What adds value to buy-to-let properties? Four home improvement ideas

Making certain renovations to your buy-to-let (BTL) property could potentially boost its value by tens of thousands of pounds.

Nearly nine in ten (88%) landlords have undertaken renovations on at least one of their rental properties in the past five years, according to a survey of 1,000 landlords.

Adding an extension or loft conversion to your property could up its value by 24%, according to analysis by The Mortgage Works, part of Nationwide Building Society, who commissioned the survey.

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On the average English or Welsh home worth £272,995, according to the Land Registry, this would add £65,518 to the asking price.

An extra bedroom can bump up the asking price of a BTL by 13%, while an extra bathroom and 10% increase in floor area may add 8% and 3%, respectively.

Adding a second bathroom on a BTL can add twice as much value to a home than an owner occupier property (4%).

Andrew Harvey, senior economist at Nationwide, said: “Location remains key to house values, but other factors, such as the number of bedrooms and bathrooms, are also important to landlords.

“Improvements that increase the size of the property, such as an extension or loft conversion, can add value and boost rental income.”

Across the 1,000 landlords, the average total spend on renovation work per landlord was £88,000.

The research also found these same four renovations can significantly impact rental income for landlords.

Adding an extension or loft conversion can boost it by 26%, while creating more space to add a double bedroom can add 12%. A BTL property with a second bathroom attracts a 6% rental rise.

Increasing the energy efficiency of a property could cut bills for your tenants and increase the home’s value too, the research found.

Harvey explained: “A more energy efficient BTL property (rated A or B) attracts a significant premium of 10.9% compared to a similar property rated ‘D’.”

Solar panels top list of most popular green improvements

Of the 1,000 landlords surveyed, 18% had green improvements made to their home. Of these, 37% had solar panels installed and 33% had pipe or boiler insulation put in. Nearly a third (32%) had electric car charging installed.

Harvey said it was “likely” some of these improvements were made so landlords could meet minimum energy efficiency standards (MEES). These require rental properties to have a minimum energy efficiency rating of E in order to be let out.

The number of households with solar panels installed is on the rise, with nearly 1.5 million dwellings in England now having them, according to Nationwide. This equates to around 6% of all English homes, and is up from 3% in 2013.

Electric vehicle (EV) charging is also becoming more widespread, with 1.8 million homes now having a charging point – 7% of all housing stock in England.

What is BTL and how does it work?

Buy-to-let (BTL) is when you buy a property with the intention of renting it out as a source of income. If house prices rise, you can also profit from any capital gains.

Unless you can afford to pay for a house up front, you will have to take out a buy-to-let mortgage. These are like residential mortgages, but with some differences:

The amount you can borrow on a BTL mortgage is based on how much rent the property can generate versus the cost of the mortgage

BTL mortgages sometimes require you to have a minimum salary so you can cover any shortfall in rent, such as during periods when there are no tenants in the property

Lenders class BTL mortgages as riskier than residential mortgages, meaning the interest rates are generally higher

The minimum deposit amount required to buy a property to let is typically 20-25%

As with any financial decision, buying a property with the specific intention of letting it out should only be done if it’s fiscally responsible. That means you need to consider the “rental yield”. Anything north of 5% is classed as a good rental yield.

The rental yield is the return you get on the property and can be worked out by dividing the annual rental income by the purchase price, then multiplying this number by 100.

For example, annual rent of £10,000 divided by a property you bought for £200,000, multiplied by 100, gives you a gross yield of 5%.

If you’re not sure how much rent to charge, you can speak to a letting agent. There are also free-to-use calculators which guide you on how much rent you should charge based on your property type, location and demand, like Homeowners Alliance’s.

We look at the best areas for buy-to-let landlords in a separate guide.