Five buy-to-let costs you need to know


One in eight landlords underestimate the costs that go hand in hand with buy-to-let. It has been estimated that a homeowner letting out their house might pay as much as £8,359 a year.

Make sure you understand the costs involved in buy-to-let, and plan ahead.

There are five main costs that may slip by when letting out a rental property:

1. The tenant fees act

The tenant’s fee act came into force in June 2019 for all new tenants, and by June 2020 all tenants were covered. The main focus of this act is to put a stop to tenant fees, including agency and admin fees.

Landlords are no longer allowed to charge their tenants for anything other than: rent, deposits, cleaning fees, inventory, and admin fees. If you are found charging these to your tenant’s account, a fine will be given. The first offense (civil) may be up to £5,000. If this offense is made again within five years a criminal offense or a fine of £30,000 may be imposed.

2. Mortgages

Owning or purchasing a rental property can be risky. You are not always 100% guaranteed to have tenants at all times, or your current tenant may be late on rent. However, you are still liable to pay back your mortgage and other expenses despite not having the rental income.

Banks are thus wary about these risks and will factor this in when offering a loan. This means that when taking out a mortgage for a buy-to-let property the following are a factor as extra costs:

· Larger deposit needed

· More expensive fees

· Higher interest rates

3. Letting property and income tax

Like always, tax is inevitable. When letting out a property you will have to pay tax on any rental income you make. But what exactly is rental income? Rental income is classified as any money you receive from the tenants, that being rent, heating, repairs, etc.

As far as how much you will be taxed, you will only be liable to pay taxes on your net rental income, i.e. the profit you make. This is calculated by adding all rental income (could be from various properties) and subtracting expenses.

The legal requirement for a rental property is crucial, and you’ll have to pay numerous fees to ensure all legal boxes are ticked.

These requirements are as follows:

· Credit checks, admin, and referencing

· Deposit protection scheme registration

· Energy performance certificate (EPC)

· Gas safety certificate

· Landlord registration

· Information commissioner’s office (IOC) registration

· Building insurance

5. Maintenance costs

It is up to your tenant to do the small day-to-day maintenance, such as cleaning and mowing the lawn. However, it is your responsibility as the landlord to ensure the property is running smoothly and is safe to live in.

It is a legal requirement for the landlord to carry out fire, electrical, and gas checks each year. It is also required for you to make sure the inventory provided for the property meets a certain health and safety standard.

But how much does all this maintenance and repair cost? It is estimated that the average landlord will spend £765 a year keeping their property safe and fit to live in.

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