Essential Information For New Landlords

Property can be a great long term investment, but if you are thinking of becoming a landlord for the first time there are lot of things to consider. There’s more legislation governing lettings than there is for sales and it changes regularly, so you need to keep up to date.

A great place to start is the government’s How To Rent guide for tenants and landlords, which summarises your responsibilities as a landlord. You need to give your tenant a copy of this document anyway, so it’s worth reading beforehand!

The rest of this post is a collection of things I find new landlords are often not aware of.

Permission to let

It sounds obvious, but you must have permission to let the property. That means all legal owners of the property must consent and, assuming you are using an agent to manage the property for you, sign the agent’s Ts&Cs.

If the house is mortgaged you must have the lender’s permission before you rent it out. In most cases that means taking out a specific Buy-To-Let (BTL) mortgage but some lenders will permit a temporary change of terms, for example if you plan to work away for a period and intend to return as your main residence in the future.

BTL mortgages are usually on an Interest Only basis, keeping payments lower but meaning the capital will only be repaid at some time in the future when the property is sold.

Commercial interest rates are usually higher than domestic rates, but don’t be tempted to cheat the system by taking out a standard residential mortgage because mortgage fraud has serious consequences.

There are so many BTL products that you need to speak to a BTL mortgage specialist to find a product that suits your needs. Be aware  too that there may be restrictions on BTL mortgages forbidding you to let to a close family member. If this is a concern then speak to your mortgage adviser first.

You will also need landlord’s buildings insurance (contents are the tenants responsibility).

Energy Performance Certificate

Your house must have a valid Energy Performance Certificate (EPC) and a copy must be given to your tenant before they move in. The EPC lasts for 10 years (or until you do major works such as an extension) and if you purchased recently your property should already  have one. You can download a copy from the EPC Register if you don’t have it to hand. Note that from 1 April 2018, properties with EPC ratings of F or G will need to be upgraded before they can be let.

Safety Tests

if there are any gas appliances in the property you MUST have an annual landlords gas safety test conducted by a Gas Safe registered engineer. As this has to be renewed every 12 months you might choose not to do this until just before the tenant moves in, but be aware that it is illegal to move them in without a valid certificate. Similarly you need to ensure the house is electrically safe, meaning an electrical safety test of the fixed wiring every 5 years and annual testing of any portable appliances (i.e. anything with a 3 pin plug), which includes appliances such as washing machines and tumble dryers.

Legislation was introduced recently that requires rental properties to have a legionella risk assessment conducted. There are many companies offering this service and some practical guidance on the HSE website.

Smoke and CO alarms

There must be working smoke alarms on each floor. Ideally these should be mains powered and interlinked, but battery operated alarms are permissible. They must be tested and working when the tenant moves. You need to show them how to test, after that it’s their responsibility to replace batteries and test regularly during their tenancy.

If you had a solid fuel appliance such as a log burner then you must also have a working CO monitor. It is NOT a mandatory requirement to have a CO monitor next to a gas cooker, but for the sake of £15 or so it doesn’t hurt.

Prescribed Information

The Prescribed Information is information that must be given to your tenant before they take possession of your property. If you fail to provide it, you will not be able to repossess at the end of the tenancy. The prescribed information is:

  • A copy of the EPC (you can download a copy from the EPC Register)
  • A copy of the current Gas Safe certificate
  • A copy of the How To Rent guide.

Tenancy Agreements

A tenancy agreement is a contract between you and your tenant. It lets them live in your property as long as they pay rent and follow the rules. It also sets out the legal terms and conditions of their tenancy. It can be written down or oral (ie a spoken agreement) but it is highly recommended that you have a written contract signed by both parties so there is no ambiguity over the terms. A tenancy can either be:

  • fixed-term (running for a set period of time)
  • periodic (running on a week-by-week or month-by-month basis)

Almost all new tenancies are Assured Shorthold Tenancies (ASTs) and the minimum information they should contain are given on the GOV.uk website.

Can Your Tenant Legally Rent?

You must check that a tenant or lodger can legally rent your residential property in England. Before the start of a new tenancy, you must check all tenants aged 18 and over, even if:

  • they’re not named on the tenancy agreement
  • there’s no tenancy agreement
  • the tenancy agreement isn’t in writing

Beware, letting to someone not legally entitled to rent can lead to a fine of up to £3000!

