Buy to Let
guide.
Orchards
www.orchardsuk.com
01525 40 22 66
Your guide to
buy to let
This residential buy to let overview is
brought to you by Orchards.
One of Bedfordshires most
experienced lettings agents.
The information within is to be used as guidance only, Orchards or any other contributors to this document cannot
be held liable for any information that is incorrect, Independent legal advice should be sought prior to making a
property purchase. Please remember the value of investments can go up as well as down.
2
What is
Buy to Let?
Buy-to-let refers to the purchase of a
property specifically to let out.
For many years landlords have invested in property to be let for profit, although
historically this has been fraught with issues as tenants were hard to evict, rent
levels were comparatively low and buy to let mortgage finance was extremely hard
to find. In the late 80s the Assured Shorthold Tenancy agreement was introduced to
balance the rights of landlords and tenants. Since then lenders have been more
willing to provide finance and this has lead to the growth of the residential buy to let
market we know today.
Why Buy To Let?
Residential buy to let has proved very popular, being an investment that you can
actually see and touch. It can provide both income (the rent) and growth (capital
appreciation)
Capital appreciation in property during the past 25 years has exceeded just about
any other investment, particularly in the south east of England
Property is an excellent long-term investment. However, fluctuations in the market
and the delays inevitable in selling a property make it an unsuitable choice for
anyone needing short-term returns, or who might need to access the money tied
up in a house quickly.
Many people invest in a buy to let property as a pension - the rent each month can
be used to supplement your retirement income, or the property can be sold and the
proceeds used as a nest-egg.
3
Will I
make money?
The return on your investment
Your return should be judged over the medium to long term.
A common way of measuring return is to calculate the percentage yield.
Percentage yield is the income shown as a percentage of the capital investment. Most
property investments provide a higher yield than that available in banks. However
percentage yields only take into consideration the rental income and not capital
appreciation. Capital appreciation can be a significant part of your potential profit.
Although choosing the correct investment is essential.
Yield
The rental yield is the yearly income achieved through rents versus the purchase price
(or value) of the investment. Example. Purchase price of a property £210,000, it was let
for £850pcm. £850
(rent) x 12 (months) = £10,200 (rent per annum). You divide the rent buy the property
value.
£10,200 / £210,000 = 4.86%. That is the gross yield on your investment.
Capital Appreciation
The increase in value (Capital) of a property from the time it was purchased.
Research reveals that house prices have soared by 311.71% during the past 20 years.
Figures from Nationwide show that the cost of the average home had risen from just
£9,767 in 1973 to £186,544 by the second quater of 2014.
House prices have risen significantly faster than retail prices over the same period,
which have increased by 115% since 1983.
If the effects of inflation are stripped out, house prices have increased by 89% in real
terms during the last 20 years.
4
Who rents and why?
Demand for rented property is at an all time high from young people looking to rent for the first
time, professionals moving around with work or growing families looking for more space.
Tenants range in age and wealth & therefore the types of properties they require differ to.
What type of property do tenants go for?
There are a number of must haves for all tenants. Clean and well maintained accommodation.
Typically tenants prefer modern properties or character properties that have been modernised
to a high standard. A shower In the bathroom is a must. Generally tenants like to be close to
good local amenities and transport links.
Furnished or Unfurnished?
Most tenants prefer properties unfurnished with white goods only (Cooker, fridge and
washing machine). Furnished properties are tougher to rent as requirements change from
tenant to tenant.
5
The cost of buying
investment property
• The purchase price
• Stamp Duty
•
•
•
•
Solicitors Fees
Mortgage costs, arrangement fees, brokers fees
Any cost of refurbishments
Insurance
Stamp Duty
Purchase price/lease premium or transfer value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SDLT rate
Up to £125,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zero
Over £125,000 to £250,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1%
Over £250,000 to £500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3%
Over £500,000 to £1 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4%
Over £1 million to £2 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .5%
Over £2 million from 22 March 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7%
Over £2 million (purchased by certain persons including
corporate bodies) from 21 March 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15%
6
Buy to let
mortgages
Most lenders have products specifically tailored for purchasers looking to purchase a
buy to let property. The lending criteria is generally geared to rental income, but
most lenders will also require proof of income. Deposits are currently typically
around 20 to 25%. That said, there are some excellent deals to be had. In our opinion
independent mortgage advice is essential.
