A recent survey conducted by estate agency, YourMove, with 1,071 landlords across the UK revealed nearly half are ‘pension pot’ landlords, accidental landlords made up the second-largest group at 29% and just 20% of the survey identified as professional landlords.
That means a third of landlords are ‘accidental landlords’ (people letting out a property without intending to) and there are lots ways this could happen.
The most common include inheriting all or part of a property; having to let your home due to divorce or separation; relocating for job; moving in with a partner; and letting out your home after being unable to sell it.
There are several options, but one of the most common routes accidental landlords pursue is rental.
It’s a way or generating income so you can keep hold of the property as a long-term investment.
This also buys time to work out what to do next or acts as a stepping stone whilst waiting for the property to sell in slow market conditions.
With recent Government changes specifically targeting the buy-to-let market now being enforced, it’s a difficult time for amateur landlords to turn a profit.
The recent cut in Mortgage Interest Relief (MIR) has been reduced from 100% to just 75%, slashing profits overnight.
Brexit continues to bring uncertainty so it’s becoming less attractive to investors. That’s without consideration for the additional expectations and costs that come with the role.
You may not be local to the property which presents obvious issues. Deciding to self-manage is a big commitment and requires knowledge and confidence around your responsibilities and best practice.
It’s true you’ll save money, but it will be extremely time consuming and could become complicated.
Employing a lettings agency to manage the property on your behalf could be a simpler solution, but this comes at a price.
However, it’s not all doom and gloom and rental properties still make up 1 in 5 of every five homes.
What’s more, the government driven changes have put the brakes on the buy to let market and is putting off a lot of amateur landlords.
The slowing of supply is likely to push up rent for the medium term, so it presents potential for savvy investors.
So, you want to go ahead with the rental of an acquired property? Here’s some important housekeeping for you to tick off…
First things first. Contacting your mortgage lender making them aware of your new situation is a MUST. Failure to advise them could result in mortgage fraud and may incur a fine.
The lender could decide to grant a Consent to Let: This allows you to let the property for a maximum period of 12 months whilst maintaining your current mortgage. This is a good option if you think the market will improve over the coming months and your end goal is to put the property up for sale quickly.
The longer-term solution is to switch to a buy-to-let mortgage: A relatively straightforward process depending on your current deal. These carry more risks for lenders (mostly because people will be relying on rental payments from tenants to pay the mortgage), so rates are higher, and the affordability criteria can be tougher.
Whilst specific landlord insurance isn’t a legal requirement, it’s worth giving this some serious consideration.
Normal home insurance covers the occupier’s possessions and the building itself, but specific landlord insurance covers a multitude of incidentals including: missed rental payments, loss of income if the property is left vacant for long periods, legal fees and expenses (in case of disputes with tenants) and home emergency cover if the property’s supply of gas, electricity, heating or water is cut off.
There are several types of cover available, so it’s worth investigating to establish what type will work best for you and your property.
As a quick guide…
Don’t get caught out. By law, all landlords are required to provide proof that the property is safe for tenants to inhabit.
That means obtaining certificates and having the required checks to maintain all appliances and services at the property:
Gas safety: Gas appliances must have annual gas safety checks carried out by a Gas Safety Register engineer. A copy must be given to the tenant when they move in.
Fire safety order: There must be a written risk assessment in place to comply with the Fire Safety Order.
Energy Performance Certificates: Buy-to-let properties must adhere to certain energy efficiency standards.
Electrical inspections: If the property has any kind of multiple occupation, you must have an electrical safety check carried out every five years.
Other required safety precautions include providing a smoke alarm on every floor of the property and a carbon monoxide alarm in every room with a solid fuel source.
A Right to Rent check makes sure that a tenant or lodger can legally rent a residential property in England.
If you opt to use a letting agency, they’ll usually do this check for you. If not, it’s your responsibility to carry this out.
Check with the Home Office if the tenant is a Commonwealth citizen, it may be the case that they don’t have the right documents but might still have the right to rent in the UK.
You must check all new tenants aged 18 and over. Every adult in the property must be checked regardless of whether they’re named on the tenancy agreement, even if there’s no formal written tenancy agreement in place.
It’s against the law to only check people you think are not British citizens. Everyone must be checked.
