BTL Guide:Layout 1 21/09/2015 16:32 Page 1 Mortgages Becoming a Landlord Things to consider before becoming a Buy to Let Landlord. Local knowledge. Mutual understanding.
Finding a property If you are looking to rent out a property for the first time, you may already have one in mind, such as one you have inherited, or even your existing home if you are moving to a second property. If this is the case, and you have a mortgage on the property, it is important to inform your lender of your intention to let. Depending on the lender s policy, they may grant a consent-to-let, allowing you to remain on your residential mortgage deal for an agreed period of time, but if you are planning to rent out a property for a longer period, the likelihood is that you will need to apply for a Buy to Let mortgage. For new property purchases you will need to ensure you are buying a suitable home in the right area that will attract the type of tenant you want. If you are letting for the first time, it may be best to stick to a local area you know well, so you can weigh up the pros and cons of the neighbourhood and be able to answer questions from prospective tenants. It also means you will be close by if you are needed. What type of tenant do you wish to attract? The answer to this question will help you decide where to look and what type of property to look for. It is also a good idea to speak to local letting agents to get an idea of which areas are consistently popular with the type of tenant you are targeting and the average monthly rent you could expect to receive.
The Financials Unless you are planning to buy a property outright, you will need a Buy to Let mortgage, which is a type of mortgage that a lender has agreed to grant you to finance a property you do not intend to reside in. Buy to Let mortgages tend to be more expensive than residential mortgages, simply because the risk is a lot higher to the lender. This may mean a larger deposit, usually at least 25%, higher interest rates and there could also be higher fees to consider. To understand the differences between Buy to Let and residential mortgages, the Council of Mortgage Lenders can provide more in depth information. The affordability of a Buy to Let mortgage is based on the rental income you expect to receive, rather than your salary, although you will still be expected to earn a minimum amount, so it s important to do your sums beforehand. Buy to Let isn t a get rich quick scheme. While you need to cover your costs, including monthly mortgage repayments, insurance and taxes, if you set the rent too high you won t attract any tenants, resulting in an empty property. Don t forget to factor in other initial costs, such as stamp duty, decorating and furnishing the property to a decent standard, advertising for tenants and covering the costs of any vacant periods between tenants, currently an average of 32 days.** Bear in mind there is likely to be a particularly lengthy initial vacant period after you purchase a property while you make it suitable to rent out, but this depends on how efficiently you carry out any work required and the state of the property on completion. You might need to pay tax on any profits you make on renting out a property. Find out more about the tax implications on rented property: www.gov.uk/renting-out-aproperty/paying-tax This means you will be left to cover the mortgage repayments and other outgoings associated with the property along with your mortgage/rent payment on your own residential property.
Landlord Responsibilities Becoming a Landlord doesn t begin and end with buying a property and finding tenants to live in it it comes with a lot of responsibilities, some of which can be demanding. It is therefore important to understand your obligations and be aware of any changes in law, not only to keep your tenants happy but to ensure you are acting within the law. Tenant safety should be a priority and you must ensure that electrical appliances are safe for use and all soft furnishings comply with current fire safety regulations. Gas safety is of utmost importance and landlords must ensure all gas appliances and fittings are safely installed, maintained and annually checked by a Gas Safe registered engineer. A copy of the gas safety check record (CP12) must be given to the tenant prior to them moving in and within 28 days of the annual check being carried out. A Legionnaires Risk Assessment should also be carried out. Maintenance of the property is also your responsibility. This means if anything that you have supplied for your tenants becomes faulty, you ll need to arrange to have it repaired or replaced. While tenants are responsible for any damage they cause, general wear and tear does happen and if a boiler stops working or shower starts leaking that s up to you to fix, and quickly. Before a tenant moves in to the property you will need to get all the paperwork sorted a written tenancy agreement (usually an assured shorthold tenancy agreement) should be drawn up and signed. The tenancy agreement should set out the length of the tenancy, monthly rent and what the tenant can and cannot