Deposits

Normally a landlord will require a refundable deposit from the tenant of typically 1 or 1.5 months to cover potential damage to the property. This must be registered with a government-backed registration scheme, of which there are currently three. Failure to do this can make it impossible to repossess your home at the end of the tenancy and lead to a hefty fine.

When you have received the deposit, you have 30 days to tell the tenant:

  • the address of the rented property
  • how much deposit they’ve paid
  • how the deposit is protected
  • the name and contact details of the tenancy deposit protection (TDP) scheme and its dispute resolution service
  • their (or the letting agency’s) name and contact details
  • the name and contact details of any third party that’s paid the deposit
  • why they would keep some or all of the deposit
  • how to apply to get the deposit back
  • what to do if you they can’t get hold of you at the end of the tenancy
  • what to do if there’s a dispute over the deposit

Income Tax

Your rental income, less certain allowable expenses, is considered taxable income and must be declared on your self assessment form. Following the 2016 budget the tax allowance on mortgage interest payments is being gradually reduced over a 4 year period from April 2017, which has implications for the amount of tax you pay. You would be advised to speak to an accountant so you understand the implications for your personal circumstances.

If you live abroad for 6 months or more per year you’re classed as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC) and this affects how you pay income tax on your rental income. For more information see https://www.gov.uk/tax-uk-income-live-abroad/rent

Houses in Multiple Occupation (HMOs)

An HMO is a property that is let to 3 or more people forming 2 or more households. It includes bedsits, shared houses, hostels and some buildings that have been converted into self contained flats which don’t meet Building Regulation standards. If you are thinking of letting on a ‘per room’ basis (e.g. student lets) then you are probably creating a HMO, whether by design or accident. It can be a profitable and successful investment strategy, but be aware that there is more regulation of this sector to protect potentially vulnerable tenants from unscrupulous landlords.

All large HMOs (more than 2 floors, and more than 4 people) need to be licensed but an increasing number of local authority areas, including Aylesbury Vale and South Northamptonshire, operate Mandatory and Additional HMO licensing schemes. This means that virtually all HMOs in Aylesbury Vale or South Northants must now be licensed.

More information

If you want to manage your rental property ‘hands on’ the you are well advised to network with other landlords to learn best practice and to join an organisation such at the National Landlords Association for additional help, support and advice.

If this all sounds overwhelming, then you would benefit from the support of a letting agent who is experienced in the sector. If you would like an informal chat to discuss your property then feel free to call me 24/7 on 01280 830830 or visit EweMove.com to see how we can help.

 

Preparation is the key to a fast house sale

As an agent I get to see more houses than most people and obviously I speak to many potential buyers. Whilst there’s no ‘golden bullet’ to sell your house quickly and at the best possible price, there are things you can do to greatly improve the odds of getting an offer. Preparing your home for sale takes time, effort and possibly money, but if you approach this as an investment rather than a cost it will prove effort well spent.

First Impressions

It’s a cliché, but first impressions really do last. The front of your house will normally be the leading photo on your listing on Rightmove/Zoopla and is the first thing your buyer sees when he or she pulls up in front of your house. If the impression is that it is scruffy and uncared for then your chance of selling is immediately reduced.

The next time you approach your house try and look at it as objectively as possible and take note of things you take for granted that might put a buyer off. You might have always meant to clear the rubble from the front garden, or scrap the old Ford Fiesta that hasn’t moved in 5 years. You might automatically walk round the wonky third slab without a second thought. But you can rest assured your viewer will trip over it, turning a minor maintenance oversight into an unwelcome focal point and raising the question “if they can’t be bothered to re-lay one slab, what else haven’t they done?”

While you’re about it, trim the hedges, mow the lawn, top up the gravel and clean the windows, window cills, soffits and fascias. If you have block paving, or slippery decking, get someone to clean it for you. There are companies that will jetwash it for you for just a few pounds.

If the paint on the garage door is peeling, or there’s a flapping cable to your unfinished DIY outside light installation, sort them out.

I recently sold a house where the door had fallen off the electric meter box in the front wall, which created an awful first impression. The vendor’s excuse was ‘it was like that when I bought it‘ but despite repeated nagging from me she still did nothing about it. I temporarily wedged the old door back in place with cardboard, but not all agents will be so diligent.

To redecorate or not to redecorate?

In my experience buyers fall into one of two camps. There are those who are looking for a project and plan to be moving walls and generally knocking you house about. For them the decor is largely irrelevant because it’s going to need redoing when they’ve finished anyway. These people do exist but unfortunately they are a) in the minority and b) usually looking to buy below asking price because of the extra work they plan to do.

