London Landlord - Costs to Take Note Of

London Landlord – Costs to Take Note of

People buy London property for many reasons, but for us, we do look for a decent yield, so that the investment is self-sustaining after the development in Singapore speak, has TOPed (completed). Generally speaking, beyond the 30% deposit, we have not had to ‘feed’ our investments as the net rental generated has been sufficient to cover mortgage payments.

After some years of being a landlord of London properties, we’ve gotten a realistic sense of the costs involved. The first thing one needs to note is that while the gross rental figures are important, do not get carried away by the headline figures! The net yields are often far lower than the gross figures. Please do your sums and decide whether this investment vehicle is worth your while.

Here are costs that you should factor in:

Lettings and Management Fees

Depending on the agent you appoint, the fees can range from 8%-17%+VAT. Some agents reduce their fees after the first year, for renewals.

Not all agents are reliable.  MyLondonHome has served us well.

Council Tax During Voids

When the property is tenanted, the Council Tax is borne by the tenant. When vacant, landlords are liable for the Council Tax. A good lettings agent will inform the Council of all tenant movements. Check which Council your property belongs to, and the associated tax band. Some Councils give concessions for unfurnished properties during void periods.

Annual Service Charges and Ground Rent

These are borne by landlords, and are payable whether or not the property is occupied. Do factor this carefully in your calculations. We have found that the service charges at fancier developments are very hefty, and they do erode the rental yield substantially. 

The annual service charge at developments with a concierge and gym can be in the £2-3 per square foot per annum range. However, once you have a pool, cinema or large common areas, or other facilities, these really add on to the service charge.  We have seen developments with service charges of £3 – £5 per square foot, which is rather hefty.  Overall, we prefer a no-frills type of development, because the service charges would tend to be much lower. 

Example
An 800 sq feet 2 bedroom apartment, if  £4 GBP psf per annum translates to £3,200 per annum or £266.66 per month. 

Furniture

Generally, the demand for furnished apartments is far higher than for unfurnished apartments. Furniture should be able to last at least 5 years. But do budget for replacements. It is not uncommon for tenants to request a new mattress etc.  

Newly furnished apartment

Repairs 

The first couple of years should be fairly maintenance free if your apartment is under warranty. However, do set aside a budget for repairs. We’ve had to replace dishwasher handles, a spoilt blind etc.

Income Tax 

Estate agents are supposed to withhold 20% of your rent unless you are part of the HMRC’s Non-Resident Landlord Scheme. You will have to file your tax returns every year. Singaporeans unfortunately, do not qualify for the personal allowance, thus your income after expenses are liable for tax. The UK tax rate is pretty hefty.  However if your property is mortgaged, the interest can be deducted as an expense.

Miscellaneous costs

Lettings and management agents do charge a variety of cost items, such as inventories, check in, deposit registration, drawing up a tenancy etc. Do check your agreements carefully to see what you are liable for. Also, you are required to have documents such as the Energy Performance Certificate and Gas Performance Certificate, for which you may have to pay to obtain one. For newbuilds, the developer will hand these documents over on completion.