How Many Rental Properties Can You Own UK?

Nikka Sulton

How Many Rental Properties Can You Own UK?

In the UK, there’s no set cap on the number of properties you can own. CIA Landlords state that you can own as many rental properties as your budget allows, using personal funds, mortgages, or alternative financing.

Ever wondered about the limit to owning rental properties? In simple terms, there’s no fixed cap; you can acquire as many as your budget permits—whether through personal funds, mortgages, or private financing. Owning multiple properties is a lucrative strategy for increasing real estate income and facilitates financing for new acquisitions.

However, while this approach offers opportunities, it comes with risks. Even owning one property is a significant financial commitment, requiring careful consideration. Before diving in, ponder the affordability of mortgage payments and sustaining a normal life.

So, how many rental properties can you own? Let’s delve into the details and explore the considerations involved in building a portfolio. Understanding the nuances will guide you in making informed decisions and ensure your investment aligns with your financial goals and risk tolerance.

What is a rental business?

When you acquire property, you have the option to purchase it either as an individual or through a business entity, such as a company. Private limited companies are legal entities that can be used to conduct your property business. The process of establishing a company to manage your buy-to-let portfolio is commonly referred to as ‘company incorporation.’

If you choose to buy property as an individual, your rental property earnings will be subject to income tax. On the other hand, if you opt for a company structure, the annual profits your company generates will be subject to corporation tax.

For landlords who both manage and own property through a limited company, the treatment of buy-to-let rental income differs from that of individuals who own properties privately. This distinction arises because the property is owned by the company itself, with the landlord as the owner of the company. In cases where your property company owns the property, you have two options:

Receive rental income as dividends, which are payments made from the company’s assets, including profits, to the company owners, known as ‘shareholders.’
Pay yourself a salary from the company.

How many homes can I own in the UK at the same time?

When using personal funds or private finance, there’s typically no set limit on the number of rental properties you can buy. As long as you manage the properties and meet loan payments, you’re free to own as many as you can handle.

However, if you’re obtaining multiple properties through a mortgage company, there might be restrictions on the number of loans you can secure simultaneously for financing several rental properties. It’s essential to be aware of these limitations and plan accordingly when expanding your property portfolio through mortgage financing.

How to finance multiple rental properties

Expanding your property portfolio with multiple properties can present financing challenges, but it’s certainly feasible. Here’s a pragmatic guide on financing multiple rental properties:

1. Opt for a Buy-to-Let Mortgage:

If you possess a solid credit score and substantial savings, securing a traditional buy-to-let mortgage is a viable option. Depending on the lender, you might even be eligible for up to four separate mortgages. Be prepared to furnish proof of income and savings for the lender to assess the risk. Additionally, your existing rental properties’ performance may be under scrutiny. Keep in mind that a higher mortgage rate is a possibility as the borrowed amount increases, posing a higher risk to the lender.

2. Opt for a Portfolio Mortgage:

Simplify your finances with a buy-to-let portfolio mortgage, treating all properties as a single account. This consolidation aids in easier management of outgoings and payments, enhancing tax efficiency. Rates are calculated based on your portfolio’s existing rates, typically the average across properties. Usually requiring a minimum of four properties, borrowing limits are case-specific, subject to lender criteria. Note that the application process may be more extensive than standard mortgages, demanding additional documentation.

3. Leverage Existing Rental Value Increase:

If a property’s value in your portfolio rises, capitalize on it to acquire another. Prioritize areas with proven tenant demand to ensure optimal market performance. Regional variations in tenant demand necessitate thorough research before committing financially. Diversify your portfolio strategically; consider student accommodations near universities for consistent tenancy or invest in new builds, adhering to regulations and minimizing renovation costs.

Does my rented property need a license?

Understanding the significance of a property license is vital for tenants. If your landlord issues a section 21 possession notice without the required license, it may be deemed invalid. Section 21 notices often precede eviction proceedings.

In such cases, you may have the right to pursue a Rent Repayment Order for the period without the necessary license. This order, a financial judgment from a tribunal, mandates the landlord to reimburse up to 12 months’ rent. Organizations like Justice for Tenants provide free guidance on Rent Repayment Orders.

Landlords lacking the proper license may also face enforcement actions from the local council. It emphasizes the importance of ensuring your rented home complies with licensing requirements.

Do I need a landlord license?

The requirement for a property license depends on the size and type of the let, as well as your location within the UK.

