The pros and cons of being a landlord in the UK | James Anderson Blog (2024)

FAQs

What are the advantages and disadvantages of being a landlord? ›

Time-Consuming Investment

Being a landlord requires an investment of time and money. Even if you hire property managers, you must make final decisions from remodeling units to evicting a tenant. Rental properties do not provide as passive of income as people like.

In summary: buying requires a bigger upfront cost, but renting is more expensive in the long term. A good rule of thumb is that buying a property becomes better value after around 10 years, compared to renting an identical property. Whether it's cheaper to buy or rent depends on several factors.

Being a Landlord in 2023

Good news for landlords is that rental prices across the UK continue to rise. The demand for tenants is offset by the lack of properties available, meaning rents are set to rise by another 5% in 2023, following an already substantial rise of 9.7% in 2022.

Thanks to a shortage of properties and soaring inflation, renters are being priced out of homes, properties are being snapped up before viewings and bidding wars now appear to be commonplace. Add to that ridiculous food prices and higher energy bills, and it's not exactly a great time for Generation Rent.

Novice landlords should be certain they can afford the upfront and ongoing costs involved in managing a property. Being a landlord is not easy, there are challenges, and it's often a journey of education and experience. However, if you have the means and time to invest, it can also be very liberating and rewarding.

Landlords sold 35,000 more properties than they bought across 2022, according to Hamptons analysis of data from Countrywide, as the jump in mortgage costs and tax changes make buy to let an increasingly unappealing proposition.

Becoming a landlord isn't easy. It's not a career choice that should be made without genuine thought and consideration. Many people become landlords to capitalise on solvency or as an investment for the future. If you're considering becoming a landlord at some point, here are the 5 things you need to know first.

There are many costs of owning a rental property, including maintenance costs, mortgage payments, property management costs (if you choose to hire a company), insurance, etc. Being a landlord for the first time means that managing all of these expenses can be difficult, and even overwhelming.

Quite often a major incentive for becoming a landlord is the potential to earn a large income. Every month, landlords receive enough money in rental payments to cover any outstanding mortgage repayments on their properties. This means that the bigger a landlord's property portfolio, the larger their overall income.

What are the struggles of being a landlord? ›

Challenges that come with owning a rental property include finding a suitable property, preparing the unit, finding good tenants, maintenance issues, hassles that arise, and changing interest rates impacting the rental price.

At the end of 2016, around 65% of UK households were owner-occupiers, 17% were renting from a private landlord and 18% were renting from a social landlord. Social renting has declined since 1996, while private renting has increased. The rate of owner-occupation is also slightly lower than it was ten years ago.

A huge rise in demand for properties has driven rental prices to a record high. Rents in the UK have just hit the highest rate on record.

Research by Simply Business has identified the buy-to-let areas that are most popular with new landlords. We looked at which areas had the most landlords who've owned property for less than a year and taken out landlord insurance in 2022. London came top, followed by Manchester, Birmingham, Liverpool, and Nottingham.

Most individual landlords (85%) owned between one and four properties, with just under half (45%) owning only one rental property. The remaining 15% of individual landlords owned five or more properties.

Age wise, we've seen a big dip. Back in 2016, the average age for a landlord was around 51-55 years old, but now, in 2021, almost half of landlords are 40 or under and only 26% are 51 and over.

Britain has a severe housing crisis, especially in the most prosperous places in the Greater South East. Across England, the average house costs more than ten times the average salary, vacancy rates are below 1 per cent, and space per person for private renters has dropped substantially in recent decades.

If you're not a British or Irish citizen, your landlord can ask for a Home Office right to rent check to see if you can rent in England. If you're a Commonwealth citizen, you may be able to get documents to show that you can rent in the UK through the Windrush Scheme.

Will rents rise or fall in 2023? The rental market doesn't look likely to get cheaper anytime soon, “given higher borrowing costs for landlords and further regulatory changes which will add to the cost of investing”, said Zoopla.

What are the tax rules for landlords in the UK? ›

Less than the basic rate threshold of £12,570 – you'll pay 0% in tax on rental income. Above £12,570 and below the higher rate threshold of £50,270 - you'll pay 20% in tax on rental income. Above £50,270 and below the additional rate threshold of £150,000 – you'll pay 40% in tax on rental income.

From 1 April 2023, all commercially rented properties must have a minimum energy performance rating of 'E' or above. The Minimum Energy Efficiency Standards increased the rating requirement for private rentals back in 2018.

Just over 4.4 million households live in the private rented sector in England, 19% of all households. By comparison, 17% (4.0 million) live in the social rented sector and 65% (15.4 million) are owner occupiers.

Private rental prices paid by tenants in the UK rose by 4.9% in the 12 months to March 2023, up from 4.8% in the 12 months to February 2023. Annual private rental prices increased by 4.6% in England, 4.4% in Wales and 5.1% in Scotland in the 12 months to March 2023.

