A recent survey has revealed that nearly a third of buy-to-let property owners are ‘accidental landlords’ – that is, people who are letting out a property without originally having meant to do so.
A survey of 1,071 buy-to-let landlords carried out by estate agency network YourMove revealed that nearly half are ‘pension pot’ landlords.
Accidental landlords formed the second-biggest group at 29%, while just 20% of 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 property out and want to ensure you’re not breaking the law.
What is an accidental landlord?
Accidental landlords are people who find themselves letting out a property without having originally planned to.
There are many ways this could happen. Some of the most common include inheriting all or part of a property; having to let your home due to divorce or separation; relocating for a new job; moving in with a partner; and having to let out your home after being unable 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 tend to own fewer properties than professional and ‘pension pot’ landlords.
But regardless of what type of landlord you are, there are a number of rules you’ll need to adhere to if you want to stay on the right side of the law.
- Find out more: becoming a landlord
1. Have you informed your mortgage lender?
If you have been living in the property and changes in circumstances mean you need to let it out, you need to tell your mortgage lender.
Sometimes they’ll grant a ‘consent to let’ on your existing mortgage, but they’ll often want to move you onto a buy-to-let mortgage.
Buy-to-let properties carry more risks for lenders as you’ll usually be relying on rental payments from tenants to pay 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 will be enough to cover the mortgage and also whether you’d be able to keep up repayments in ‘void’ periods (when the property is empty).
But while this might sound daunting, you must inform the lender. If you don’t, you may be committing mortgage fraud, which could incur a penalty or even your full loan being called in.
2. Do you have the necessary safety certificates?
Landlords are legally required to provide proof that the property is safe for tenants with the following certificates:
- Gas safety. Gas appliances must have annual gas safety checks carried out by a Gas Safety Register engineer. A copy must be given to the tenant when they move in.
- Fire safety order. There must be a written risk assessment in place to comply with the Fire Safety Order.
- Energy Performance Certificates. Buy-to-let properties must adhere to certain energy efficiency standards; we explain these in detail further down in the article.
- Electrical inspections. If the property has any kind of multiple occupation, you must have an electrical safety check carried out every five years.
Other required safety precautions include providing a smoke alarm on every floor of the property, a carbon monoxide alarm in every room with a solid fuel source, performing a risk assessment for Legionnaire’s disease and making sure electrical appliances are safe at the outset of letting.
3. Do you have landlord insurance?
Normal home insurance won’t cover all of the eventualities that come with being a landlord, so you need specialist cover.
There are several types of landlord insurance, including:
- Landlord building insurance – covers any structural damage, for example from fires or floods.
- Landlord contents insurance – if you’re renting out a furnished property, this covers the cost of replacing or repairing furniture, carpets, kitchenware or electrical items.
- Landlord liability insurance – covers you if a tenant or visitor is injured in the property.
Landlord insurance can also protect you against a loss of income if tenants don’t pay their rent or the property is left vacant for several months, legal expenses cover in case of any disputes with tenants and home emergency cover if the property’s supply of gas, electricity, heating or water is cut off.
- Find out more: landlord insurance
4. Do you need a local licence or HMO permit?
Earlier this year we reported that an increasing number of councils in England had brought in selective licensing schemes that go beyond the mandatory government landlord licensing applied to HMO properties.
What’s more, this month new rules came in regarding what defines a House 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 sign up to:
- Mandatory licensing: for HMO properties that house five or more people from more than one household; there are also now minimum size requirements for rooms. We recently wrote about the changes in the rules, and you can find out more on the National Landlords Association website.
- Additional licensing: this is also for landlords letting out HMOs, brought in through the 2004 Housing Act. It allows local authorities to apply stronger rules to their area if they think HMOs aren’t being properly managed. The cost varies, but you’re likely to pay £500-£600.
- Selective licensing: this has been brought in by some (but not all) councils, and can apply to all landlords in an area – not just those with HMOs. The council will check that you are a ‘fit and proper person’ to let out a property, make you agree to adhere to various regulations and in some cases you’ll need to sign up to a charter. The licence could cost around £500-£600.
5. Have you run a Right to Rent check on your tenants?
A Right to Rent check is to make sure that a tenant or lodger can legally rent a residential property in England.
If you’re renting through a letting agency, they’ll usually carry out this check for you.
If not, it’s down to you. You must check all new tenants – it’s against the law to only check people you think are not British citizens. And every adult in the property must be checked regardless of whether they’re named on the tenancy agreement, and even if there’s no tenancy agreement.
You’ll need to:
- ask which adults are going to use your property as their main home
- ask for original documents that prove they can live in the UK
- check that the documents are genuine
- make and keep copies of the documents for your records, along with the date that you made the check.
Renting to someone who is not allowed to stay in England could result in an unlimited fine and/or being sent to prison.
6. Have you protected your tenant’s deposit?
Whether you have one or several tenants, it’s likely you’ll be renting through an Assured Shorthold Tenancy in England and Wales (Scotland and Northern Ireland operate separate schemes), which means any deposit they hand over must be held by a deposit protection scheme.
There are three to choose from:
- Deposit Protection Service
- Tenancy Deposit Scheme
Failing to keep tenants’ deposits in a TDP scheme, or failing to share information about where the money is being held, could mean tenants can take you to court if a dispute arises regarding their deposits.
7. Are you adhering to the new energy regulations?
New rules came into force in April stating that all newly let rental properties must achieve a minimum energy performance certificate (EPC) rating of E.
By 2020, it won’t be legal to let any homes with an EPC rating of F or G. Violation of these rules could result in fines of up to £5,000.
You can get an EPC through any accredited assessor. Some letting agents might offer to include the cost of an EPC in your rental contract, but it can pay to shop around to find the best deal.
Once you’ve got it, an EPC lasts for 10 years.
- Find out more: landlords risk £5,000 fines under new energy rules
8. Have you registered for self-assessment?
You’ll have to pay income tax on your rental income, and to do this you’ll have to submit a self-assessment tax return.
You may be able to claim a 20% tax credit for a percentage of your mortgage interest, as well as claiming tax back on items you buy to replace existing fittings and furnishings in the property.
- Find out more: how rental income is taxed
If you sell a buy-to-let property you could face a capital gains tax bill – we explain how 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 have to pay retrospective stamp duty. But bear in mind that if you purchase another property to live in, it will be classed as a second property and you’ll be liable to pay buy-to-let stamp duty rates on it.
The rates include a 3% surcharge on what you’d pay as a normal home mover. So, if you were buying a house in England worth £400,000, as a home mover you’d usually pay £10,000 in stamp duty. As a buy-to-let investor you’d be charged £22,000.
You can work out your bill based on your situation and the country you’re buying in with our stamp duty calculator.
Get personalised advice on your mortgage options
If you’d like to speak 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.