What Are the Costs for Landlords on a Buy-to-Let Property?
What are the various costs associated with managing a rental property? Investing in a buy-to-let property requires constant maintenance work and additional fees like letting agent costs and insurance. As a result, costs for landlords may be more expensive than you think! Our property management team at Flex Living have put together this comprehensive guide to help you prepare for the cost of being a landlord.
In this article, we are going to discuss :
a) Stamp Duty Land Tax
You will have to pay Stamp Duty Land Tax. The amount you pay depends on which bracket your property falls into. As of September 2022, here’s how much tax you can expect to pay on your buy-to-let costs:
– Up to £250,000 – 3%
– £250,001 to £925,000 – 8%
– £925,001 to £1.5 million – 13%
– Above £1.5 million – 15%
There are, however, ways you can reduce your stamp duty. Read our article on Stamp Duty on a Second Home to see where you can save on stamp duty tax.
b) Legal Fees
You will most likely require a property solicitor or licensed conveyancer to carry out the legal and administrative work involved with buying a property. Buy-to-let conveyancing is the legal term for transferring a property’s ownership to you as an investment you intend to let out. Solicitors and conveyancers may charge fixed fees or take a percentage of the property value. On average, you may spend between £800 and £2000 (+ VAT) on legal conveyancing fees, although this figure may rise to £5,000 depending on the size and value of your property.
Buy-to-let properties require higher deposits than residential properties. You may only need to pay a 5% deposit on a residential mortgage. On the other hand, a buy-to-let property will typically see you paying at least a 20-25% deposit.
You may also need to pay a mortgage arrangement fee. This is a fee that some mortgage lenders charge to cover the administrative side of arranging credit. An arrangement fee can range from a few hundred pounds to 1% of the total mortgage value. You could also be charged a separate booking fee of up to £250. Depending on the size of the mortgage, some lenders will include it as part of the arrangement fee.
If you enlist the help of a mortgage broker – someone that arranges a mortgage between you and the mortgage lender – you may also pay an additional brokerage fee of around £500–£1000 (depending on the value of the mortgage).
Surveyors check properties for defects and other issues while reporting on the property’s value. They will then compile a summary report of the house’s general condition and any legal issues that may be brought to your solicitor’s attention. Surveyor costs in the UK range between £400 and £1500, depending on your property’s size and location. While it is not a legal requirement to survey your property, many mortgage companies will insist on a valuation survey.
On-Going Landlord Costs
There are also costs associated with paying back your buy-to-let mortgage, service charges, ground rent, utility bills and tax.
Monthly Mortgage Repayments: Your monthly mortgage repayment amount will depend on the type of mortgage you’ve taken out. You can use HSBC’s online mortgage repayment calculator to see how much your repayments could be based on the interest rate, term and repayment type selected.
Service Charge: A service charge is a payment that landlords (leaseholders) pay for communal or shared services attached to the property, including any basic maintenance services and cleaning costs; for instance, roof repairs. The service charge will be higher if the property contains additional facilities such as elevators, a concierge or a gym. What the service fees cover and how they are calculated should be outlined in your superior lease agreement. In London, the average service charge is between £1600 and £2500 per year.
Ground Rent: Ground rent is an amount paid by leaseholders to the building freeholder. Usually, ground rent is charged at around £200-£500 a year but can be more depending on your lease terms. Ensure you pay careful attention to the lease terms to be aware of regular ground rent increases.
Tax: In accordance with section 24 of the Income Tax Act, you’ll need to pay income tax on your property. The amount of tax you pay depends on the income tax band you fall into.
– If you are a basic rate taxpayer, you could pay up to 20% tax
– If you are a higher rate taxpayer, you could pay up to 40% tax
– If you are an additional rate taxpayer, you pay up to 45% tax
Note that if you own your property through an LTD company, section 24 of the Income Tax Act may not apply to you.
Utility Bills: Advertising a property as ‘bills included’ is a good way to attract tenants. Landlords often pay the utility bills for HMOs and student lets, but it’s not uncommon for tenants to pay the bills too. Whoever is paying the bills, landlord or tenants, ensure you clearly stipulate this in your rental agreement. Utility bills include:
a) Council tax
Landlords are responsible for repairing and maintaining the property’s structures, including sinks, baths, heating, hot water, gas appliances, pipes, and electrical wiring. The maintenance and repair work required for these systems will add to your buy-to-let cost.
Landlords are legally responsible for maintenance and repairs related to heating, hot water and gas appliances. So, you must keep up to date with servicing your boiler and checking gas safety regularly.
a) Gas Safety Certificate
You must obtain a landlord gas safety certificate every year from a certified gas safe engineer. The average cost of a gas safety certificate ranges from £60-£90, depending on the size of your property. You will need to retain copies of these certificates and supply them to all tenants at the start of their tenancy. Property management companies like Flex Living organise all safety checks and certificates so you don’t have to.
b) Boiler Service
Where a gas safety check involves analysing the safety of all appliances and using the gas supply, a boiler service specifically involves checking the functioning and safety of the individual boiler.
A boiler service is not a legal requirement. However, it will help improve the safety and efficiency of your boiler and central heating system, potentially saving you money in the long run. The cost of an annual boiler service is usually around £100 for a one-off fee. Alternatively, you can add a boiler servicing charge to your insurance package.
Think of the difference between the safety certificate and the service in terms of cars – you need an MOT to show your vehicle meets the minimum acceptable road safety standards required by law (similar to the gas safety certificate for boilers). Then, the ‘service’ is just a check to make sure all components function correctly, with adjustments made when necessary.