Tax Considerations
All rental income is liable for tax at your normal rate, but you can offset certain expense
elements. Such as:
• Mortgage Interest Payments
• Agents Fees / Management Fees
• Ongoing Repair & Maintenance
• Insurance
• Accountancy Fees
• Service Charges & Ground Rent (Leasehold Properties)
Talk to Orchards for a Professional Advisor Recommendation
Overseas Landlords
The Non-resident Landlord Scheme
If you have rental property in the UK but your usual home is outside the UK, your
tenants or the letting agents you use will need to operate the Non-resident Landlord
(NRL) Scheme. They need to deduct basic rate tax from rental income before they pass it
onto you. You can set this tax off against your own tax bill at the end of the year.
Non-resident landlords who are eligible can apply at any time for approval to receive
their UK rental income with no tax deducted. This includes applying before they
have left the UK or before the letting has started.
Your agent can help you apply for the rent to be received without paying tax by
completing an NRL1 form.
7
We manage so you
don’t have to
Orchards fully trained property management department manage
hundreds of properties on behalf of landlords in Bedfordshire and
around the world
Only you know how much time you have to deal with tenants phone
calls and the resulting work.
Tenants prefer
managed property
These days more and more tenants request managed property.
It allows a more professional service by removing any emotion
from both sides.
Our comprehensive service includes rent collection, administration
handling and dealing with any maintenance issues.
8
Legals
CONSENT TO LET
Before letting your property the following should be considered
Consent must be obtained from your lender
Insurance companies must be notified
Permission must be obtained from the freeholder (leasehold properties only)
If jointly owned co-owners must be named on the terms of business and the
tenancy agreement.
TENANCY AGREEMENT
A tenancy agreement is a written agreement that sets out the terms of a
tenancy and the rights and obligations of the landlord and tenant. It is
important to select the correct type of tenancy agreement to ensure that
you are properly protected while letting your property.
Assured Shorthold Tenancy (AST)
This agreement should be used where
The rent is below £100,000 per annum
The period is from 6 months up to 3 years
The tenant is an individual or a group of individuals rather than a company.
An AST is the most common type of agreement and provides the tenant
with certain types of protection under the housing act 1988 as amdended,
yet still allows the landlord to regain possession of the property by serving
two months notice (subject to the terms of the agreement)
CONTRACTUAL TENANCY
This agreement should be used where:
The rent exceeds £100,000 per annum
The tenant is an individual or a group of individuals or a company.
The tenant is not given any additional statutory protection and both parties
are bound only by the terms of the written agreement.
SHORT TERM LETTING AGREEMENT
This agreement should be used where the tenancy is for a period of up to 6
months.
The tenant is not given any additional statutory protection and both parties
are bound only by the terms of the written agreement.
SAFETY REGULATIONS
As a landlord there are certain safety regulations to which you have to adhere
before letting your property. Compliance will ensure that your property is
safe for the tenant to live in.
GAS SAFETY
The gas safety regulations 1998 require that any gas appliances in a property
are inspected annually to ensure they comply with the regulations. These
checks must be done by a gas safe registered engineer. Orchards can arrange
this for you if required.
ELECTRICAL SAFETY
The electrical safety regulations 1994 require that electrical installations like fixed wiring - are safe and well maintained. Any electrical appliances you
supply to tenants - like cookers and kettles - should be safe for them to use.
FURNITURE AND FURNISHINGS REGULATIONS.
All furniture must comply with the provisions of the furniture and furnishing
regulations 1988 and the subsequent amendments to that act, prior to the
property being let.
