A recent survey has says nearly another of buy-to-let property owners are 'accidental landlords' – that is, those who are letting out a property without originally having designed to do so.
A survey of just one,071 buy-to-let landlords carried out by estate agency network YourMove revealed that up to 50 % are ‘pension pot’ landlords.
Accidental landlords formed the second-biggest group at 29%, while just 20% from the survey respondents were professional landlords.
Here, Which? explains all the things you need to check if you find yourself unexpectedly having to let a house out and wish to ensure you’re not breaking the law.
What is definitely an accidental landlord?
Accidental landlords are people who find themselves letting out a property without having originally planned to.
There are lots of ways this might happen. Probably the most common include inheriting any part of a property; needing to enable your home due to divorce; relocating for a new job; moving in with a partner; and having to allow your home after not being able to sell it.
According to YourMove, accidental landlords are most likely to be females aged under 45. Unsurprisingly, people who fall into the accidental landlord category have a tendency to own fewer properties than professional and ‘pension pot’ landlords.
But regardless of what type of landlord you are, there are a variety of rules you’ll have to adhere to if you want to remain on the best side of the law.
1. Perhaps you have informed your mortgage lender?
If you have been residing in the property and changes in circumstances mean you need to allow it to out, you need to inform your mortgage lender.
Sometimes they’ll grant a ‘consent to let’ in your existing mortgage, but they’ll often wish to move you onto a buy-to-let mortgage.
Buy-to-let properties carry more risks for lenders as you’ll usually be counting on rental payments from tenants to pay for the mortgage, so buy-to-let mortgage rates tend to be higher.
The affordability criteria are tougher, too. Lenders will factor in whether the rental income is going to be enough to pay for the mortgage as well as whether you would be effective in keeping up repayments in ‘void’ periods (when the rentals are empty).
But while this might sound daunting, you must inform the lending company. Should you don’t, you may be committing mortgage fraud, which could get in a penalty or perhaps your full loan being contacted.
2. Do you have the necessary safety certificates?
Landlords are legally necessary to provide proof the property is safe for tenants using the following certificates:
Other required safety measures include providing a smoke alarm on every floor of the property, a carbon monoxide alarm in every room having a solid fuel source, conducting a risk assessment for Legionnaire's disease and ensuring electrical appliances are secure at the outset of letting.
3. Have you got landlord insurance?
Normal home insurance won’t cover all of the eventualities that come with as being a landlord, so you need specialist cover.
There are some types of landlord insurance, including:
Landlord insurance can also protect you against a loss of revenue of income if tenants don't pay their rent or the rentals are left vacant for many months, legal expenses cover in case of any disputes with tenants and home emergency cover when the property's way to obtain gas, electricity, heating or water is stop.
4. Do you need a nearby licence or HMO permit?
Earlier this year we reported that an increasing quantity of councils in England had introduced selective licensing schemes that go beyond the mandatory government landlord licensing put on HMO properties.
What's more, this month new rules came in regarding what defines a home in Multiple Occupation (HMO), meaning thousands of properties are subject to different requirements from before.
The changes mean there are now three landlord licensing schemes you may need to join:
5. Perhaps you have run a To Rent check up on your tenants?
A Right to Rent check is to make sure that a tenant or lodger can legally rent a house in England.
If you're renting via a letting agency, they'll usually execute this look for you.
If not, it's down to you. You should check brand new tenants – it's against the law to simply check people you think are not British citizens. And every adult in the property must be checked regardless of whether they’re named around the tenancy agreement, and even should there be no tenancy agreement.
You'll need to:
Renting to a person who is not allowed to stay in England could cause an unlimited fine and/or being delivered to prison.
6. Perhaps you have protected your tenant's deposit?
Whether you have one or more tenants, it's likely you'll be renting with an Assured Shorthold Tenancy in England and Wales (Scotland and Northern Ireland operate separate schemes), which means any deposit they hand over should be held with a deposit protection scheme.
There are three to choose from:
Failing to help keep tenants' deposits in a TDP scheme, or failing to share information about in which the money is being held, could mean tenants may take you to court if a dispute arises regarding deposits.
7. Are you currently adhering to the brand new energy regulations?
New rules arrived to force in April proclaiming that all newly let rental properties must acquire a minimum energy performance certificate (EPC) rating of E.
By 2022, it won’t be legal to allow any homes with an EPC rating of F or G. Violation of these rules could cause fines of up to lb5,000.
You could possibly get an EPC through any accredited assessor. Some letting agents might offer to incorporate to buy a EPC inside your rental contract, but it can pay to look around to get the best deal.
Once you have it, an EPC can last for Ten years.
8. Have you registered for self-assessment?
You'll need to pay income tax in your rental income, and to do that you will need to submit a self-assessment tax return.
You might be able to claim a 20% tax credit for a percentage of your mortgage interest, in addition to claiming tax back on items you buy to replace existing fittings and furnishings in the property.
If you sell a buy-to-let property you could face a capital gains goverment tax bill – we let you know that this works in our guide on capital gains tax and property.
9. Have you considered the stamp duty implications?
If you inherited or previously lived in the property you're planning to let out, you won't need to pay retrospective stamp duty. But bear in mind when you buy another property to reside in, it will be classed as a second property and you will be liable to pay buy-to-let stamp duty rates on it.
The rates incorporate a 3% surcharge on what you'd pay as a normal home mover. So, if you were buying a house in England worth lb400,000, as a home mover you'd usually pay lb10,000 in stamp duty. As a buy-to-let investor you'd be charged lb22,000.
You can work your bill based on your circumstances and the country you’re buying along with our stamp duty calculator.
Get personalised advice on your mortgage options
If you'd like to talk to someone about your buy-to-let mortgage options, a whole-of-market broker can give you advice on the best deal for your situation.