7 things to consider if you are thinking of becoming a landlord in 2023

Rises in interest rates, changes in taxes and hikes in the cost of living. We have all read about these in the news recently and if we believe what we hear it seems that we are facing turbulent times, especially if you are considering becoming a landlord in 2023. Here at Reka, we are acutely aware of this dilemma as we see many of our clients toying with the idea of increasing their property portfolios, and others thinking about whether 2023 is the year to take the leap and become a landlord. With this in mind, below is an outline of the current market factors to help you make an informed decision about whether 2023 is the year to invest in property.

1.Demand is outstripping supply.

Higher mortgage rates and the cost-of-living increases mean it is becoming much more difficult for first-time buyers to get on to the property ladder. Many will therefore remain renters. This is echoed in private rental prices rising in the UK by 3.8% in the 12 months to October 2022 according to the Office for National Statistics. This trend is expected to continue according to Propertymark whose findings suggest that an average of 11 prospective tenants registered for every property in 2022. Proving that demand is outstripping supply for private rental properties in the UK.

This is good news if you are thinking of investing this year as there is a need for good quality rental properties.

2.Could you grab a bargain?

Interest rates and changes in tax means that some people are priced out of the market, or are no longer interested in climbing onto the property ladder. As a shrewd businessperson, this could be the perfect time to invest as properties appear to be going below the asking price. A trend echoed in Propertymark’s figures which cite that 72% of agreed sales in November were below the asking price. This is interesting, but it’s made even more relevant when married with figures from Hamptons which show 37% of offers made by landlords in the same month were on properties without any other offers. The old saying ‘Fortune favours the bold’ is perhaps relevant here.

3.Changes in Tax

From 6th April, the new financial year, there are several tax changes taking place that may affect you. For example, Corporation Tax is increasing if your company has profits over £50,000. This is important if you set yourself up as a limited company to let your properties. The Tax will increase from 19% to 25% for companies with profits over £250,000 and for those with profits between £50,001 and £250,000 this will be taxed through a graduation rate. If your company makes less than £50,000 profit you will be taxed at the existing rate of 19%.

If you already have a property portfolio and are thinking of selling some of your properties, then you should be mindful that the Capital Gains Tax brackets are also changing. These tax reliefs will be cut. For 2023/24, it’s being reduced from the current £12,300 to £6,000, in April 2024, it will drop again to £3,000. 

You should therefore seek professional advice on these new tax changes.

4. Navigating higher interest rates

With the Bank of England raising interest rates on mortgages, and the impact that you will pay, there are some pointers to consider when looking for the right deal for you:

  • Research the different mortgage offers for the best deal – you may have to switch lender but it could be worth it financially
  • look for fixed rate deals as there is talk that the base interest rate is likely to keep rising for the foreseeable future
  • instruct a buy-to-let mortgage broker – their knowledge of the market and strong relationships could save you a significant amount of money

5.Energy Performance Certificates are changing.

The government are committed to ensuring that properties are energy efficient and new legislation comes into force in 2025. Currently, if a property has a ‘F’ or ‘G’ rating on an Energy Performance Certificate they cannot legally be let and from 2025 they will need to be rated as a ‘C’ for all new tenancies. So before you buy, you should know what EPC rating your new investment has. If you already have privately rented properties below the C rating you may be entitled to financial support to remedy this.  The government has announced the £1bn ECO Plus scheme where up to £1,500 will be granted to homeowners needing to insulate their properties. 

6. Landlord Licensing

You may need a license to rent out a property in your area. This has been the case for landlords who let out Houses in Multiple Occupation (HMOs) for some time, but we have seen more and more councils requiring landlords to obtain a license before they let out a property. You should check with your local council if you are required to have a license, or speak to our team at Reka who will also be able to help.

7. Is it worth investing in a HMO?

HMOs (Houses in Multiple Occupation) are often seen as a wise investment as they offer more income from rentals and spread the risk of tenants defaulting on their rent. In fact one of the directors at Reka recently stated that:

‘It’s difficult to earn double figures on single let investments however HMOs help maximise the profit on your asset’.

With this in mind, it’s a good idea to look for properties that would suit a HMO conversion. Find out more about HMOs here and also read our HMO case study on how one client achieved a profit of over £350,000.

If you wish to discuss any of the information raised in this blog, please do reach out to our professional and friendly team who can discuss this further with you.

Email us to start the conversation.

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