Landlords are legally required to ensure any wiring, plug sockets and any electrical appliances in the property are safe and functioning for the tenants’ use.
a) EICR Reports
Landlords must obtain an Electrical Installation Condition Report (or landlord electrical safety certificate) for nearly all forms of rental property every 5 years. You can get a report from a qualified electrician. The certificate itself costs around £125 to £300 (not including any additional costs of necessary repair work.)
An Energy Performance Certificate (EPC) is a document that ranks the energy efficiency rating of your property from ‘A’ (very efficient) to ‘G’ (inefficient). From 2025, all rental properties in England and Wales will need a minimum EPC rating of ‘C’ or above. An EPC is crucial for understanding your property’s energy performance, identifying areas for improvement, and alerting you to changes you could make that will save you money and reduce emissions in the long term. There is no set price for an EPC, so you can compare prices from different energy assessors using websites like Check-a-Trade to find the best surveyor deal. Usually, the certificate will cost you between £60-£120, and you must renew it every 10 years. For more information on EPC’s, read our EPC requirements for landlords article.
In addition to the necessary gas and electric checks, there are other general property maintenance costs for landlords (such as white goods, flooring and plumbing). A rough estimate of how much this might cost you is 1% of the property’s total value. For example, if your property is worth £300,000, you should budget around £3,000 a year for miscellaneous maintenance and repairs. The exact amount you may spend will vary depending on the size of your property, the location, and the extent of work needed for repairs.
Licensing, Insurance & Accounting Costs
a) Licence Fees: To register as a landlord for Houses in Multiple Occupation (HMOs), you must apply for a licence. A Mandatory HMO License costs £1,300 for a 5-bedroom HMO with an extra £160 for each additional bedroom. An Additional HMO or Selective Licence costs £560. You can use this Property License Checker to determine whether or not your privately rented home requires a property licence.
b) Insurance Costs: Landlord insurance protects you from risks that may arise with your buy-to-let property. It may cover anything from financial losses due to weather damage to unpaid rent by tenants. You are not legally obliged to take out landlord insurance, but your mortgage lender could require you to do so. The average cost of basic landlord insurance in the UK is around £120-£220 a year, although prices vary across insurers and depending on the number of addons you include
Basic landlord insurance usually included the following:
- Buildings and contents insurance
- Property owners’ liability cover
Addons for landlord insurance include:
- Loss of rent cover
- Accidental damage cover
- Emergency assistance cover
- Legal cover
- Tenant default insurance.
c) Accounting Fees: To ensure your buy-to-let investment is financially successful, it is in your interest to have a specialist property accountant. Property accountants like those found at Tax Assist can help you stay up to date with legal changes that might affect you as a landlord, help you claim expenses, save on tax and plan for the future. Many accountancy agencies operate on a fixed-fee basis, and the cost will vary depending on the specific financial services you need. Typically, accounting fees range from £100–£300 per year. Note that if you own your property through an LTD company, section 24 of the Income Tax Act may not apply to you and you may need to pay your accountant for a different set of services.
Furnishing & Inventory Costs
Furnishing: If you choose to rent out your property furnished, you will accrue additional costs for the decoration and upkeep of the furniture you provide. Remember to consider the type of tenant you wish to attract (e.g., professional, student or families), as this will determine the style you opt for and potentially the cost. On average, it costs around £7,000–£15,000 to fully furnish a 3-bedroom house (depending on the style, quality and number of furnishings you choose). However, this price can be significantly lower by using budget techniques like purchasing second-hand furniture or opting for lower-cost materials. For more information on how to redecorate your property, read our article on property refurbishment.
Inventory Costs: A property inventory report is a document compiled by a landlord at the beginning of a tenancy. This report details the condition of each room along with all the fixtures and fittings (including doors and windows). A landlord inventory is not a legal requirement. However, it is highly recommended because it reduces the likelihood of landlord-tenant disputes and protects your right to claim compensation from the deposit replacement scheme should any damage to your property occur. The average cost for inventory reports is as follows:
|Studio||£130 + VAT||£100 + VAT|
|1 Bedroom||£150 + VAT||£120 + VAT|
|2 Bedrooms||£170 + VAT||£140 + VAT|
|3 Bedrooms||£190 + VAT||£160 + VAT|
For more information on what an inventory is and how to complete one, read our landlord inventory blog.
Letting Agency, Tenant Finding & DPS Fees
Letting Agency Fees: Using a letting agency is a hassle-free way to rent out your property. However, most standard agencies add to the cost of being a landlord, charging around 10-15% (+ VAT) of your monthly rental income to cover management costs.
Tenant Finding Fees: There are landlord fees associated with finding tenants. Letting agents typically charge a flat rate fee equivalent to one month’s rent for tenant finding. Alternatively, you can use online platforms such as OpenRent, RightMove and Zoopla to advertise for tenants, but you will likely still pay a fee per listing to access the best tenant finding tools on these websites. You may also need to pay for tenant referencing services like credit checks. For more information on finding tenants, read our article on ‘How to Find Tenants’.
Deposit Protection (DPS) Fees: If you rent out your place on an assured shorthold tenancy agreement, you must place your tenants’ deposit in a tenancy deposit protection scheme. Protecting a deposit accrues a small fee (usually around £20), but this may vary depending on which scheme you use and the size of the deposit. For more information, read our deposit protection schemes article.
Save With Flex Living
Flex Living is a property maintenance service for landlords with ample experience managing a range of rental properties. With guaranteed rent, no management fees and free maintenance call outs, landlords can save thousands of pounds with no extra work. To reduce the cost of renting out a house, get in touch with our team today.