Fri 17 Aug 2018 View all news articles

How to let your home rather than sell

Contrary to popular belief, not every landlord is in the property business by choice.

People's circumstances often change, resulting in the need to move house but not sell up.

Some people temporarily move abroad for work, while others let a property when they move in with a partner or when elderly parents move into long-term care.

A slow property market, combined with Brexit uncertainty, means many people are now more likely to hang on to homes while they wait for the house price dust to settle even if they need to rent elsewhere.

We give the legal, financial and practical low-down for these 'accidental landlords' on letting out their property.

1. MORTGAGES AND TAX

Accidental landlords are not allowed to simply rent out their property and keep their residential mortgage.

To let a property without falling foul of your mortgage lender you need either the lender's 'consent to let' or a specialist buy-to-let mortgage.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: 'Consent-to-let tends to be on a short-term basis. If your lender agrees then they may do nothing, charge a one-off fee or load the interest rate during this period.

'Quite often the consent-to-let will be for a finite period – typically six or 12 months. If the property is to be let out on a long-term basis then landlords need a buy-to-let mortgage.'

Buy-to-let lenders typically require the rent to cover 125 per cent of the mortgage repayments; so if your mortgage is £1,000 a month, you would need a rental income of at least £1,250 a month. Most lenders demand a deposit, or equity, of at least 25 per cent of the property value.

There are also higher mortgage arrangement fees – often a percentage of the loan amount, rather than a fixed sum.

The way landlords are taxed began to change in April 2017. Under Section 24 of the Finance Act, there is a gradual tapering down in the tax relief that allows landlords to offset the cost of mortgage interest against their rental income.

Last April saw this tax relief reduce to 50 per cent. It will drop again – to 25 per cent – in April 2019, and then to zero per cent in April 2020 when it will be replaced by a tax credit worth 20 per cent of mortgage interest.

2. FINDING A TENANT

Attracting the right tenant can mean the difference between a stress-free experience and a constant headache. The ideal tenant will pay the rent on time each month, abide by the terms of the tenancy agreement, and co-operate if the property needs repairs.

Landlords should thoroughly check out potential tenants before committing to a tenancy. This means carrying out a credit check, seeing payslips or bank statements to assess affordability, and getting references from previous landlords.

The Immigration Act 2014 puts the onus on landlords to check a tenant has the legal 'right to rent' in England. Landlords can be fined up to £3,000, or even be sent to prison for up to five years, if they let a property to illegal immigrants.

Landlords in England must ask to see a tenant's original documents. This might be a residence permit, a UK immigration status document or an endorsed passport.

These rules do not apply in Wales, Scotland or Northern Ireland.

3. LETTING AGENTS

Many landlords hire a letting agent to either find a tenant or manage the whole tenancy.

Using a third party means you will not be bothered by maintenance queries or late rent payments, but handing over the reins comes at a cost.

Agents typically charge 10 to 15 per cent of the rent to fully manage a property, but many charge extra fees for signing or renewing contracts, obtaining references, making credit checks, and dealing with inventories.

Sam Mitchell, chief executive of online estate agent HouseSimple, says: 'Many landlords use a letting agent to find tenants and are then happy to manage the property themselves to save on management fees which can be quite substantial. But the advantage of handing over the management of the property to an agent is that you will not have tenants calling you at all times of the day and night when something goes wrong.'

4. TENANCY CONTRACTS

Most private landlords let property on an assured shorthold tenancy agreement. Such agreements normally have a fixed term of six or 12 months then continue on a rolling monthly basis or are renewed for another fixed term.

Danielle Clements, property litigation specialist at Gorvins Solicitors, says: 'An assured shorthold tenancy gives tenants certain stipulations they need to abide by and also certain rights to protect them, such as not being evicted without notice.

'The agreement means the tenant has a legal interest in the property and that the landlord has given up certain powers on their property. For example, not being able to turn up unannounced and demand to enter the property. This has to be agreed with the tenant.'

Landlords could be forced to offer tenants three-year tenancies if new Government proposals become law.

Plans under consultation mean landlords would be tied-in for three years but tenants would be able to leave before the end of the minimum term.

The aim is to give renters more security. Landlords are generally opposed to the plans, which will make mortgage lenders wary about approving loans.

5. EVICTING A TENANT

Assuming you have an assured shorthold tenancy in place, landlords must follow procedures set out in the Housing Act 1988 to evict a tenant. You can issue a section 21 notice if you want the property back after a fixed term ends, or a section 8 notice if the tenant has broken the terms of the tenancy.

In either case, if the tenant does not leave when requested, you will need a possession order from a court to regain possession of the property.

Saida Bello, housing lawyer at national firm Setfords Solicitors, says: 'There are strict procedural rules to follow when seeking to evict a tenant. The court takes a dim view of any action that could be considered as harassment and it is a criminal offence to evict a tenant without the right court order.'

6. DEPOSIT PROTECTION

Most landlords ask tenants for a deposit equal to four to six weeks' rent to cover damage to the property or unpaid rent.

The deposit must be protected in one of three Government-approved deposit protection schemes: the Deposit Protection Service, MyDeposits or the Tenancy Deposit Scheme. These schemes all run dispute resolution services which can step in if the landlord and tenant cannot agree on deductions from the deposit at the end of a tenancy.

Landlords who fail to protect a deposit risk having to pay their tenants compensation of up to three times the deposit amount, and will not be able to evict them using a section 21 notice.

7. VITAL PAPERWORK

Landlords are governed by more than 100 pieces of legislation, many of which relate to paperwork that must be in place at the beginning of a tenancy. Landlords need to give tenants the following documents:

A copy of the government's 'How to rent' guide.

A copy of the deposit protection certificate.

An energy performance certificate.

A gas safety certificate.

Landlords must also arrange for a smoke alarm to be fitted on every storey of the property, and a carbon monoxide detector to be installed in any room where solid fuel is used.

In England, most landlords who let a house in multiple occupation – often known as an HMO – will need a licence from their local authority. About 70 councils in England also run additional or selective licensing schemes.

Landlords can check with their local council as to whether they need a licence or check with the National Landlords Association. Wales, Scotland and Northern Ireland all have compulsory landlord registration schemes in place.

8. INSURANCE

Normal residential home insurance will not be valid once a property is let out.

Owners need specialist landlord insurance to cover the building and any contents they own, such as furniture.

There are various extras that can be added to the policy including liability cover if a tenant is injured in the property, legal cover to recoup unpaid rent, and loss of income in the event the property is left uninhabitable, such as following a flood or fire.

Richard Truman, head of operations at Simple Landlords Insurance, says: 'Peace of mind does not have to cost the earth.

When making the purchase look for quality cover, good reviews, and clarity on what is covered and what is not.

'Do not dismiss the extras such as legal cover out of hand – tailor the policy to your property, and check prices before you auto-renew next time around.'

For useful advice and tips on becoming a landlord, make sure you visit our Lettings Hub

Source: Daily Mail

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