The private rental sector has been growing steadily. The number of households living in the private rented sector in the UK increased from 2.8 million in 2007 to 4.5 million in 2017, an increase of 63%. Industry experts expect this growth to continue as the trend of generation rent gains momentum. This growth has led many people to give serious thought to becoming a landlord.
Whether you are an accidental landlord or embarking on a career in property, it is essential to understand what the role involves. It is all too easy for an inexperienced landlord to make mistakes when the UK property market, and the rules and regulations, are continually changing.
In this guide we help new landlords understand the key responsibilities of owning a buy-to-let property.
Check if you’re even allowed to let your property
You must contact your mortgage lender to get their permission to rent out your property. You will probably need to switch your residential mortgage to a buy to let mortgage. In this case, you will incur an arrangement fee and the rate of the mortgage may differ from your current rate.
If your property is leasehold, you must get permission from the leaseholder to rent your property.
Weigh up the costs of being a landlord
You will need to work out whether or not the property will be a good investment. You will need to look at the rent you expect to achieve and deduct all your costs. This includes the costs of buying the property, your annual mortgage costs and running costs such as letting agent fees, maintenance costs and insurance. You should also factor in potential void periods.
When you weigh up a property investment, calculating its rental yield helps to understand the return you are likely to make. Click here to read our blog on How to Work Out and Calculate Rental Yield for UK Properties.
Things to decide before getting started
Before you start looking for tenants, here are a few questions you might want to ask yourself:
Will I rent out my property furnished or unfurnished?
As a landlord, the decision to rent a property furnished or unfurnished is entirely yours to make. It will depend on your needs and priorities, local tenant demand, and what type of tenant you are hoping to attract.
Furnished properties will attract tenants wanting hassle-free renting. This includes students and young professionals and corporate tenants. Unfurnished properties attract tenants who want to put their stamp on a rental property as well as couples or families who already own a lot of their own furniture.
Will I allow pets?
Britain is a notoriously pet-loving nation; around 40% of households have one. When it comes to buy-to-let landlords, only a few embrace the idea of a pet in their property because of concerns about smells and damage to their property. However, the tide may be turning as more landlords are open to well-behaved pets. Allowing pets may increase your pool of potential tenants, may enable you to charge a higher rent and find tenants who want to stay in your property for longer.
Will I allow tenants to smoke in the property?
If you don’t want smokers, make sure you include a no-smoking clause in your tenancy agreement and advertise the place as being for non-smokers only.
Will I hire a letting agency?
You can hire a letting agency to find tenants and collect your rent, leaving you to get on with the day-to-day management of the property. If you would like, your letting agent can also fully manage the property for you.
Alternatively, you may choose to go it alone.
The option you choose will depend on whether you live close to your property and have the time to look after your investment. A letting agent will save you time, but there are fees to consider.
Your responsibilities as a landlord
As a landlord, you must fulfil certain legal and health and safety obligations. While it is unlikely that your Belgravia home will be unfit for habitation, it is easy to get caught out if you don’t know the law around areas such as gas safety, electricity safety and tenancy deposit schemes.
Repairs and Maintenance
Landlords are responsible for most repairs and maintenance in a rental home. People who choose to live in Belgravia want the best, that means they will not compromise on the property they rent. If you are planning to be a landlord in Belgravia, you will need to ensure that your property is maintained to a very high standard.
All gas appliances and chimneys/flues must be safety checked annually by a qualified Gas Safe registered engineer.
Landlords must have the electrical installations in their rented properties inspected and tested by a qualified and competent person at least every 5 years.
Private sector landlords are required to have at least one smoke alarm installed on every storey of their properties and a carbon monoxide alarm in any room containing a solid fuel burning appliance (e.g. a coal fire or wood burning stove).
All upholstered furniture and furnishings provided by the landlord must meet fire safety standards; this means that any sofas, cushions, chairs, or mattresses must carry the fire-resistant symbol.