As a general guideline, ‘mandatory’ licensing laws typically dictate that you may need a license if you’re renting to more than two sharers:

In England and Wales, all large HMOs (with five or more unrelated sharers) must be licensed. Smaller HMOs may also require a license if your local authority has an ‘additional licensing’ scheme in place.
In Scotland and Northern Ireland, every property classified as an HMO must be licensed.

For specific details on mandatory licensing for HMOs, please refer to the next section. It’s important to note that in England and Wales, local authorities can also establish their own additional licensing rules under a ‘selective licensing’ scheme, which can apply to any rented property, not just HMOs.

If you’re considering property investment in England or Wales, it’s advisable to contact the relevant local council before purchasing to ensure you are aware of and understand the specific licensing regulations for the area.

Mandatory HMO licensing

The one type of rental property that falls under mandatory licensing conditions across the whole of the UK is a House in Multiple Occupation (HMO). However, it does depend on the size of the HMO and where it’s located:

England and Wales

National licensing regulations stipulate that every large HMO, defined as a property where five or more individuals from multiple households live together, sharing toilet, bathroom, or kitchen facilities, must obtain a license that is valid for five years.

To secure this license, several key conditions must be met:

The house must be suitable for the number of occupants.
The property manager, whether the landlord or an agent, must be deemed ‘fit and proper,’ meaning they have no criminal record and have not violated any codes of practice.

Additionally, landlords must:

Provide the council with an annual copy of the gas safety certificate.
Install and maintain smoke alarms.
Furnish the council with safety certificates for electrical appliances upon request.

The council may impose additional conditions on the license, which could involve upgrading facilities.

The cost of a five-year license varies across local authorities, typically ranging from £500 to £1,000. However, landlords in London may face fees up to 50 percent higher.

For more detailed information, you can visit GOV.UK. In England, smaller HMOs and other types of rented properties may also require a license, depending on the policies of your local authority.

Scotland

Every property that accommodates a minimum of three unrelated tenants who share bathroom, toilet, and kitchen facilities must obtain a license, which remains valid for three years.

To secure this license, you need to provide the local authority with the following:

Your personal details and property information.
Copies of the tenancy agreement(s).
The gas safety certificate.

Similar to the regulations in England and Wales, the council may impose additional conditions on the license.

The licensing fee is calculated based on the number of tenants and typically falls within the range of £200 to £300 per tenant, depending on the policies of the local council.

For more comprehensive information, you can visit the GOV.UK website.

Northern Ireland

Any property that serves as the primary residence for three or more individuals from more than two households necessitates a license, which holds a five-year validity.

The licensing fee is determined by the number of tenants and currently stands at £185 per person.

For further details, you can refer to the Belfast City Council website.

Please note that landlords in Wales, Scotland, and Northern Ireland must also be registered with an appropriate scheme, in addition to obtaining the necessary licenses for their properties.

Different types of licensing scheme from different councils

In addition to the national HMO licensing requirements, every council in England has the power to introduce its own licensing rules, which fall into two categories:

1. Additional licensing

The national law pertains to ‘large’ HMOs, but councils have the authority to implement licensing regulations for smaller HMOs. These smaller HMOs are properties occupied by at least three tenants from more than one household who share toilet, bathroom, or kitchen facilities.

2. Selective licensing

Local councils have the authority to mandate licensing for various types of privately rented homes. However, if a council intends to implement a licensing scheme that covers more than 20 percent of their area or rental properties, they must obtain government approval. These selective licensing schemes typically have a duration of five years.

For example, Hammersmith and Fulham previously had a selective licensing scheme that applied to all rented properties in 128 streets within the borough from 2017 to 2022. However, their current scheme, running from 2022 to 2027, only covers 24 streets.

Croydon also revised its landlord licensing requirements after an initial scheme that encompassed all privately rented properties in the entire borough. Between October 2015 and September 2020, 38,596 licences were issued, and approximately 40 percent of licensed properties underwent inspection.

Under selective licensing, councils have the authority to assess whether an individual qualifies as a ‘fit and proper’ landlord and can impose various safety and property management requirements.

This decentralization of licensing rules has both advantages and disadvantages. On the positive side:

It enables each council to maintain a suitable balance of housing stock and prevent over-saturation of HMOs in a neighborhood.
Councils can ensure rental properties meet safety and condition standards before letting, with periodic reviews at each license renewal.
Councils can more easily identify and prosecute landlords who violate the law.

