buy to let landlords guide right up your street. More and more people are renting. As a landlord you ve got enough to think about, without worrying if you ve made the right financial choices. Our advisers have access to many mortgage deals you won t find available directly from high street lenders and can advise on our award winning protection and general insurance products. With their knowledge and expertise, combined with our brand strength you should feel confident about the financial decisions you re making.
02 buy to let landlords guide Getting started Buy to let isn t a get rich quick option and there s a lot to consider before you decide to go ahead. For many it can be an investment or a route to additional income in the future. But you ll need to be cautious, take advice and treat it as a business deal. This guide is designed to cover some of the basics. While we ve done everything we can to make sure we ve covered what you need to know, we always recommend seeking professional advice on the legal, tax and mortgage related areas of a buy to let purchase. THE BASICS TENANTS If you re planning on buying a property specifically to rent out, you ll need to decide what type of tenant you want to rent to. Are you hoping to appeal to a family or a young professional couple? Or, if you have a property you plan to rent out what type of people would your property appeal to? It may appear obvious but it will make marketing your property so much easier if you know who you want to target. A family might want a location close to good schools and local parks. Where as a young professional couple may be more interested in good transport links and easy access to bars and restaurants. THE PROPERTY Having considered the market and the type of tenants you re hoping to attract, you may want to consider the level of decoration, furnishing and maintenance that may be required. These factors could all mean added expense to you, but could help you command more rent.
buy to let landlords guide 03 THE MORTGAGE Finding a good mortgage deal is the key to making a good return. Buy to let mortgages generally require a larger deposit than regular loans. You will need to demonstrate to the lender that the rent received will cover the interest payments on the mortgage, with extra to spare. There are lots of buy to let mortgage deals around, so we would recommend that you take advice to ensure you get the very best deal. You also need to bear in mind there are no guarantees you ll have continuous letting of the property. There may be times when the property is empty, so you need to know how you ll cover those costs. VALUATION AND SURVEY As with any property purchase, your lender will require a valuation to check the property s value and, in buy to let terms, confirm the rental income you re hoping to repay the mortgage with. On receipt of the valuation make sure you re fully aware of any repairs or maintenance that need taking care of. Other than just the valuation, we would suggest having a complete building survey or mid-range home buyers report. This can be done at the same time as the valuation and could avoid any nasty surprises in the future. LEGAL ADVICE As soon as your offer has been accepted, you should appoint a solicitor or licensed conveyancer to give you legal advice and fulfil all the documentation needed to purchase the property. Once you ve bought your property and are looking to let it, it s important to use a solicitor to draw up a shorthold tenancy agreement. These are generally for 6 or 12 months and are important, as they ll give you the flexibility to ask your tenants to leave, if you should need to, after a certain period. Your property may be repossessed if you do not keep up repayments on your mortgage. Our appointed representatives may charge a fee of up to 1.5% of the loan amount for arranging a mortgage. The actual amount payable will depend on your circumstances. Not all buy to let mortgages are regulated by the Financial Services Authority.
04 buy to let landlords guide RENTING OUT AND MANAGING THE PROPERTY Once you ve found the right property, you need to decide whether to manage it yourself or to instruct a letting agent. Either way the following are considerations; FINDING THE RIGHT TENANTS AND OBTAINING REFERENCES Letting agent A letting agent will help you find the right tenants easily and quickly. They ll carry out credit reference checks and draw up a tenancy agreement. So you can be sure you ll have a contract that s legally binding. Self managed If you decide not to let through an agent, you ll need to arrange for an assured shorthold tenancy agreement to be drawn up by a solicitor. You ll then need to oversee the credit reference checks yourself. DECIDING ON HOW YOU RE GOING TO COLLECT THE RENT You may want to agree with your tenants that they pay your rent into a designated account on a monthly basis. Letting agents can manage this for you but they re likely to charge a management fee of between 10 to 20% of the monthly rent.
