Are you about to rent out your home due to changes in personal circumstance rather than choice?
It’s not unusual for home-owners to become ‘accidental landlords’ and we aim to cover what that means for you if you’re looking to do the same.
What is an accidental landlord?
An accidental landlord is a homeowner who didn’t intentionally buy their property to rent it out.
The conditions to which these people become landlords is usually down to changes in personal circumstances rather than a choice to be a professional landlord.
For example, you may have:
- Inherited all or part of a property
- Divorced or separated from your spouse
- Relocated for a job either fixed term or on a permanent basis
- Moved in with your partner
- Been unable to sell the property due to changes in the market
Either way renting out your property is a common solution for all of these situations. It generates income whether that’s for long term investment, otherwise it buys time or acts as a stepping stone when working out what to do next or waiting for the property to sell.
What to do if you become an accidental landlord
Becoming a landlord is not a decision to be taken lightly and comes with expectations, regulations and costs.
Recent government changes targeting buy-to-let landlords, tax implications, additional expectations and costs that come with being a landlord mean it’s becoming a less attractive option.
If you are going to go ahead and rent out your property there are things you will need to do, the most important one being to contact your mortgage lender. You will need to consult them to convert your property from a residential to a buy-to-let, or obtain consent to let (see our article ‘can I change my property to a buy-to-let?’).
Failure to contact your lender and make the changes to your mortgage could breach the terms and conditions you currently have.
What you will need to consider
When you rent out your property there are common things that you know you need to think about:
- Tenancy agreements
- Inventory agreements i.e. furnished or unfurnished
- Maintenance and repair responsibilities
However, there are a number of other things to consider. Once you’ve consulted your lender you’ll need to make choices and decisions on:
- Whether you will self-manage the property or employ a letting agency – you will need knowledge and confidence in your responsibilities and best practice which can become complicated. Whilst letting agencies can come at a price they have the knowledge and experience to manage your property, freeing up your time and any costly implications.
- Landlord insurance – specific landlord insurance is not a legal requirement, however, it should be a serious consideration. Having the right insurance in place could help you in cases of missed rent payments, legal fees and expenses or home emergency cover if the water, gas or electricity supply is disrupted. Typically you can choose to take out Landlord Building Insurance, Landlord Contents Insurance, Landlord Liability Insurance and Rent Guarantee Insurance.
- Safety and certificates – you need to provide proof that the property is safe for potential tenants. This includes gas safety, fire safety orders, energy performance certificates, electrical inspections, smoke alarms on all floors and carbon monoxide alarms in every room with a solid fuel source.
- Right to rent – you are required to run right to rent checks on any and all potential tenants aged 18 and over regardless of whether they are included on the Tenancy Agreement.
- Check local licence requirements – if you are renting to more than five people from individual households (i.e. student lettings) you’ll need to check if you need a local licence in your area or a House of Multiple Occupancy (HMO) permit.
- Tenancy deposit schemes – Any deposit a tenant gives you must be placed into a government back tenancy deposit protection scheme (TDP). The deposit will need to be in the scheme within 30 days of you receiving it and returned within 10 days of the end of the tenancy (subject to agreement).
- Energy Performance Certificates – Energy regulations from the Department of Business, Energy and Industrial Strategy state that all newly let properties must achieve a minimum Energy Performance Certificate (EPC) rating of E or above. If you have a rating of F or G the property cannot be legally rented out until it is at least an E. More information is available to landlords via the .gov website.
- Declaring tax on rental income – You are obliged to pay income tax on any profit you make on the rental of the property to HMRC. Allowable expenses would be deducted from this in alignment with restrictions. Speaking to an accountant can help clarify what you can and cannot claim for however more information can again be found on the .gov website.
- Stamp Duty – If the property you will be renting out is one you have previously lived in as your home or if it has been inherited Stamp Duty has already been paid and you will not have to retrospectively pay it again. However, any new property you purchase will be treated as a second property which will mean an additional 3% surcharge on top of what you would pay normally.
As we’ve said, becoming an accidental landlord is a decision not to be taken lightly. If you are a first-time accidental landlord based on the information above, our top tips to get you going include:
- Do your research – have a look at other similar properties in the area to establish what the rental market is like in your area.
- Get your property ready to let – as we’ve said, the first thing you need to do is speak to your mortgage lender and make sure you either get consent to let or switch to a buy-to-let mortgage. Once you’ve done that get the property ready, whether it’s a lick of paint, a new boiler or furnishing the property (if you chose to go down the furnished route).
- Brush up on your responsibilities as a landlord – there is a wealth of information available to you and it’s important you understand lettings legislation before you rent the property out. This is also where you may want to consider employing a lettings agency to help you run the property.
- Ensure all legal requirements are fulfilled – This includes all your safety certificates, EPC ratings and right to rent checks as listed above.
- Don’t forget insurance – whilst it is not a legal requirement to have specific Landlord insurance it can help protect you, your property and your tenants.
If you need help understanding your options or what to do next mortgage advisors can help borrowers understand their options and will also match them to lenders based on their personal circumstances.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via firstname.lastname@example.org and we will put you in touch with a suitable specialist to handle your enquiry.