Buy-to-let and second homes Stamp Duty
From April 2016, property buyers in England and Wales will have to pay an additional 3% on each stamp duty band. Use our stamp duty calculator to find out how much stamp duty you will be paying for your property.
Buy-to-let and second home Stamp Duty tax bands
||Buy-to-let/second home rate (April 2016)
|Up to £125,000
|£125,001 - £250,000
|£250,001 - £925,000
|£925,001 - £1.5m
Buy-to-let mortgages differ slightly from conventional mortgages.
Interest on buy-to-let mortgages is typically higher than on conventional mortgages, usually around 1-1.5%. The reason for this is that many landlords with buy-to-let properties will rely on the income from the property in order to meet the mortgage payments, and as properties can sometimes sit dormant for long periods of time there is a higher risk to the mortgage lender that the landlord will default on their payments. For the same reason, the lender might also require you to put down a larger deposit – usually around 25%.
The amount that you can borrow varies from lender to lender. It depends on your income and tends to be around three times that of your salary. Around the time you are looking for a mortgage you should be in contact with an estate agent who will be able to give you an indication of how much you might be able to charge for the type of property you are considering. The amount you can borrow is also linked to the income your property will generate and so mortgage lenders will often require that the income is 25-30% higher than your rental income.
Depending on the type of property that you are letting you may require additional licenses. The process of renting to students can often be much more complex than to a young professional for example.
If you are renting to students then it is probable that the property will be classed as HMO (house in multiple occupations). Properties are classed as HMO’s when unrelated tenants share a household, have separate rental agreements and share facilities like toilets, kitchens and bathrooms. It is also classed as a HMO if the building has been converted into self contained flats.
Different councils have different requirements and cost is determined by the type of property and the number of residents.
It is important to contact your local council to see if a license would be needed as a failure to apply for one could result in fines of up to £20,000.
Owners of HMO’s must also appoint a suitable person to manage the property and have their contact details displayed at all times. They are also responsible for providing waste disposal facilities, keeping track of who is living in the property, looking after communal areas and making sure there is clear access to fire escapes.
Finding suitable tenants for your property
There are two main avenues to finding suitable tenants - you can either do things yourself or use a letting agent.
Advertising the property yourself can be very time consuming and competition is very high. A good quality letting agent will be able to utilise their experience of the market to advertise your property in a way which attracts the right kinds of tenants, uploading high quality photographs and writing descriptions of the property to advertise it online. If you choose to use a letting agent you will also benefit from them being able to place an advertisement of your property in their shop window for passersby to view and enquire with the estate agents inside for more details.
A letting agent can also help to vet the prospective tenant and to negotiate terms such as the length of tenancy and the agreed rental charges per month.
Responsibilities of a landlord
Many landlords are completely unaware of their duties and don’t realise the responsibilities that they have as a landlord. It is important that they have a good understanding of what exactly is expected of them before they get started.
Taking a deposit from a tenant before they move in can provide some reassurance that if things go wrong there will be funds available to cover it. However, by law landlords are required to protect the deposits of their tenants. Disagreements are common and the Tenancy Deposit Scheme (TDS) was introduced to provide an impartial adjudicator to mediate such disputes.
Landlords now have 30 days to transfer a tenant’s deposit to a TDS from the date it is taken and then provide the tenant with prescribed information which documents how exactly the deposit is protected.
If the tenants at your property cause damage or items disappear then you are allowed to make reasonable deductions. However, it is important that you take steps to document an inventory of items provided when the tenant moves in and you could also take photographs to evidence the condition of the property.
If you and the tenant don’t agree on the degree of deductions then a dispute can be raised with the TDS who will mediate and make a decision on what they deem to be a fair split.
As a landlord you will also need to be prepared for unpredictable events such as fires and floods which could cause damage to your property. In fact, you might not be able to get a mortgage without insurance in place.
There are various different types of landlords insurance and it is worth shopping around to find the most competitive one. The key types are as follows: Landlords expenses insurance which helps pay for legal costs if there is a dispute with one of your tenants
Landlords contents insurance which protects furnished properties against theft or damage Landlords loss of rent insurance which helps to replace income lost when a property is unable to be rented out due to accidental damage such as by a fire
Landlords home emergency insurance which can help pay for emergency repairs like gas leaks Landlords liability insurance protects landlords against claims by visitors to the property who might be injured while visiting
Smoke alarms are integral in giving tenants warning of a fire in their property which increases the chances of the fire being dealt with and preventing a disaster so it is important to have one installed. Furthermore, for properties built after 1992 it is required by law to have a smoke alarm installed on every floor. You should also be aware that you have a responsibility to ensure that any furniture that remains in the property for your tenants meets fire safety regulations.
It is a landlord’s responsibility to have gas and electrical safety checks carried out by an appropriate person before a tenant moves in. You are also required to have an Energy Performance Certificate in place to give prospective tenants an insight into the efficiency of your property.
Although tenants are expected to keep your property maintained in good condition, landlords are responsible for the provision of gas, electricity, water, heating and sanitation. They are also responsible for the exterior and structure of the property.
Fees and taxes
Landlords need to be registered for self-assessment and keep good records of their income and expenditure.
You may be able to offset your tax against outgoings like your fees and bills for landlord insurance, energy efficiency investments (up to a certain level), wear and tear to the property, interest payments on your mortgage and any repairs that you have to carry out on the property.
Get in Touch
When it comes to purchasing a property for buy-to-let there is lots that you need to remember and plenty of decisions that you need to make. Here at Hudson Moody we can guide you through the process of purchasing a property and attracting the right tenants to make your buy-to-let a success. Call us on 01904 650650 to find out more.