The number of people with lodgers has also soared as the recession bites. New research from Abbey found that the number of lodgers has tripled over the last 12 months as homeowners seek to boost their income.
The other thing that we’re seeing is investors who’ve watched house prices fall now looking to take advantage of desperate sellers and bag themselves a bargain.
Whatever your situation, there are financial implications you should be aware of. From mortgages to tax-breaks to insurance, we take a look:
The accidental landlordUnable to sell, the next obvious step is to rent out your entire home, relocate to your own rental property and wait for prices to recover while continuing to chip away at the capital debt on your mortgage.
But it’s not quite that straightforward. Simply handing over the keys to suitable-looking tenants and moving out will invalidate the terms and conditions of your mortgage. In short, this means your lender could take your home back into possession at any time.
In this case, you will need to inform your mortgage lender of your plans. But – providing you can demonstrate the move is a last resort rather than for ‘commercial gain’ – it should offer you consent to lease. This means staying put with your existing residential mortgage opposed to switching to a considerably more expensive buy-to-let deal.
A ‘consent to lease’ charge may apply, however, typically between ₤100 and ₤200. Alternatively, your lender may add a small loading onto the interest rate you pay and/or set down a deadline by which you need to reoccupy your home.
The law of the modern jungle dictates that, where a recession removes choices for some people, it presents choices for others. For the cash rich then, now could be an ideal time to start out in property investment. That’s if you have a robust credit rating, around a 30% deposit and proof that the rent generated by a property equates to at least 125% of the mortgage interest payments.
Louise Cuming, moneysupermarket.com’s mortgage expert, said: “The housing slump has created a raft of property bargains which – unobtainable to many first-time buyers due to a lack of mortgage funding – are being snapped up by investment landlords.”
What are the best buy-to-let mortgages?
Top of the buy-to-let mortgage tables is currently a 4.15% two-year fix rate with tie-ins to match from BM Solutions. But in return, landlords will need a 40% deposit and a hefty arrangement fee of 3% of the loan.
Investors who can only lay their hands on a 25% deposit will find the best deal is a lifetime tracker mortgage from Chorley Building Society, payable at a current 4.95%. The arrangement fee is still 2% of the amount borrowed but it will only cost seven days’ gross interest to redeem the loan at any time.
Checklist for all landlords
Whether you plan to be a landlord or not, the same rules will apply. Take the following:
Get energised: Since October last year, all landlords are required to provide an Energy Performance Certificate. As it says on the tin, this measures how energy-efficient the property is on a scale of A to G and gives tenants a benchmark of what bills will cost. Prices for EPCs start at around £100.
Surrender your deposit: In a bid to protect the country’s renting population the Government now insists that all landlords put their deposit (typically six weeks’ rent) into an authorised tenancy deposit protection scheme within 14 days of receipt. You can find more details at www.depositprotection.com.
Get covered: As a landlord, you are responsible for the bricks and mortar of your home so getting adequate buildings insurance in place will be your responsibility. Even if your property is let unfurnished, it’s still advisable to have contents cover for things such as carpets and curtains.
There are additional insurances that are also sensible too. For example to cover you in the event that your tenant fails to pay the rent or even if they make a claim against you from having an accident in your property.
A standard insurer probably won’t cover you, but there are specialists who offer cover for landlords. These include CIA Insurance, Simply Business and Simple Insurance.
For more information visit moneysupermarket.com’s insurance channel.
Get safe: The law requires that landlords have a gas safety certificate in place before the tenant moves in. It will cost around £100 and must come from a Gas Safe Register (formerly Corgi) engineer.
Securing the deal: Most mortgage lenders will insist that you have an assured shorthold tenancy agreement in place that sets down terms and conditions, and length of tenure.
Don’t forget the tax breaks: Rental income is liable to tax. However, landlords can offset many of their costs through taxable allowances which can significantly cut the size of your tax bill – you may even be able to cut it to zero.
You get tax relief on things such as mortgage interest and professional fees – solicitor’s and estate agent’s costs. You can also deduct the cost of replacement furniture, white goods and furnishings. It’s well worth getting a good accountant for this.
Rent-a-room: If you’re one of the growing number of live-in landlords and are letting one of your rooms out to a lodger, you will still be liable to pay tax on the income. However, the first £4,250 you receive in rent is tax-free so your bill may not as much as you were expecting. According to Abbey, average rent charged per room is £393 a month. So at £4,716 a year this leaves just shy of £500 as taxable income.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.