What is the cost of letting a property?

Becoming a landlord can offer excellent investment potential. But how much does it cost to let a property? 

Buy-to-let has long been seen as a profitable way to invest, with the opportunity to generate both a monthly income and a capital return.

And with the Office for National Statistics reporting that 4.5 million households were in the private rented sector in the UK in 2023, there’s certainly plenty of potential.

However, while rental yields may still be attractive in many parts of the UK, becoming a landlord comes with many different costs. Please keep reading to find out how much it costs to let a property.

Professional fees and costs

There are several different professional fees or costs that landlords can end up paying.

Letting agents

If you want someone to manage the property on your behalf (to deal with tenants and any issues arising from the tenancy) they can typically expect to pay between 7% and 14% of the monthly rent.

On a £600 monthly rental income, this is between £42 and £84 each month.

In addition, if you want to use a letting agent to find a new tenant, you can expect to pay anything from a flat fee of £50 to a percentage of the rent.

Accountant

Even if you own just one buy-to-let property, it has to be treated as a property business. You are required to declare your income and expenditures on your tax return, so you may have to hire an accountant to prepare your accounts for you.

If you run your business as a limited company, you may also have to submit accounts to Companies House. Depending on the complexity of the work, you can expect to pay anything from around £200 to over £1,000.

Solicitor

If you’re buying property investment, or you have tenant problems and need to go to court, you may have to hire a solicitor to assist you.

Mortgage broker

If you’re using a mortgage to buy your property investment, it can pay to speak to a mortgage broker. They can scour the market for you to find the most appropriate product and a lender that will agree on the mortgage you need.

Many mortgage brokers charge a fee for their services, ranging from £250 to 1% of the loan amount.

Mortgage and borrowing costs

If you took out a mortgage to buy your property, your mortgage is likely to be one of your biggest expenses.

A £300,000 interest-only mortgage at an interest rate of 3% will cost £750 per month. You may also have associated charges to pay, such as valuation and arrangement fees, to the lender.

Tax and associated fees

Any surplus earnings from your buy-to-let property are subject to tax at your marginal rate.

You can deduct certain allowable expenses from any rental income you receive. These expenses include property repairs and maintenance, professional fees, and building insurance premiums.

New rules for tax relief on mortgage interest payments came into force in April 2017 and restrict the tax relief you can claim on these interest payments. From April 2020, only basic rate tax relief will be available.

Landlord Insurance

While building insurance is not a mandatory requirement for landlords (unless you have a mortgage, in which case your lender may insist on this), it’s recommended that you protect your property against damage or destruction by taking out suitable building insurance.

The cost of coverage depends on a range of factors, including the property’s size, age, and construction, as well as whether you include extras such as legal protection.

Mandatory requirements

You will have to adhere to various legal requirements as a landlord– some of these come with costs. Examples include:

• An Energy Performance Certificate (EPC) – you must have an EPC to show how energy-efficient the property is. An EPC costs between £60 and £120 and is valid for ten years.
• Gas and electrical safety checks – a landlord gas safety check is a legal requirement and must be carried out annually by a Gas Safe registered engineer. You may also wish to get a qualified electrician to carry out an electrical safety check.
• Smoke and carbon monoxide alarms – all landlords in England have to supply and install both carbon monoxide and smoke alarms.
• Landlord’s licence – in some areas of the country, the local council requires a landlord to have a licence. Check with your council whether you need a licence in your location or find out more about landlord licensing.

Repairs and maintenance

One of your major expenses as a landlord will be repairs and maintenance to the property. This can range from redecorating between tenancies to repairs to the property’s structure. There may be other maintenance costs, such as installing a new boiler.

Research by Howsy, the online letting agent, suggests that landlords save 1% of a property’s value for maintenance costs, equivalent to an average of £2,344. The costs increase to £4,746 in London, while properties in the North East require a fund of just £1,328.

Even if your tenants look after the property, you typically have to redecorate and replace carpets every few years.

Letting your property on a furnished basis might allow you to charge higher rent, but your maintenance costs are also likely higher.

Void Periods

Accounting for potential void periods, where the property remains unoccupied between tenancies, is essential. Loss of rental income during these periods can significantly impact cash flow.

Implementing proactive marketing strategies and offering incentives to attract tenants can help minimize void periods.

Costs of renting out a house or a HMO?

Renting a house to a family and renting out an HMO are very different. Renting out an HMO is more involved and more of a headache. HMOs generally give a better return than renting a house to a family. 

Renting out an HMO also attracts more legislation, which means a cost to the landlord.