properties between £500,001 and £925,000.

  • You’ll be paying 13% if the price of the home falls between £925,001 and £1.5 million.

  • You need to pay 15% if the home is worth over £1.5 million.

Many believe that, should the government eliminate the extra 3% Stamp Duty charge, buy-to-let landlords would feel more encouraged to buy properties. However, this is still a reduced rate when compared to the previous taxes, so you will be able to save money if you finalise the purchase of your property by March of next year.

Long-Term Security

Owning property is a long-term investment and, for many, a source of financial security. While there may be times where it’s more difficult to sell property because prices will be too low, as is the case during a recession, there will also be times where landlords will make a tidy sum when selling their second homes.

So, you can simply choose to sell once you no longer want to rent out your property. If the housing market is on the up, you may be able to make a good amount of profit if you already own a second property.

If you’re looking to invest but are not interested in stocks and shares (and you understand that your money may be tied up for a while), then the buy-to-let market is for you. While this type of business does have some risks, there is no denying that it comes with a lot of advantages as well, such as rental yield and long-term financial security.

Positive Changes in the Mortgage Sector

Another thing that’s worth considering is that the buy-to-let market is improving and we’re seeing positive growth in the mortgage sector. There are now more choices available for people who want to become a landlord and are looking to borrow to invest.

According to BuyAssociation, between May 2020 and June 2020, the number of buy-to-let products has risen by 280. This means there are now 1,735 mortgage options for landlords, meaning you are likely to find something that fits your needs – and which helps you to save money.

This growth is probably due to mortgage lenders changing their approach to include new borrowers, not just existing ones, and landlords seeking a long-term investment may benefit the most. Rates are becoming more competitive, which is a great incentive for anyone wanting to get a foot on the buy-to-let property ladder.

Insulation Scheme

The £2 billion insulation scheme that the government announced is part of a bigger project that intends to cut emissions across the UK. In this scheme, homeowners will receive financial incentives in the form of vouchers of up to £5,000 for improvements that will save energy. Some of the poorest households might be able to receive up to £10,000 in vouchers.

This means savings of hundreds of pounds each year as well, as many homes are expected to save as much as £600 annually. The programme will start in September and will include an extra £1 billion for public buildings like schools and hospitals to spend on insulation, efficiency and green heating technology.

Both homeowners and landlords can apply for the £2 billion insulation scheme and reap the advantages of having a green property – which not only includes savings, but also a boost in value when it’s time to sell or rent.

The vouchers will include energy-efficient installations of insulation (from solid wall to under-floor insulation), solar panels and air source heat pumps, for example.

The initiative, which totals £3 billion, aims to help the UK meet its net zero emission targets by 2050. It also intends to help the many properties struggling with cold and damp, as many homes in the UK are among the oldest in Europe (and many properties in the rented sector tend to be colder than others). Humidity and cold are hazardous to people’s health, so it’s not just wallets that are expected to benefit from this scheme.

Work composed of mineral wool insulation in the floor floor heating insulation

We Work with You

As contractor accountants, we can help you handle the financial side of your business, whether you’re just starting out or you already own a few properties. We also offer bands based on the number of properties in your portfolio, so you don’t have to worry about paying more than you should.

Additionally, we make the distinction between individuals and limited companies, so you can easily choose the business structure that better works for you and still benefit from great savings. Gorilla Accounting are also sole trader accountants and limited company accountants, so please don’t hesitate to get in touch with us if you’d like to learn more about becoming a landlord.

Just send us your enquiry and we’ll get back to you, or ring us on 0330 024 0406 and speak to a member of our team.