What To Do When You Become an Accidental Landlord

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 this could happen in many ways.

The most common include inheriting all or part of a property, having to let your home due to divorce or separation, relocating for a job, moving in with a partner, and letting out your home after being unable to sell it.

What should you do next?

There are several options, but one of the most common routes accidental landlords pursue is renting out the property.

Renting generates income, allowing you to keep the property as a long-term investment.

It also gives you time to decide on your next steps or serves as a temporary solution while you wait for the property to sell in slow market conditions.

However, you must inform your mortgage lender before renting, as failing to do so without their approval could result in complications. Most lenders won’t have a problem with an accidental landlord situation for a period of time.

Becoming an accidental landlord is not a job to be taken lightly

With recent government changes specifically targeting the buy-to-let market, it has become more challenging for amateur landlords to turn a profit.

Brexit continues to create uncertainty, making property investment less attractive to some. This is without factoring in the additional responsibilities and costs of the role.

This can present obvious challenges if you don’t live near the property. Self-managing the property requires a big commitment, as well as knowledge and confidence in handling your responsibilities and best practices.

While self-managing might save you money, it is extremely time-consuming and can become complicated.

Alternatively, employing a letting agency to manage the property could be a simpler solution, though it comes at a cost.

Despite these challenges, rental properties still account for one in every five homes.

Key decisions

So, do you want to go ahead with renting an acquired property? Here’s some important housekeeping for you to tick off…

Informing current mortgage lender

First, contact your mortgage lender and inform them of your new situation. Failure to do so could result in mortgage fraud and may lead to fines.

There are two options:

• 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.

Landlord insurance

While landlord insurance isn’t a legal requirement, it’s worth serious consideration.

Standard home insurance typically covers the occupier’s possessions and the building itself, but landlord insurance covers additional risks, such as missed rental payments, loss of income if the property is vacant for extended periods, legal fees for tenant disputes, and home emergency cover if utilities like gas, electricity, heating, or water are disrupted.

It’s important to let your current provider know your home is being let out, as this could void your insurance policy.

Several types of cover are available, so it’s worth investigating what type will work best for you and your property.

As a quick guide…

• Landlord building insurance – covers any structural damage (fires or floods).
• Landlord contents insurance – if your property is rented out furnished, this covers the cost of replacing or repairing furniture, carpets, kitchenware or electrical items.
• Landlord liability insurance – covers you if a tenant or visitor is injured on the property.

Safety & certificates

Don’t get caught out. By law, all landlords must prove 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: To comply with the fire safety order, a written risk assessment must be in place.
• 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 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.

Run a right-to-rent check

A Right to Rent check ensures that a tenant or lodger can legally rent a residential property in England.

If you 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. They may not 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 no formal written tenancy agreement is in place.

It’s illegal to only check people you believe are not British citizens. Everyone must be checked.

Questions to ask and documents needed:

• Which adults are going to use your property as their main home?
• Ask for original documents that prove the prospective tenants can live in the UK
• Check that the documents are genuine
• Make and keep copies of the documents for your records, along with the date that you made the checks

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.

Do you need a local license or HMO permit?

In October 2018, new government legislation was introduced to improve living standards and conditions for accommodation in the private rented sector.

As a result, an increasing number of councils in England introduced selective licensing schemes beyond the mandatory government landlord licensing applied to HMO properties.

New rules also came into play regarding what defines a House in Multiple Occupation (HMO), meaning thousands of properties are subject to different requirements than before. However, you’re unlikely to be allowed an HMO permit if you only have consent to let on your property.

The government also announced it would review how selective licensing is used.

In areas where selective licensing applies, landlords must apply for a licence to rent a property out.

These changes mean there are now three landlord licensing schemes you may need to sign up for.

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 are now minimum room size requirements.
• Additional licensing: This is also for landlords letting out HMOs brought in through the 2004 Housing Act. It allows local authorities to apply stricter rules to their area if they think HMOs aren’t properly managed or mandatory licensing doesn’t go far enough.
• Selective licensing: This has been introduced 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 and make other stipulations concerning the management of the property and appropriate safety measures.

Is your tenant’s deposit in a protected scheme?

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 (the most common type of agreement) in England and Wales.

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:

• Deposit Protection Service
• MyDeposits
• Tenancy Deposit Scheme

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 tenant’s 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 on 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.

Is the property adhering to the new energy regulations?

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.

Since 2020, it’s been illegal to let any homes with an EPC rating of F or G. Landlords who don’t improve the energy efficiency of their rental homes face fines of up to £5,000.

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.

Declaring tax on your income

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, furnishing, repairs, etc.) are deducted to give you the final profit figure.

If you charge non-refundable deposits for your property, these will count as rental income, as will money 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 in which you earned rental income.