The second type of buyer is looking for a house they can move into straight away and get on with their life. They usually have fuIl time jobs and active families and simply don’t have the time, inclination or expertise to take on major decoration (often these people also prefer a low maintenance garden for the same reasons). In my experience these people make up the majority of viewers, and I think that good decorative condition is right up there with kitchens and bathrooms in the list of attractive features.

Another observation is that most of us over estimate the cost of remediation, meaning a well decorated house has a higher perceived value than one needing a refresh. I’ll illustrate the point with a real life case study. I was recently asked to value a house for potential sale. It was a 30-odd year old 4 bed detached house on a popular, established estate close to excellent schools, the kind of houses that families (and estate agents) love. When I pulled up outside I could immediately tell the property was ‘tired’ (see First Impressions above) but if the outside was tired then the inside had been asleep for 10 years! There wasn’t a single well presented room in the house, the paint on the woodwork had all yellowed and the colours on the walls were dark and very ’80s. There was no carpet in the hall or upstairs landing and the stair carpet was so threadbare it was a tripping hazard. The bedrooms were finished in faded emulsion, the kids rooms had clouds painted on the ceilings but worst of all there was mildew across the ceilings in the front bedrooms. However, there were no apparent structural issues, it was purely decorative.

I had to be honest with the vendor and explain that whilst neighbouring properties were being marketed at £360-380k, theirs was worth significantly less because of its condition. We agreed to market at £290k with the anticipation that the low price would generate lots of interest and encourage competitive bidding until it reached true market value. The strategy was partly successful, in that I did more than 30 viewings, but despite that we received no sensible offers; viewer feedback was that the work needed was overwhelming and they didn’t know where to start.

After a couple of months, morale was low. I sat down with the vendors and went through the feedback in detail. I explained they had 2 choices,  they’d either have to sell cheap to an investor, or take it off the market and invest money to tackle the main issues before re-marketing. I gave them contact details for a damp consultant and local decorating companies and left them to it.

Another couple of months went by, then I got a call inviting me to go and take new interior photos. To my delight, they’d taken my advice constructively and acted on it – new carpets to bedrooms, hall, stairs and landing; the damp issue on the ceilings had been investigated and resolved; all bedrooms had been professionally decorated in classic magnolia and white; the bathroom had been cleaned and redecorated. The transformation was amazing and although there was still work needed I suggested we should re-market much nearer its potential market value, I suggested £350k. The second couple to view put in an offer at full asking price and the sale completed quickly and smoothly. The cost of this transformation? Less than £5,000!

This example illustrates the return on investment can be very high, yet all too often vendors say to me that there’s no point in redecorating because the buyers will only redecorate in their own style later. This is just lazy thinking. I reiterate that most buyers have limited appetite for renovation, unless the price is so low that they can see a big profit. Put another way, if there are two similar houses, and all other things are equal, it’s the newly decorated one that will sell first, even if it is priced £10k higher. Food for thought!

More FREE information

If you are just starting to think about moving you’ll need an idea of the current value of your home. As a starting point you can get a reasonable idea by using an online valuation tool.  There are lots of them out there but the best is Hometrack. Their reports include hard-to-find local market analysis, plus a Hometrack valuation estimate based on their Automated Valuation Model – the same system that 15 of the top 20 UK mortgage lenders use. Normally these cost £19.95 but if you request a valuation via the EweMove website you can get a HomeTrack report FREE OF CHARGE!

Also, take a look at our book The 39 Steps To Avoid A House Sale Nightmare. It’s  packed full of practical information to help achieve a quick sale at the best price. You can order from Amazon for £9.95, but if you contact me I’ll send you a FREE copy.

A simple explanation of the changes to landlord’s income tax from April 2017

So, the Chancellor has decided to change the way income tax is calculated for private landlords and there are no prizes for guessing that it’s not good news for many. His changes are being phased in from April 2017 and will be implemented in full from April 2020.

The principal change is that mortgage interest relief is no longer allowable as an expense before calculating your (taxable) profit and, instead, an allowance is made against your tax bill. The official guidance is on the government website but here’s a simple example to explain how it works. Obviously each landlord’s tax position will be different so the following explains the principles only; you will need to take advice from your accountant on your personal situation. With that caveat ringing in the air, let’s leap into a simple example: Continue reading →