Is it profitable to become a landlord in 2023?

There are over 2.5 million landlords in the UK, and becoming a landlord of a buy-to-let property can often be seen as an attractive way to earn an extra level of income. However, with an ever-changing list of rules and regulations that you need to adhere to, as well as the time and commitment it would take, it is something that needs proper consideration before you rush into it and make such a big financial commitment. Here we give an overview of some of the most important aspects to think about if you want to consider becoming a profitable landlord in 2023.

Buy-to-let mortgages 

Firstly, you will need a buy-to-let mortgage on a residential property if you are planning to become a landlord, as a standard mortgage would not be the right type. There are many buy-to-let mortgages on the market right now, and most lenders will ask for a minimum 25% deposit. The higher the deposit you have, the better mortgage and interest rate you can secure because you will be seen as less risky an investment by the mortgage lender. 

Multiple occupation properties

It’s important to also consider what type of landlord you want to be, because this can impact not only your forecasted income but also if you need a special type of licence and probably a slightly different mortgage to a standard buy-to-let. For example, if you want to rent your house out to different people who would then share facilities such as the bathroom and kitchen for example, then this would turn your property into a house in multiple occupation (HMO). If you plan to have a HMO with more than five people in it then you would automatically need a licence from your local council, for any property with less than five separate people living there you would need to check with your council to see if you need a licence or not.  Some areas of the UK still require it, but not all. 

Tax on buy-to-let properties

There is an array of tax issues to consider on buy-to-let properties. For example, you might have to pay income tax on profit you earn from letting out your property. The profit will be what is left over after you have deducted ‘allowable expenses’ such as maintenance costs and repairs, letting agent fees, landlord insurance, legal fees, and limited interest (tax relief) on your buy-to-let mortgage. The mortgage interest tax relief is a contentious issue.  The system changed in April 2020 meaning landlords could no longer deduct any mortgage expenses from the rental income, which made tax bills significantly cheaper. Instead, you now receive a tax credit based on 20% of the mortgage interest payment. This will save you less money than the older system, so from a landlord point of view it wasn’t very popular when it was introduced. 

Other costs

We have touched on a few of these costs already but there are practical points that you will need to consider and budget for as well so that you can be protected from any sudden unplanned expenses. For example: 

• Landlord insurance: you will need specialist landlord insurance as a standard home insurance property wouldn’t be appropriate for your needs. Getting the right landlord policy is really important, as it can cover everything from standard buildings and contents cover to public liability, loss of rent, legal expenses and even eviction of squatters.
• Refurbishment and redecoration costs: It is likely you will need to provide some level of refurbishment or redecoration every couple of years to keep the property looking fresh and attractive to possible renters. It is hard to provide a precise cost for how much this would be, but it is always advisable to have a small kitty with £1500 – £2500 put aside to cover such needs.
• Letting agent fees: This very much depends obviously on if you want to use a letting agent or not. Some landlords prefer not to, as it can mean handing over a percentage of the rental income every month to a letting agent. However, there are benefits to using a letting agent and if you are time poor as well, they are a great source to take away the stress of dealing with tenant issues on a day-to-day basis 

New legislation: Renters Reform Bill 

The latest legislation to be put forward by the government in terms of landlords and tenants is the Renters Reform Bill, which was announced in May this year. The bill is not yet an Act so is not in force, and the details are still being confirmed but it is something to be aware of, as it is the latest piece of legislation in the landlord and tenant relationship.

So, is it worth it?

Ultimately it is down to you and how prepared you are. Many people do it and create a steady, often second, income stream from it, and it really works for them. As long as you are aware of all the correct legislation, charge enough rent to cover your costs and make a profit, and have the right support when it comes to aspects such as your landlord insurance policy, it can be a profitable and enjoyable experience.