Questions to ask and documents needed:
This step is very important. Renting to someone who is not allowed to stay in England could result in an unlimited fine and/or being sent to prison.
In October 2018 new government legislation came into play in a bid to improve living standards and conditions for accommodation in the private rented sector.
As a result, an increasing number of councils in England brought in selective licensing schemes that go beyond the mandatory government landlord licensing applied to HMO properties.
New rules also came in to play regarding what defines a House in Multiple Occupation (HMO), meaning thousands of properties are subject to different requirements than before.
The Government also announced it will be reviewing how selective licensing is used.
In areas where selective licensing applies, landlords must apply for a licence if they want to rent out a property.
These changes mean there are now three landlord licensing schemes you may need to sign up to.
Depending on the property type and your intentions, it’s worth contacting your local council to find out what areas are taking part in selective licensing and how/if this affects you:
Mandatory licensing: For HMO properties that house five or more people from two or more separate households; there is also now minimum size requirements for rooms.
Additional licensing: This is also for landlords letting out HMOs, brought in through the 2004 Housing Act. It allows local authorities to apply stronger rules to their area if they think HMOs aren’t being properly managed or that mandatory licensing doesn’t go far enough.
Selective licensing: This has been brought in by some (but not all) councils. It can apply to all landlords in an area – NOT just those with HMOs. The council will check that you are a ‘fit and proper person’ to let out a property, as well as making other stipulations concerning management of the property and appropriate safety measures.
Your tenancy agreement is the contract between you and your tenants laying out the legal terms and conditions whilst they’re renting your property.
It doesn’t matter if you have one or several tenants, you’ll most likely be renting through an Assured Shorthold Tenancy in England & Wales (the most common type of agreement).
This means any deposit they hand over must be held in a government-backed tenancy deposit protection scheme (TDP).
There are three to choose from:
Failing to keep tenants’ deposits in a TDP scheme or failing to share information about where the money is being held, could mean tenants can take you to court if a dispute arises regarding their deposits.
There are separate TDP schemes in Scotland and Northern Ireland. If your property is in these areas, you’ll need to check on the relevant Government sites to find the appropriate schemes.
A point to note. It’s your responsibility as a landlord to put your tenants deposit in the scheme within 30 days of receiving it.
At the end of a tenancy you must return the deposit within 10 days of you both agreeing how much of the deposit will be paid back.
If you’re in a dispute with your tenant, the deposit will remain protected in the TDP scheme until the issue is resolved.
The department for Business, Energy and Industrial Strategy rolled out new rules to energy standards last year stating all newly let rental properties must achieve a minimum energy performance certificate (EPC) rating of E.
By 2020, it won’t be legal to let any homes with an EPC rating of F or G. Landlords could face fines of up to £5,000 if they don’t improve the energy efficiency in their rental homes.
You can get an EPC through any accredited assessor. Some letting agents might offer to include the cost of an EPC in your rental contract, but it’s worth looking around to find the best deal.
Once you’ve got it, an EPC lasts for 10 years.
You are obliged to pay income tax from any profit you earn with the rental property you own.
Your profit is made up of the rent you receive, but also includes any other payments from tenants for services normally provided by the landlord.
This is added together and any allowable expenses (cleaning costs, replacement of fixtures, fittings and furnishing, repairs etc.) will be deducted to give you the final profit figure.
If you charge any non-refundable deposits for your property these will count as rental income, as will money that’s kept over from a returnable deposit at the end of the tenancy.
The first £1,000 of your income from property rental is tax-free. This is your ‘property allowance’. You’ll need to contact HMRC if your income from property rental is between £1,000 and £2,500 a year.
Thereafter, you must report and file your figures on a Self-Assessment tax return if it’s £2,500 to £9,999 after allowable expenses or £10,000 or more before allowable expenses
If you don’t usually file a tax return, you need to register by 5 October following the tax year you had rental income.
It’s worth bearing in mind the implications regarding potential stamp duty costs.
If you inherited or previously lived in the property you’re planning to let out, you won’t have to pay retrospective stamp duty.
However, if you purchase another property to live in, it will be classed as a second property and you’ll be liable to pay buy-to-let stamp duty rates on it.
The rates include a 3% additional surcharge on what you’d pay as a normal home owner, regardless of which country of the UK you live.
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