Once you've moved into your new home, the monthly costs for renting are on average cheaper than buying due to the initial mortgage interest being charged to buyers, although the tipping point for this is after two years when the interest portion of your mortgage payments becomes less than you would have paid in rent.

Rents are set to rise in 2023 and 2024, adding to the cost-of-living pressure on tenants. But this comes at a time when landlords are facing cost pressures and some are therefore considering quitting the rental market. Their departure will further aggravate the shortage of homes to let.

In the United Kingdom the owner and/or manager of a pub (public house) is usually called the "landlord/landlady" or "publican", the latter properly the appellation of a Roman public contractor or tax farmer. In more formal situations, the term used is licensed victualler or simply "licensee".

If you landlord is renting out a property without the required property licence, they are committing an offence. Your landlord may also be committing an offence by breaching the terms of their licence (for example by renting it out to too many people, behaving abusively to tenants or refusing to make urgent repairs.

While landlords might bring in cash from several sources, their income levels tend to be solid. While the real median household income is just shy of $62,000, landlords bring in closer to $97,000 annually through all of their income sources.

What are landlords biggest fears? ›

Perhaps one of the most important qualities of being a good landlord is great organization skills. This is especially the case if you have more than one rental property. You'll be responsible for leases, tenant screening, deposits, inspection reports, and maintenance work orders.

2% Rule. The 2% rule is the same as the 1% rule – it just uses a different number. The 2% rule states that the monthly rent for an investment property should be equal to or no less than 2% of the purchase price. Here's an example of the 2% rule for a home with the purchase price of $150,000: $150,000 x 0.02 = $3,000.

There is no hard and fast rule as to what a good rental yield is, as your return will depend on the location of your property as well as your expenditures. As a very general rule to give you a rough idea of what to expect, a rental yield of 7% is considered a very good yield for a buy-to-let property.

On average, UK landlords need to spend £1,134 per month in 2021, which includes average monthly mortgage costs, and monthly fees for maintenance, alongside average letting agency fees.

The dispute began when landlords refused to take the rent from the peasants through the harvest of indigo. Explanation: The entire harvest of indigo produced by the peasants in 15 % of their land paid as rent to the British Landlords.

The first £1,000 of your income from property rental is tax-free. This is your 'property allowance'. Contact HM Revenue and Customs ( HMRC ) if your income from property rental is between £1,000 and £2,500 a year.

Financial checks

Landlords and agents usually want to check that you can pay the rent. They may ask to see: an employment contract or letter from your employer. recent payslips or bank statements.

Overall, the cost of living in the U.K. is 0.49% lower than in the United States. Rent overall is about 22.55% lower in the U.K. You would need $4,700 per month to finance a modest lifestyle in London, compared to $5,822 for the equivalent lifestyle in New York City.

Is rent more expensive in US or UK? ›

The average rent per month for a one-bedroom flat in the UK is £700. In the USA it is $1,169, which works out to around £940 per month, making the UK a clear winner here.

However, the result from the rising house prices of 2022 has caused the number of people renting in the UK's private sector to rise to being more than 1 in 5.

Flats tend to be cheaper than houses in the same area, so if you're on a tight budget and there's a particular place you'd like to live, you'll probably find it easier to buy a flat than a house.

The drawbacks of having rental properties include a lack of liquidity, the cost of upkeep, and the potential for difficult tenants and for the neighborhood's appeal to decline.

The major risks in rental property investing are risks of high vacancy rates, bad tenants damaging the property and possibility of a negative cash flow. However, all of these risks can be avoided with proper planning and working with a good turnkey rental property provider.

Owning a rental property is a safe investment and an even better asset that can make money during periods of high inflation. It gains value when inflation is high and creates cash flow from renting during any economic period. It's really a win-win.

How much profit do most landlords make? ›

The amount will depend on your specific situation, but a good rule of thumb is to aim for at least 10% profit after all expenses and taxes. While 10% is a good target, you may be able to make more depending on the property and the rental market.

As a renter, you don't build equity over the long term and if you leave, you don't get to take any profits with you. Owning a home can be empowering and emotionally rewarding. The money you spend on your mortgage every month and improving your home yields a long-term investment benefit for you instead of a landlord.

Renting provides much more flexibility. However, if you have returned to the office, either full-time or partially, and assume you'll remain in your current job for a few years, then buying might be wiser. A common rule of thumb is if you plan to stay in the home for five to seven years, then buying is a good option.

There is no definitive answer as to whether renting or owning a home is better. The answer depends on your own personal situation—your finances, lifestyle, and personal goals. You need to weigh out the benefits and the costs of each based on your income, savings, and how you live.