Renting out your home: considerations for private landlords

POSTED: 10th June 2015
IN: Landlord helpful guides

An increasing number of people are choosing to rent out their home and enter the world of buy-to-let.

undefinedFor some, becoming a private landlord enables them to benefit from extra income. For others, it allows them to move into a new property without having to wait for their original home to sell.

However, all prospective private landlords need to take a number of considerations into account before venturing into the world of buy-to-let.

Financially viable

When contemplating renting out their home, potential private landlords should make sure that it is a financially viable option before they take the leap. It’s important to have funds available to cover mortgage repayments, renovate the property if necessary, and pay income tax.

It’s imperative that home owners choosing to rent out their property inform their mortgage provider before doing so. Although practice can differ between lenders, landlords will be expected to switch from their original agreement of a residential mortgage to a buy-to-let mortgage.

Landlords that fail to inform their lender that they have started to rent out their property are in breach of their mortgage terms and risk making their home insurance invalid.

Covering mortgage repayments

Once the property has been remortgaged to a buy-to-let, in theory, private landlords should see their repayments covered by tenants’ rent. However, private landlords must take ‘void periods’ into account so that repayments can still be made even if the property was to stand empty.

Those who have already paid off their mortgage and own the property outright could choose to use the rental income to cover repayments on a new property. However, it’s still important that repayments can be met without the need for rental income.

It’s necessary to remember that having a mortgage on one property can affect a home mover’s eligibility to get a mortgage on another. Mortgage providers are unlikely to accept potential rental income when assessing whether to lend or not, so demonstrating strong finances are vital.

Property renovation and maintenance

It’s not unusual to renovate or decorate a property before advertising it to prospective tenants. Although they may have lived in the property themselves, changes may need to be made to attract renters.

Once tenants have moved in, landlords are responsible for all maintenance and repairs. Often, landlords can make sure they’re prepared by setting money aside each month to cover such costs.

Paying tax

With rental income taxed in line with the property owner’s basic or higher-rate tax band, the tax implications of renting out the property must be calculated.

However, while landlords will be subject to tax on their rental income, there are certain elements that can be exempt such as letting agency costs and maintenance expenses.

It is always worth seeking independent advice on this matter and understanding the tax implications of placing your property into buy-to-let.

Devoting time to Buy-to-Let

Although having a steady income from a full or part time job can strengthen finances, potential landlords should question how much time they can devote to their buy-to-let property.

Buy-to-Let requires more than just robust finances; it also demands substantial amounts of time and dedication. Since it is the landlord’s responsibility to ensure that the property is maintained, some may find themselves ‘on call’ 24 hours a day.

Potential landlords may choose to hire a letting agent to manage the property on their behalf. This can be an ideal way of minimising the workload, and it could also help to attract a higher number of prospective tenants.

Rules and regulations

As well as maintaining the property and undertaking any repairs required, landlords are expected to follow a number of rules and regulations.

Many of the regulations are safety-related in order to protect tenants living in the property. These are likely to include:

  • Checking that gas appliances are safe by retrieving a certificate from a registered gas installer
  • Maintaining the electricity supply
  • Ensuring that furniture is fire resistant
  • Providing a safe living environment that is free from hazards

A landlord’s obligations are likely to vary depending on the type of property that they own, so it’s crucial that research is undertaken before letting out their property to learn which rules are applicable. Regardless of the type of property, tenants’ deposits must be protected under a registered tenancy deposit scheme.

Houses in multiple occupation

While all rental properties must abide by certain rules and regulations, Houses in Multiple Occupation (HMO) are subject to extra legislation. A HMO is a property with three or more tenants that do not form a single household. The extra rules have been put in place to reduce the risk of fire and to ensure that all tenants are living in safe accommodation.

Rules differ between local authorities and so it’s essential that landlords research their property and area to find out how to comply.

Mortgage and insurance terms

Not only must landlords remortgage their property to a buy-to-let and comply with the law, they must also ensure that they aren’t breaking any of the terms outlined in their original home insurance contract. New landlords should seek independent advice to ensure that they fully understand buy-to-let obligations.

Home insurance

In order to ensure the property and its contents are protected in the event of an accident or burglary, the insurer must be informed that the property is being let out to tenants.

While home insurance is often chosen to safeguard a landlord’s investment, there are specific insurance policies available to protect against a loss of earnings and potential legal costs.

Becoming a landlord

While renting out a property can provide a steady return, landlords must examine the various costs associated with such an investment before venturing into the world of buy-to-let.

Not only should landlords devote time to maintaining their property and strengthening their finances, they must also ensure they are complying with the law and providing tenants with a home that is safe.

By researching the rental market and ensuring they have the finances to support an additional property, new landlords can increase their chances of making a profit.

Aldermore is a British Bank that provides landlords with the mortgages they need to fund their property investment. To learn more about remortgaging a residential property to a buy-to-let, please don’t hesitate to get in touch.  

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