buy to let landlords guide 05 MAINTAINING THE PROPERTY As a landlord, you ll be legally required to keep the property safe. You ll have to get annual safety checks and certificates for the properties gas and electricity supplies. ENERGY PERFORMANCE CERTIFICATES (EPC) EPCs are compulsory for private rental and social housing, whenever a building in the social or private rented sectors is let to a new tenant. An EPC must be provided when written information about the property is offered to prospective tenants or when a viewing is conducted. An EPC on a rental property is valid for 10 years, unlike residential sales where they re only valid for 12 months. As a landlord, you ll be responsible for making sure the EPC is available for tenants when required, and if and when you sell the property. LEGAL RIGHTS FOR LANDLORDS AND TENANTS It s a good idea to keep up to date on the latest legislation affecting both you and your tenants. You can also look online at the Association of Residential Lettings Agents (ARLA) or National Association of Estate Agents (NAEA) for the latest information. A letting agent will also be able to help you. TENANCY DEPOSIT SCHEMES These schemes were created to benefit both landlords and tenants. They help tenants get all or part of their deposit back if they re entitled to it. Both parties are encouraged to make a clear agreement from the start of the tenancy agreement on the condition of the property, hopefully making any possible disputes easier to resolve. There are two types of tenancy deposit protection schemes available for landlords and letting agents. All schemes provide a free dispute resolution service. For more information visit www.direct.gov.uk/en/tenancydeposit/dg_066383 TAX IMPLICATIONS Any property that s not your main residence and is bought for the purposes of renting out is classed as a business asset. You should seek professional advice on the full tax implications. Below are some useful points to keep in mind: 1. You re required to complete a self-assessment tax form and pay income tax on any income. 2. You may be able to offset mortgage interest against any tax liability. 3. You may be able to claim tax relief on your costs, for example, buildings insurance, cleaning, gardening and commission for letting agents. 4. You can usually claim a wear and tear allowance of 10% of the rent if the property is furnished. 5. You may be liable to capital gains tax on the sale of the property. To find out what the current limits are, visit www.hmrc.gov.uk/rates/cgt.htm
06 buy to let landlords guide PROTECTING YOUR INVESTMENT BUILDINGS AND CONTENTS COVER INSURANCE Adequate insurance protection for your investment property is usually a key requirement of any mortgage agreement. Arranging buildings insurance for your buy to let property is very straightforward. Designed with your needs in mind, you can choose the level of buy to let insurance cover that s right for you. You can start with our standard buildings cover then add on contents cover or increase your protection with optional accidental damage and malicious damage by tenants cover and/or legal expenses, rent guarantee and eviction of squatters cover. PROTECT YOUR BUY TO LET MORTGAGE With a considerable amount of time and money invested, your buy to let will be a precious asset. When money is tight we don t always want to think about insurance, but if your property is an income stream you should protect yourself against critical illness or death. If you were to pass away unexpectedly, having life insurance protection means your mortgage could be paid off in full. Not only that, but your spouse, registered civil partner or family would have greater financial security during a difficult time, with the option of continuing to let the property or selling it. Whatever your protection concerns for your buy to let, your adviser will be able to recommend a range of solutions to help protect your investment. LIFE ASSURANCE Our life assurance plans give you the option to receive a lump sum or monthly benefit, depending on the type of cover chosen. These plans could pay out in the event of your death or diagnosis of a terminal illness during the term of the plan. This could see your dependents benefit from the full sale value of the property or all the rental income, as this lump sum or monthly benefit can be used to help repay the mortgage. CRITICAL ILLNESS COVER Our Critical Illness Cover* gives you the option to receive a lump sum or monthly benefit, depending on the type of cover chosen. Upon death or diagnosis of one of our specified critical illnesses (including cancer, heart attack, stroke and multiple sclerosis), you could use this lump sum or monthly benefit towards the mortgage. For example, a monthly benefit could help with the cost of maintaining the buy to let and give you the option of paying a letting agent to manage and maintain the property. This would give you or your family time to concentrate on more important things, until you or they are able to manage the property or sell it. * as defined in the plan during the period of cover and are eligible to claim. as with all critical illness cover products, our policies do not cover all forms of cancer, particularly those that are non-invasive and those diagnosed early for example, some skin cancers. The full list of critical illnesses covered and their definitions are given in our Guide to Critical Illness Cover, ask your adviser for a copy.
buy to let landlords guide 07 OTHER FINANCIAL CONSIDERATIONS Inheritance tax (IHT) IHT planning has become more important than ever. With the Government freezing the nil rate band at 325,000 until 2014/15, more estates could find themselves caught in this tax net. If you re estate is over the nil rate band it s vital you understand it s implications and have some IHT planning in place. IHT is a complex subject and varies from person to person, which is why we strongly recommend seeking advice from your financial and legal adviser. LEGAL EXPENSES AND RENT GUARANTEE Adequate insurance protection for your buy to let is usually a key requirement of any mortgage agreement, but you may want to consider legal expenses or rent guarantee as an additional extra. This cover is also available for irrecoverable costs and fees needed against a civil claims case involving breach of a tenancy agreement. Our rent guarantee will cover rent arrears for up to 12 months or until vacant possession is gained, whichever happens soonest. Legal expenses and rent guarantee cover is available as an additional option with buy to let property insurance. Please note claims are handled on our behalf by DAS Legal Expenses Insurance Company Ltd. Limitations and exclusions apply, please refer to the policy document for further details, a copy is available on request. We hope you find this brochure useful. It s meant as a guide to help you. For more detailed information and help with your financial needs please talk to your Legal & General adviser.
CONTACT your adviser Legal & General Assurance Society Limited. Registered in England No. 166055 Registered office: One Coleman Street, London EC2R 5AA Legal & General Partnership Services Limited. Registered in England No. 5045000 We are authorised and regulated by the Financial Services Authority. We are a member of the Association of British Insurers. Q35757 05/12 Approval number H131088