The regulations apply to sofas, beds, bed heads, covers to furniture, cushions
and pillows, along with other items. They do not apply to curtains, carpets,
9
bed linen or duvets.
Furniture manufactured prior to 1950 is exempt. Furniture manufactured
from 1988 must have the relevant safety labels. For further guidance visit the
office of public sector information website at www.opsi.gov.uk.
SMOKE ALARMS
Building regulations require that all properties built since June 1992 are fitted
with mains link smoke alarms on each floor. We strongly recommend fitting
smoke alarms and carbon monoxide alarms.
ENERGY PERFORMANCE CERTIFICATE (EPC)
As a landlord you will be required to obtain an EPC, which assesses the energy
performance of your property. Your self and your agent must make all
reasonable efforts to obtain the EPC within 7 days of marketing the property.
The EPC must be made available no later than 28 days from the marketing
beginning. This certificate will be valid for ten years. Orchards can arrange
this for you if required.
INVENTORY
An inventory of the contents and condition of your property is usually
produced prior to the commencement of the tenancy. This document is often
done with photographs as well as in writing.
THE DEPOSIT
For your peace of mind Orchards will hold a tenancy deposit usually
equivalent to 1.5 x the monthly rent. This can be used at the end of the
tenancy for unpaid rent or damage to the property. Where the tenancy is an
AST Orchards can hold this deposit in accordance to the housing act
legislation.
TENANCY DEPOSIT SCHEME
For all assured shorthold tenancies the tenants deposit should be registered
with a recognised deposit protection scheme within 30 days. Orchards
currently use The Dispute Service. Orchards will hold all managed properties
deposits and also offer this services to let only landlords if required.
TAX ON RENT INCOME
All income arising from property in the UK is taxable, regardless of the tax
status of the landlord.
Income tax is payable on the profit generated by the letting of your property
so you must declare your rental income to HM Revenue & Customs.
However certain deductible allowances as follows can be used to minimise
your tax liability.
Mortgage Interest
Orchards fees
Insurance, ground rent and service charges
Legal and accounting costs
Cost of repairs, redecoration and maintenance
We do recommend that you speak to a qualified accountant.
OVERSEAS LANDLORDS
Even if you live outside the UK, under the income tax and corporation taxes
act 1988 and taxation of income from land (Non Residents) regulations 1995,
you are still liable to pay UK tax on rent received in the UK.
Orchards are obliged by law to deduct tax at the appropriate rate unless they
have authorisation from them to pay the income to you without deduction.
If you are going to living outside the UK while the property is let, you should
fill in the appropriate form (Either NRL1 for individuals or NRL2 for
companies) Orchards can supply the form if required or it can be downloaded
from
www.hmrc.gov.uk/cnr/nr_landlords.htm
Orchards Property
Investment Consultancy
Orchards are experts in the sourcing, purchasing and
lettings of investment property.
We can help you choose the correct investment and if required
can be retained to search for an investment property that is not
marketed by Orchards. We would act as your buying agent and
will be able to negotiate the very best purchase price, put you in
touch with a broker to arrange the mortgage and a solicitor to do
the conveyancing. Our fees are charged at 1% of the purchase
price.
If you have already identified or own an investment property.
Orchards can advise on work required prior to letting, a
recommended asking price, current market conditions and all
fees involved. Our advice in this instance is FREE!
Please contact Julian French on 01525 402266
or julian@orchardsuk.com
Tenant Magnet
Orchards consistently
take on more properties
in Mid Bedfordshire
than any other agent.
Due to our high profile
marketing we attract
hunderds of new,
professional tenants,
ready and willing to pay
top market rent
We quite literally are a
magnet to tenants.
visit www.tenantmagnet.co.uk to discover why tenants love us.
11
LET
We dont just put your property
on the market
WE LET IT
The Clock House, Bedford Street, Ampthill, MK45 2NB
01525 402266 - ampthill@orchardsuk.com