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.

 

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 →