Tips for landlords

Thousands of homeowners are turning to the rental market as they struggle to sell their property during the recession. As a result, Britain now has a growing nation of ‘accidental landlords’ - homeowners who are weathering the storm of a falling housing market by renting out their properties.

According to property search engine Globrix, the number of new rental properties coming on to the market in February along was 40 per cent higher than December 2008.

While taking on the role of landlord can be a great solution for those struggling to sell in a slow market, it requires much more than a spare set of keys for your new tenants.

We explain the pitfalls to watch out for and the best ways to keep both your property and tenants in safe hands.

Tell your mortgage provider

Firstly, get in touch with your mortgage lender once you’ve decided to rent your property. The fine print on your mortgage agreement will show you that you are in fact legally obliged to tell your provider that you are renting your property out.

Negotiate and see if your lender is willing to accept a change of tenure without you having to remortgage.

If your existing lender isn't willing to lend on a property that is rented out, you will have to remortgage on to a buy-to-let loan. If you discover you need to remortgage but are unsure about which deal to go for, an independent mortgage broker will be able to help.

Whatever the case, it is likely you’ll probably be charged a higher rate of interest.

Buildings and contents insurance – your responsibility

Maintaining buildings insurance is absolutely essential and will be required as part of your mortgage agreement. But it’s also important not to forget contents cover.

The temptation for homeowners new to renting out is to assume that their tenants will have contents insurance (which they should). But as a landlord you will still need it too.

Why? Well, this is because even if you are letting your property out unfurnished, you will need to be covered for items such as carpets, curtains, kitchen and bathroom units in the event of a fire or accidental damage.

Furnished and partially furnished properties may need detailed contents insurance – possibly with extras - should any valuable possessions or expensive furniture remain in your property in your absence.

A standard insurance policy probably won’t cover you if your former home is rented out but there are a number of specialist landlords’ insurance providers, such as CIA Insurance, Simply Business and Simple Insurance. As well as offering buildings and contents cover, insurers specialising in rental properties will also provide landlord liability insurance.

This is something many people will overlook, but which, if you have tenants in your property, is worth having. As the landlord you are responsible for the safety of your tenants.

Landlord liability insurance protects you should any harm come to your tenants while residing in your property including damages and legal costs in case a tenant is injured or dies as a result of a fault in your property. Don’t forget to update it for every year of tenancy.

For more information on providers visit our landlord insurance channel.

EPCs – Energy Performance Certificates

Since October 2008, landlords are required to have Energy Performance Certificates (EPCs). These certificates tell you how efficient your home is based on bands from A-G - the most efficient homes, in band A, should have the lowest fuel bills.

Safety certificates and precautions

If you are renting a property furnished check that furnishings comply with fire and safety regulations. The Landlord and Tenant Act of 1985 requires landlords to ensure electrical installations are safe when the tenancy begins, and landlords are obligated to ensure that electrical appliances are safe - checks must be carried out every five years. It is also a requirement of law that checks are carried out on gas appliances and flues annually. Look for a CORGI registered engineer to carry out the checks.

Fire exits, smoke alarms and extinguishers - your property is no longer a private dwelling and as such has to comply with fire safety. Your local fire service will be happy to arrange a check and ensure all your requirements adhere to safety standards.

DIY it – be your own agent and save money

Once you’ve sorted out your mortgage, insurance and complied with all the legal, safety and technical requirements, you need to decide how you will manage the let.

If you have the time to manage the property rental yourself think about the time and expense of doing this. From advertising for tenants and carrying out viewings yourself to checking references and being available 24-7 should there be any problems, the demands of being a landlord can be high. You may therefore prefer to pay someone to do the job for you.

And remember, you may be the owner of the property but your tenants have rights. Once your tenants have signed on the dotted line, you cannot enter the property without their permission, or when they are not there. You are now running a business – not your former home.

Going through an agent – the pros and cons

If managing the property yourself proves to be too time-consuming and inconvenient, using the services of a lettings agent may be an option. An agent will find you tenants, carry out viewings, handle deposits and check references, as well as manage your property.

But this service comes at a price: Many charge between 5% and some even as high as 15% for the honour.

Don’t forget to agree in advance on what happens if a builder, plumber or electrician is needed at the property - do you get to decide which tradesman is appointed and can you approve the quote before the work is carried out?

A tenancy agreement

Once you have found a potential tenant, you need to carry out security checks. You should run a credit check, which will help to verify not just that the tenant will be able to pay the rent, but that he is who he says he is. Ask for references and have them checked. . If you want to find a tenant quickly it is tempting to cut corners, but remember: it is you who will ultimately pay the price if you end up with a tenant from hell.

If you are not confident about doing background checks yourself, many estate agents offer this service separately, so it may make good housekeeping to get them to do it on your behalf.

If you are using a letting agent, it is still worth doing the viewings yourself, so that you have at least met the tenant.

Most mortgage lenders insist that you have an assured shorthold tenancy agreement (AST) in place if you rent a property out. Often contracts run for 12-months but you can have clauses included such as a break clause for one or both parties after six months.

Even if you are letting your property to someone you know it is still wise to get a contract signed by both you and your tenant - don't rely on an oral agreement as this can be difficult to enforce once your tenants have moved in.

Deposit – no one’s until the end of the lease

Landlords are no longer entitled to hold on to deposits, so you need to find a tenancy deposit protection scheme to hold the money. You must be able to provide the tenant with details of the scheme within 14 days of taking the deposit.

The penalties for noncompliance with tenancy deposit protection are severe: a court can order a landlord to repay the deposit plus a penalty of three times the amount of the deposit. If you don’t sign up for a scheme you will find it very hard to evict tenants with whom they have a dispute.

Make renting pay - tax breaks

Once you have tenants and the rental is established, you will be liable to pay income tax on the rent you receive. However, landlords can offset many of their costs through taxable allowances which can significantly reduce their tax bill and, in some instances, reduce it to zero.

For example, landlords get tax relief on mortgage interest, professional fees such as solicitor and letting agent's costs and they can also deduct the cost of replacement furniture, white goods and furnishings.

For more information, visit the Revenue & Customs website, or speak to an accountant.

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