As a first-time landlord there is so much to think about. If you are letting out the property you currently live in and purchasing a new home, not only will you have to deal with the stress of buying and moving, but you’ll soon realise that there is so much to organise before tenants arrive. Many of our clients have been or are in this very situation. The main advice we would give to new landlords is to appoint the best letting agent in your area and let them guide you through the process. During our years of helping new landlords, we have been asked practically every question imaginable; this article includes real-life examples of questions from new landlords and our advice on each topic.
A1) The simple answer to this question is yes you should. Most residential mortgages will state that you are not permitted to rent out your property unless you have their written consent. Some lenders will allow you to apply for a ‘consent to let’ (often for a small fee) that is likely to take a couple of weeks to be processed. Alternatively, the lender may advise you that you have to switch to one of their buy-to-let mortgage products – however, this is likely to mean that the mortgage interest rate will go up and they may also refuse permission unless you have a certain level of equity in the property (often a minimum of 25%).
While we have heard of some landlords who have failed to obtain the necessary consent, we would strongly advise against this as breaching the conditions of the mortgage is likely to trigger penalty charges and backdated loan interest.
Lastly, on the subject of consent to let, you should also remember to obtain freeholder’s consent (if your property is leasehold) and your building insurers should also be notified.
A2) If you already have furniture in the property that you want to leave behind, it is best to give your letting agent a list of items so that they can pass this on to interested tenants. If the property is unfurnished, the best thing to do is to be as accommodating as possible and agree to provide the main items of furniture: beds/mattresses, bedroom storage (e.g. wardrobe and chest of drawers in each room) and sofas (enough seating for the number of tenants that you expect to rent the property). Other items such as dining tables, coffee tables, bedside tables and desks are unlikely to be deal-breakers for most tenants, so you can probably avoid spending money on providing these items.
Our best piece of our advice on this subject is to wait until you have found tenants before buying the furniture as you may get offers from tenants who request the property to be unfurnished or have certain items that they want to bring with them (e.g. mattresses).
Lastly, it’s worth bearing in mind that there is a substantial tax advantage to providing the property fully furnished. If the property is let fully furnished you can currently claim 10% of the gross rental income as a wear-and-tear allowance which will reduce your tax liability. For example, if the property is let for £1500pcm, you can claim the wear-and-tear of £1800 every year. Over 5 years this will provide a deducible expense of £9000 and it is highly likely that your actual outlay on purchasing the furniture will be a fraction of this. (NB: if a wear-and-tear allowance is claimed you are not permitted to also claim the actual cost of purchasing the furniture on your tax return).
A3) We get asked this one a lot! We have some landlords who think that a group of young men are going to be partying every night and will only think about cleaning when they are packing up to leave. Experience tells us that there is no obvious difference in terms of complaints, deposit deductions or rent arrears between groups of male and groups of female tenants. By ruling out 50% of the population the only guarantee is that you will reduce your chances of getting the best possible price and the best selection of tenants and, as parents of most girls will tell you, they can be just as untidy as boys!
A4) If you own a single buy-to-let property then dealing with your own tax affairs is something that is quite manageable for most. You will need to inform HMRC as soon as you start receiving rental income and they will then notify you when you are required to submit your self-assessment tax return. The tax return can be submitted online and provided that you keep an accurate record of any income and expenditure it shouldn’t take much more than a hour or so to complete. Keep copies of all invoices and receipts and keep a spreadsheet with the dates and amount of all rent receipts and expenditure. If your personal tax affairs are more complex, e.g. if you own multiple properties or if you have other income such as share dividends etc, then it may be worth enlisting the help of a professional – the cost of hiring an accountant to submit your self-assessment might be as little as £250.
A5) The first thing to remember is that regardless of whether there is a break-clause within an assured shorthold tenancy (known as an AST - the most common type of tenancy), if the tenants fall into rent arrears then there is the option to take action to end the tenancy by virtue of Section 8 of the Housing Act. Even if there is a break-clause in the agreement, if the tenants stop paying rent and refuse to leave, you would still have to apply to the court for possession.
Our general advice is to offer a 12 month contract without a break-clause, unless you personally would like the option to end the contract earlier (e.g. if you think you might need to move back into the property after less than 12 months). In a strong rental market most tenants will be willing to make this commitment and many will be glad of the security of a year’s fixed-term.
Lastly, if you have any concerns regarding trying to regain possession from unreliable or problem tenants, the best advice is to instruct a reputable letting agent that conducts thorough independent reference checks on all tenants. We also advise using an agent that has a policy of referring the references for your approval before any tenancy is entered into.
We hope these questions and answers are useful to other first-time landlords. If you have any other questions about letting your property or managing a tenancy, we’d be delighted to help. Contact us here or send us a tweet: @BeresfordR
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