Found yourself letting property through circumstance rather than a conscious decision to invest? You’re not alone.
This handy guide contains 7 key considerations to get you started on the right path to being a successful ‘accidental’ landlord.
‘What is an accidental landlord?’ we hear you cry. ‘Accidental landlords’ are people who have ended up letting property through circumstance, rather than because they’ve made a conscious, and usually carefully considered, decision to invest.
Sound familiar? If so, you’re certainly not alone. There are some pretty common life events that lead to people having a ‘spare’ property – for instance:
- Moving in with a partner
- Inheriting a property
- Relocating overseas for a temporary work assignment
- Wanting or needing to move but struggling to sell a home
Whatever the reason, if you’ve ended up with a property that you don’t need or want to live in yourself, renting it out can seem like a great idea. Especially if you’re looking for a bit of extra income. However, you can’t just find a tenant and move them in. There are a lot of legal considerations and steps you need to take before you can let a property that used to be someone’s home.
That’s why we’ve put together this handy 7-step guide, to help you navigate this next chapter in your life and get you started on the right path to being a successful ‘accidental’ landlord.
1). Is there a mortgage on the property?
This is the first thing you should check, if you don’t know already. If the property has a standard residential mortgage, you must speak to the lender as soon as possible to explain that there’s been a change in circumstances, and you now want to rent it out.
If you don’t do this, you’ll be breaching the terms of the mortgage and the lender could dramatically raise the interest rate, demand back-payments to cover interest owed and fine you. In the worst-case scenario, they could call in the mortgage, meaning you’d have to pay back the entire outstanding balance.
When you advise them of the change of use, the lender will do one of two things:
- Ask you to apply for ‘consent to let’. This allows you to keep the residential mortgage temporarily. But you’ll probably be moved onto a higher interest rate, and there may also be additional fees to pay. Consent-to-let agreements are usually only offered for 6 to 12 months, but they can provide a useful stop-gap, giving you time to make other arrangements.
- Require you to switch to a buy-to-let mortgage before you accept tenants. The lending criteria are different for a buy-to-let mortgage to those of a residential mortgage, with a significant deciding factor being the level of rental income the property can generate.
Usually, lenders will look for the monthly rent to be somewhere between 125% and 145% of the mortgage payment amount. And the maximum loan-to-value ratio is generally 85% or below. So you’ll need at least 15% equity in the house to secure a buy-to-let mortgage.
The best course of action is to speak to a specialist buy-to-let mortgage broker who can help guide you through your options and make sure you find a mortgage that’s best suited to your needs.
2). Are there any lease restrictions or covenants?
If the property is leasehold, check the lease to see if there are any clauses or covenants that either forbid letting or restrict who you can let to.
Here are some examples of restrictions you might find in leases:
- Only owner-occupiers can live in the property. I.e. the property cannot be sub-let
- The property can only be rented out to single people or family units. I.e. no unrelated sharers are allowed
- Prospective tenants must be interviewed and approved by the freeholder
And if there are any restrictions or requirements that apply to residents – for example, pets aren’t allowed or washing can’t be dried in communal areas, including the garden. You’ll need to make sure you take note so that you can let your prospective tenants know.
3). Take property-specific tax and legal advice
Once you start generating rental income, you’ll probably want to hold on to as much of the profit as possible! Property tax is a fairly complex business. You’ve got to make sure that you own the property, manage it and take your profits in the most tax-efficient way.
It’s also helpful if you can plan ahead, so think about what you’d like to do with the property in the future – e.g. are you more likely to sell it or pass it on, and when? Having the right tax strategy in place from the start can make a huge difference to how profitable your rental is over time.
Before you do anything else, it’s a good idea to speak to a property legal expert and a tax consultant specialising in buy-to-let, who can help make sure you don’t pay any more tax than you need to.
4). What’s the energy efficiency rating on the EPC?
Currently, all properties must achieve a minimum ‘E’ rating on the energy performance certificate (EPC) before they can be legally let. However, the government plans to raise this to ‘C’ in 2025. So, if you think you’ll still be letting the property in a few years’ time, it might be sensible to invest in any necessary energy efficiency improvements now. To improve your property’s energy rating consider:
- Improving the property’s insulation,
- Installing double glazing. Or;
- Upgrading the boiler.
5). Consult a professional local letting agent
Even if you’d like to manage the property yourself long-term, there’s a huge amount of legislation governing the lettings industry. It takes time to understand everything that needs to be done to let a property safely and legally. Existing regulations can be amended, and new laws can come into force at any time – we sometimes see several changes a year.
Engaging a professional letting agent will mean you should be able to get the property ready to rent much more quickly than if you try to tackle everything yourself. And it can be hugely beneficial to use them on an ongoing basis:
- They know the local lettings market inside out and are dealing with properties and tenants every day, so they’re in the best position to help you let quickly and achieve the highest possible rent.
- They have reliable systems and procedures in place for everything from advertising and referencing to arranging maintenance and repairs.
- The best agents are members of professional industry bodies, such as Propertymark or Safeagent, meaning they work to a code of practice, are properly trained and have support on the legal front.
- They’re used to dealing with queries and resolving disputes and can act as a ‘buffer’ between you and your tenant if there are any challenges during the let.
If you’d like to find out about the various services we offer landlords, please give us a call on 01244 316338 and one of the team will be happy to help.
6). Does the property meet health and safety standards?
Ensuring the continuing health and safety of your tenants should be a top priority for you as a landlord. And this is reflected in the number of related laws that you need to comply with in order to let a property legally. Some of your key obligations cover:
- Fitness for habitation – Does the property meet basic standards for safety and comfort?
- Fire safety – including installing alarms and ensuring furnishings are compliant
- Undertaking periodic gas and electrical safety checks
- Ensuring there’s an effective heating system
- Keeping the property free from potential risks, such as damp and mould, legionella and trip hazards
- Making sure the property is secure
It’s hugely important that you know exactly what all your legal obligations are as a landlord. And understand that you may need to invest in making some changes to ensure your rental property is compliant. Particularly if the property is being let as a House in Multiple Occupation (HMO).
For more information about meeting your health and safety obligations, check out our blog, ‘Keeping your tenants safe’.
7). Do you need to invest in some refurbishment?
Making financial success of letting depends on two factors:
- Being able to attract the best tenants
- Being able to attract a good level of rent
In order to achieve this you need to know what tenants are looking for. And ensure that your property offers as many of the things on their wish list as possible! If the property you’re planning to let isn’t modern or hasn’t recently been refurbished. You’ll likely need to spend some money on refurbishment – or at the very least redecoration and some new furnishings.
You can do some research yourself by looking online at similar rented accommodation that’s commanding the best rate. But it’s also important to understand that different tenants look for different things. For instance, a family with children won’t have the same requirements as a young, single professional.
A good local agent will be able to advise you on local tenant demand and guide you on what you need to offer. For example, which fittings, amenities, furnishings and décor are most appealing to potential tenants. They may also have some useful tips on sourcing the most cost-effective solutions.
Get In Touch
There’s a great deal to know about letting a property legally and successfully. We’ve only touched on a few elements here. There are also laws governing licensing, tenant checks, property repair obligations, evictions – and the list goes on!
So, if you’re an accidental landlord with a property that you’d like to rent out, please do get in touch with us. We can talk you through the local lettings market and help you create a rental that will be a success, not just today but into the future. Give us a call on 01244 316 338 or get in touch via our contact form and we’ll get back to you as soon as possible.