However, there are challenges:

Processing license applications and investigating violations can be time-consuming, and many councils face staffing limitations.
License fees are an additional cost for landlords.
The variation between different council schemes and their potential amendments or discontinuations can create confusion for landlords, potentially leading to unintentional non-compliance.

To determine if any additional or selective licensing schemes are in effect in your area or are planned for the near future, contact your local council’s housing department.

How do I start a property rental business in the UK?

1. Identify the Right Location

The initial step in launching a property rental business involves selecting the right location. Opting for an area with a substantial demand for rental properties is crucial. To do this, you can begin by conducting research on locations with a high need for rentals. These may include university towns, densely populated cities, and regions facing housing shortages.

For instance, consider the city of York, a place sought after by students, tourists, and families. Acquiring a property in the city center at a reasonable price virtually ensures a consistent rental income due to the high demand. Utilize online tools and property portals to keep an eye on properties hitting the market, as they provide valuable business insights. Staying ahead of the competition and identifying the best opportunities becomes more accessible through these resources.

2. Conduct a Market Research

Prior to venturing into any rental property investment, conducting comprehensive market research is of utmost importance. This entails a thorough analysis of the local property market, encompassing factors like prevailing rental rates, vacancy rates, and the competitive landscape. Equally vital is the investigation into the types of rental properties in high demand, whether they be single-family homes, apartments, or shared accommodations.

Adequate research is a fundamental step before initiating any business endeavor. Many real estate business setbacks result from insufficient research. While some may underestimate the significance of research when commencing their business, it is a defining factor that distinguishes a successful rental property investor from a frustrated landlord. For example, if you plan on major home renovations or improvements before renting out your property, meticulous research on renovation best practices is essential. Ensuring the property is in impeccable condition before offering it for rent is crucial.

In addition to research, it’s important to address key questions such as the necessary steps to establish a rental property business, your source of funding, potential competitors in the business, and your readiness to take ownership of a property. These considerations lay the groundwork for a well-informed and successful rental property venture.

3. Develop a Business Plan

Creating a comprehensive business plan is a critical step in launching a successful property rental business. Your business plan should delineate your objectives, financial forecasts, marketing tactics, and any legal prerequisites. This blueprint serves as a guiding tool to keep you on course, make well-informed choices, and establish a standout presence in the market.

Business plans prove invaluable for all types of enterprises. They offer more than just a means to secure loans or investments; they provide a holistic view of your rental property business. Your business plan fosters accountability, maintains focus, and aligns your goals and strategies effectively.

To craft an exceptional business plan, consider the following key pointers:

Emphasize your business’s unique selling points and the distinct qualities that set it apart from competitors.
Ensure that the financial projections for your rental property business are grounded in realism.
Include essential components like a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis, an advertising strategy, pricing strategies for rental units, and cost projections.

By adhering to these tips, you’ll be well-equipped to develop a robust business plan that paves the way for a thriving property rental venture.

4. Choose the Right Property and Maintaining the Property

Picking the perfect property is vital for the triumph of your property rental business. When deciding on a property, ponder aspects like its location, size, condition, and rental prospects. Opt for a property in good shape with the potential to yield substantial rental income.

Maintaining your rental property is vital for tenant retention and maximizing rental income. This involves regular upkeep, prompt responses to issues, and ensuring the property remains clean and well-maintained.

Starting a property rental business in the UK can be a profitable venture. By following these tips, you can ensure your business thrives: thorough research, secure financing, select the right property, be selective with tenants, stay competitive, and prioritize property upkeep. These steps will lead to a successful and lucrative business.

5. Obtain the Necessary Licences and Permits

Before renting any property, it’s essential to acquire the required licenses and permits, such as a landlord license, safety certificates, and local council approval. Familiarizing yourself with the local legal requirements for property rentals is crucial to prevent future legal complications.

6. Advertise and Market Your Property

After securing your property, the next step is to market it to potential tenants. You can do this through online platforms, local newspapers, or with the help of a real estate agent. Creating compelling and professional property listings that showcase your rental property’s features and benefits is crucial in attracting tenants.

7. Screen Your Tenants

Tenant screening is a vital aspect of the rental process. It involves conducting a comprehensive background check to verify that your potential tenants have a positive rental history, stable income, and a solid credit score. This proactive approach helps minimize the risk of non-payment and other problems that could affect your rental income.