Tenants must be able to escape quickly in the case of a fire. Landlords must make repairs to ensure that, where possible, fire-resistant materials are used in the structure of the building to stop fire spreading quickly through the property.
Run a right to rent check
Before the start of any new tenancy, you must check that your tenants can legally rent your residential property. This includes all tenants aged 18 and above, regardless of whether they are named on the tenancy agreement. It is against the law to only check people you think are not British citizens. You must ask your tenants for the original documents that prove they can live in the UK, read more here about the right to rent documents you can accept.
Protect your tenants’ deposit
You must place your tenants’ deposit in a government-backed tenancy deposit protection (TDP) scheme within 30 days of receiving it. You can use any of the following schemes if your property is in England or Wales:
Local licensing and HMO permit?
All landlords who rent property to five or more people from more than one household require an HMO (House in Multiple Occupation) licence. Some councils in England also operate ‘additional’ or ‘selective’ landlord licensing schemes. You should check with your local council before letting your property.
Is the property adhering to the new energy regulations?
You must order an Energy Performance Certificate (EPC) before you market your property to rent. You will need to find an accredited energy surveyor who will assess your property and produce the certificate. Your EPC will last for 10 years and can be used for multiple tenancies.
Your EPC rating must be E or above; if the rating is F or G you must take action to improve the property’s rating to E before you market the property.
Your rights as a landlord
You have a right to expect your tenants to pay rent on time, look after the property and meet the terms in your tenancy agreement. If they don’t, you have the right to take eviction proceedings against them under Section 8 of the Housing Act 1988. You also, currently, have the right to ask your tenants to leave the property without giving a reason once the initial fixed-term period of their tenancy is over, under Section 21 of the act.
When you rent out your property, you no longer have the right to access the property whenever you like. You must give the tenants 24 hours’ notice before visiting, even if it’s to carry out essential repairs.
Always obtain references for your tenants, including from previous landlords. Ask for copies of bank statements and proof of income, as a rule of thumb only rent to tenants whose monthly income is roughly three times the rent. It is also worth investing in credit checks to be sure of their past payment history. Credit referencing agencies such as Experian can do this for a fee.
Things to do before your tenant moves in
Make sure the property is clean and tidy. You should also make sure you have left instructions for all appliances, your contact details, and any additional information about the property – such as when the bins are collected.
You should make sure that your tenant has read and understood everything in the tenancy agreement. You must give them copies of the gas safety certificate, electrical safety certificate, energy performance certificate and the governments How to Rent Guide.
Draw up a full inventory of your property, ensuring sure you include the condition of the property itself and every item within the property. Support your inventory with photographs and videos. Your tenants should sign the inventory to confirm that everything it lists is both present and in the stated condition.
While specific landlord insurance isn’t a legal requirement, you should give it serious consideration.
The following types of landlord insurance are available:
Landlord building insurance – If you own the freehold of the property, buildings insurance is a good idea. You generally won’t be able to get a buy-to-let mortgage without proof of buildings insurance.
Landlord contents insurance – Although tenants are responsible for insuring their personal belongings, if you’re renting out a furnished property you might want contents insurance to cover the things you own.
Landlord liability insurance – covers you if a tenant or visitor is injured in the property.
Rent guarantee insurance – protects you if your tenant falls into arrears.
Home emergency insurance – provides emergency assistance in the case of plumbing, heating or electrical failures, or if damage to the doors or windows compromises the security of the property.
Declaring tax on your income
You must pay income tax on any profit you earn from the rental property you own. This is the rental income you receive less any allowable expenses.
You should inform HMRC when you start renting a property as you will probably need to complete a tax return (even if you are making very little profit or even a loss). Keep a record of how much rental income you receive and allowable expenses you incur in each tax year. Click here for a list of allowable expenses, from 2020 none of the interest on your mortgage payments can be considered an allowable expense.
Becoming a landlord for the first time can seem daunting. Here at Best Gapp, we are experts in the Belgravia property market and can help you make your investment a success. Contact us to discuss your budget and your long-term objectives – we’ll show you how to achieve them!