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Ten costs to consider before buying to let

No wonder a third of people between the ages of 45 and 64 say they are tempted to cash in their pension pots to invest in the buy-to-let market.

There are some well-known risks with buy-to-let property: unreliable tenants and void periods, plus the prospect of interest rate rises or a property crash. Plus, Ed Miliband has introduced the prospect of rental controls. The Labour Party, if it comes to power, will tell landlords that they will only be able to increase rent for tenants by less than CPI inflation for the duration of a contract. Labour also wants three-year contracts to be standard to provide greater security for renters and for landlords to reveal how much the previous tenant paid.

In the face of these risks, many investors will still want to pursue their buy-to-let dream. The returns are just too tempting and there are plenty of cheap buy-to-let mortgage deals available.

Charlotte Nelson, finance expert at, says: "Buy-to-let mortgages are experiencing a renaissance, becoming not only more widely available, but cheaper, too. With more five-year fixed-rate deals charging below 5 per cent than ever before, it is little wonder that the newly emancipated pensioners are genuinely considering buy-to-let as a retirement option.

"But those looking at this route as an alternative to a pension need to look at all aspects of the mortgage. Many lenders restrict the age they will borrow up to, so older borrowers would be wise to seek the guidance of a financial adviser who can access a larger portion of market."


Buy-to-let mortgages

Two years agoA year ago6 months agoToday
Number of Two-Year Fixed Rate BTL Deals Below 3%5165783
Number of Five-Year Fixed Rate BTL Deals Below 5%3755105143
Average Two-Year Fixed Rate BTL Deals4.44%3.94%3.69%3.45%
Average Five-Year Fixed Rate BTL Deals4.67%4.65%4.39%4.25%

Source:, as at 21 April 2015


Your Move and Reeds Rains say the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £21,078 over the past 12 months. Within this figure, rental income makes up £8,259, while the average capital gain amounts to £12,819. However, calculating deductions correctly is where wannabe landlords assessing a rental property are most likely to make a mistake.

Worrying research by Platinum Property Partners has found that potential landlords may be overestimating buy-to-let returns by up to 50 per cent. Three-quarters of UK landlords don't account for the 10 most common costs when calculating their portfolio's financial performance, meaning the returns on their investment could be lower than they think.

The most accurate way to measure the performance of a buy-to-let investment is to use 'return on investment', which takes into account gross profit, capital gain and all the costs of running the property, including the amount spent on refurbishments. You can also use 'Return on equity', which adds in the amount of money you have invested in the property.

Before embarking on a buy-to-let investment, ask the following questions:

What is your goal? Do you want to get capital growth, long-term income to supplement retirement income or to provide a substitute income now so that you can save the rest of your pension for later?

How will you compare your returns from your buy-to-let property? Will you compare it with your existing Isa portfolio or other investments? You don't need to invest in bricks and mortar to capitalise on UK property. There are several funds that can give exposure to UK property and can be held tax-efficiently within an Isa.

Below is a useful summary of common costs that you need to take into account when assessing the financial performance of a buy-to-let portfolio. You can use this as a template for your potential property before you buy it to assess the real impact of annual costs.


Top 10 most common costs incurred by landlords

Costs% Landlords who incur costs% Landlords who incurred costs and did not  take them into account when measuring financial performanceAverage annual cost per property
Repair costs90%52%£376
Letting agent fees to manage property77%63%£438
Refurbishment and decoration costs77%73%£392
Letting agent fees to find tenants76%66%£230
Regular exterior maintenance costs eg gardening, window cleaning72%80%£259
Maintenance fees67%81%£506
Regular interior cleaning costs66%85%£206
Service charges66%83%£500
Mortgage interest66%80%£1,343
Advertising or marketing fees to let property65%87%£177
All other costs--£3,933

Source: Platinum Property Partners research, February 2015



RegionRents March 2015One month changeAnnual ChangeYields March 2015Yields March 2014
East of England£8072.50%12.00%4.40%4.40%
South West£6650.30%0.00%3.70%3.90%
Yorkshire & The Humber£5470.40%3.30%6.40%6.50%
North West£5942.30%2.70%7.10%7.20%
South East£7680.10%2.80%4.30%4.70%
North East£519-0.50%0.50%4.90%5.00%
West Midlands£560-0.20%1.20%5.40%5.60%
East Midlands£566-0.60%-0.20%5.70%6.00%
England & Wales£7680.30%3.70%5.00%5.10%

Source: Your Move and Reeds Rains