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6 ways landlords can maximise their buy-to-let profits in 2020

Landlord numbers hit lowest levels since 2012, but tenant demand remains strong

6 ways landlords can maximise their buy-to-let profits in 2020

The number of landlords in Great Britain has dropped to 2.66 million, the lowest level recorded since 2012.

That’s according to a report by the estate agent Hamptons International, which suggests that 222,000 buy-to-let properties have been sold off since 2017.

As a landlord, you’re sure to be feeling the force of a swathe of tax and regulatory changes imposed in recent years, but it is still possible to make money from buy-to-let.

Here are six tips on maximising the returns from your portfolio, including advice on remortgaging, property management and keeping your best tenants.


1. Remortgage to a better rate

In a tough time for landlords, investors are seeking to claw back some profits by remortgaging.

Data from UK Finance shows that 13,300 landlords remortgaged in December 2019, up 2.3% year-on-year. In total, they borrowed £2.2 billion.

And now is an even better time to switch deals. Average mortgage rates for landlords have fallen by 0.3% in the last 12 months, as shown on the graph below.

You can generally secure a new mortgage six months before the end of your current fixed term, so if any of your properties are coming up for renewal this summer it’s time to start shopping around.

The table below shows the cheapest rates currently on offer at two popular loan-to-value (LTV) levels.

Two-year fix

LTV Lender Initial rate Revert rate Fees
60% The Mortgage Works 1.19% 4.74% 2% of mortgage amount
75% Birmingham Midshires 1.52% 5.09% £1,995

Five-year fix

LTV Lender Initial rate Revert rate Fees
60% The Mortgage Works 1.64% 4.74% 2% of mortgage amount
75% The Mortgage Works 1.94% 5.24% £1,995

Source: Moneyfacts. February 2020

2. Consider setting up a company

It’s no secret that changes to mortgage interest tax relief are among the biggest threats facing landlords in 2020, with higher-rate taxpayers meeting the greatest strain.

The tax relief changes have led to some landlords setting up company structures for their portfolios.

Company structures allow you to offset all your mortgage interest when calculating your tax bill, and instead pay corporation tax on your profits.

A company structure can make sense for professional landlords with larger property portfolios, but the costs of setting up the company can be punitive for ‘accidental’ landlords or those with just one or two properties.

When we crunched the numbers last year, we found that buy-to-let mortgage rates for companies were around 1% higher than for individual investors.

In addition, moving to a company structure will require you to ‘sell’ your properties to the company, meaning you’ll need to pay stamp duty on the transaction. The Which? Money Podcast

3. Cut your management costs

Property management costs are one of the biggest expenses facing landlords, be that through paying for a managing agent to look after the property or stumping up for maintenance costs.

Managing agent fees vary significantly. Our research found that a full service can cost between 12% and 20% of your rental income, depending on the area and agent.

This means there’s money to be saved. When comparing agents, make a shortlist of the services you do and don’t need (eg do you need the agent to do the Right to Rent checks?) and ensure you’re not paying over the odds for services you don’t require.

Always get quotes from several estate agents before you choose – and if you’ve got a local portfolio you can offer as a package to one agent, use this as a negotiating tool to get a better deal.

You can find more tips on property management in our guide on using a letting agent.

4. Hang on to your best tenants

Letting is a two-way deal, and tenants won’t stand for sub-standard properties or excessive costs in the long run.

Void periods (where the property is left empty) can spell disaster for landlords, so if you’ve already got good tenants, ensure you keep them happy by being proactive with any required maintenance and contract renewals.

When you’re coming to the annual renewal, carefully consider whether you can really justify increasing the rent if you want your best tenants to stay.

If the tenant deems the increase to be punitive or unrealistic, they could look elsewhere, leaving you with a costly void period and the hassle of finding someone else.

5. Look into short-term lettings

A recent report by ARLA Propertymark says one in 10 landlords are tempted to switch to short-term lettings through rental sites such as Airbnb.

Some are attracted by higher profits, and others are seeking to escape the tax burdens facing private landlords (short-term letting income is classed as company rather than individual income).

While the idea of higher yields might sound appealing, there’s plenty to consider when it comes to listing limits, licensing regulations and mortgage implications.

To find out more about making the switch, check out our story on buy-to-let landlords joining the exodus to Airbnb.

6. Consider investing further

It might be a tough climate, but cheap mortgages, relatively low house prices and tenant demand mean savvy landlords could secure decent profits by investing further in 2020.

The latest research by Paragon found that four in 10 landlords believe demand for residential property will increase this year, while just one in 10 believe demand will fall.

Prices are rising, too. Data from Hamptons International shows that average rents rose in every region of Britain in January. Overall, the average year-on-year increase was 3.6%, though the South West (6%), East of England (4.1%) and London (4.1%) saw the biggest rises.

Additionally, data from UK Finance shows that 5,700 landlords took out mortgages for new properties in December, that’s up nearly 4% year-on-year.

There’s money to be made in both capital growth and rental yields, but in such a price-sensitive market you’ll need to do plenty of research before jumping in.

Our guide on becoming a landlord includes tips on setting a budget, researching local markets, deciding on property types and finding your ideal tenants.

Leaving buy-to-let

If you’ve decided to sell one or more of your properties, it’s important to have an exit strategy in place and plan the sale in a way that will minimise your expenses.

Our guide on selling a buy-to-let property offers advice on the capital gains tax and mortgage implications of selling up, and whether you should sell a tenanted or vacant property.

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