The Bank of England’s decision to raise the base rate to 0.25% in December is so far having a minimal impact on the residential property market, which is good news for landlords, says Huy Le, Landlord Specialist here at Knight Frank Finance.

Though it’s likely future hikes are on the cards in 2022, interest rates remain historically low with a range of competitive buy-to-let products available. At the start of the year alone, deals rose by 222 (between December 2021 and January 2022), meaning landlords now have a total of 3,525 buy-to-let products to choose from, according to Moneyfacts.co.uk.

This means there are opportunities to take advantage of this year if you are looking to invest or grow your portfolio.

With that in mind, here are the key things to consider now to ensure you are in the best position to act in the months ahead:

1) Review your portfolio

As a starting point, it’s a good idea to review your existing property portfolio to see if there are any opportunities to raise capital through remortgaging, particularly as UK property prices have risen 10.2% during 2021 meaning your current properties may have risen in value. Lenders use the rental calculation of the prospective property to determine how much you can borrow, so it’s worth considering this approach to maximise your borrowing power.

2) Add value via a house extension and consider an HMO

Multiple occupancy (a house in multiple occupation, HMO) for professional tenants is one of the best investment strategies out there for landlords. There may be more work to do upfront to get the property ready for rental, but the yields are typically much better than those seen on flats – especially if you’re able to extend up into the house roof or down into the basement.

If you are extending, the optimum number of bedrooms to aim for is five. Anything higher than this per household becomes too crowded and anything lower doesn’t maximise the rental yield potential. In addition to increasing your yield, the extension will add value to your property too.

3) Choose the right type of property for your target returns

If you’re considering investing in a flat, there are a few things to bear in mind.

Working from home during the pandemic prompted many tenants to reassess the kind of property they want to live in, with many moving out of their city centre flats in favour of more space.

Though demand is likely to rebound as people return to work, flats haven’t been enjoying the price growth seen in houses during the past couple of years. The average annual price growth for a flat in UK was 6.6%, for example, compared with 14% for a detached house (Oct 20-Oct 21), according to the UK House Price Index.

Inevitably you will also have fewer rooms, so the yield won’t be as high as an HMO, and you will need to factor in any ongoing costs associated with the flat like ground rents and service charges.

4) Look to the regions

Lower cost property tends to have a higher rental yield so look to the regions, away from property hotspots, to add value to your portfolio. Hull, Bolton, Bradford, Portsmouth and Southampton are just a few areas that offer lower property prices in comparison to big cities like Manchester, Bristol and London. At the same time, they are still able to achieve monthly rents of around £400-£500.

That said, landlords should always consider their own geography too. Buying a property miles away from their own can be difficult to manage.

5) Set up an Ltd business

There are tax advantages to purchasing a buy-to-let property as a limited company rather than as an individual. For a property you own personally in your name, the rental profit is added to your other earnings and taxed as income. Rental profits on properties in a limited company, however, are taxed at the current rate of corporation tax, which tends to be around half of the higher rate of income tax. This then gives you flexibility to choose what to do with the profits, such as invest in further properties. A limited company can also be beneficial for succession planning purposes. Children can be added as directors or shareholders of the company, without being impacted by inheritance tax.

Landlords should always seek professional tax advice to assess what options are best suited to them.

If you’d like to discuss your options for growing or maximising your rental investment portfolio, speak to our specialist buy-to-let broker Huy Le, who will be able to help you identify the best financial approach for your circumstances.