do in the property. Making an inventory and taking photographs of the condition of the property, at both the start and end of the tenancy, is a good idea in the case of damage or theft. You can use our inventory template as a starting point. You must place a tenant s security deposit into a recognised Deposit Protection Scheme within thirty days of receipt. The main aim of scheme is to ensure that tenants can receive their deposit back within a timely manner at the end of their tenancy providing they have fulfilled all their obligations e.g. met all the terms of their tenancy, have not damaged the property and paid their rent or bills on time. Failure to use a Deposit Protection Scheme can result in a large fine of up to three times the deposit amount, plus costs if a tenant decides to take legal action. Read more about Deposit Protection Schemes and how they work at: www.gov.co.uk/depositprotection-schemes-andlandlords/overview
It is also likely that it will soon become your legal responsibility to ensure all adults occupying the property have the right to reside in the UK and to evict anyone who loses their right to reside. This has already been trialled over the past year in five UK councils, as part of the Immigration Act 2014 and is now due to be rolled out across the rest of the country according to recent government discussion.*** You can read more about this at: www.bbc.co.uk/news/uk-33754595 Of course, all prospective tenants should be vetted to ensure you are happy for them to reside in your property, including a satisfactory credit check. You may also wish to request a reference from a previous landlord if this is available. Landlord s Insurance is a requirement with all Buy to Let mortgages from Newcastle Building Society and we can introduce you to our partners Legal & General, who offer comprehensive cover for landlords. You can get a quote from them by calling 0800 027 5353 (lines are open Monday to Thursday 9.30am 8pm and Friday 9.30am 6pm) and quoting NEWCASTLE. Keeping up to date and complying with landlord laws and regulations is your legal responsibility and failure to do so may amount to a criminal offence. Although taking out landlord s insurance is optional it will most likely be required by your mortgage lender and should include contents cover if you are letting a furnished property. Accidents can happen just as easily as they could in your own home, so it makes sense to have the right protection in place. Some insurance providers offer additional cover for malicious damage, legal expenses and unpaid rent, as well as the opportunity to have your Buy to Let portfolio listed on one policy, making it easy to manage.
Things to consider Whether you don t have the experience, or you just don t have the time, it may be worth paying a letting agency to manage your property. While it comes at a cost to you, it does mean they will manage the property on your behalf by liaising with tenants, receive the calls when something goes wrong and arrange for repairs to be carried out. Remember there will be vacant periods in your property, some longer than others. You will need to be able to continue making mortgage repayments and cover other day to day costs during these periods so you will need to ensure you have adequate funds available. It may also be a good idea to keep some savings available for use in emergencies. For example, a boiler replacement could be costly. To help make sure you haven t missed anything before you move a new tenant in, we ve created a handy checklist. If you are planning to use a Buy to Let portfolio to provide income during your retirement, be aware that many Buy to Let mortgages require you to have an alternative income. Speaking to a Financial Planning Manager from our wholly owned subsidiary Newcastle Financial Services Limited (NFSL)* can help you to put your retirement goals in place. Call 0345 600 4330 for an appointment (lines are open Monday to Friday 8am 6pm).
IF YOU FAIL TO KEEP UP WITH REPAYMENTS ON YOUR MORTGAGE A RECEIVER MAY BE APPOINTED AND / OR YOUR RENTAL PROPERTY MAY BE REPOSSESSED. Newcastle Building Society Principal Office: Portland House, New Bridge Street, Newcastle upon Tyne, NE1 8AL. Newcastle Building Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Newcastle Building Society is entered in the Financial Services Register under number 156058. You can check this on the Financial Services Register or by contacting the Financial Conduct Authority on 0800 111 6768. Call 0345 734 4345 or visit us online www.newcastle.co.uk. Details correct at time of print (September 2015). Buildings and contents insurance is arranged by Newcastle Building Society and provided and underwritten by Legal & General Insurance Limited. *Newcastle Building Society introduces to Newcastle Financial Services Limited. Newcastle Financial Services Limited is an appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority. **Source: www.hollier-browne.co.uk/news/articles/landlords-enjoy-quick-reletting-periods-801792792.aspx (June 2015) ***Source: www.bbc.co.uk/news/uk-33754595 (August 2015) Local knowledge. Mutual understanding.