You may have been considering becoming a landlord for some time but perhaps have concerns regarding market conditions or have been overwhelmed by the process.

There may never be a perfect time to make the jump to becoming a landlord, however, this article will discuss the considerations to be reviewed before taking that leap of faith.

Check that you are Eligible

The first step on the journey to becoming a landlord is to check eligibility. Should the property you are planning on renting out already have a mortgage in place, you would need to seek permission from the mortgage lender to switch over to a buy to let mortgage product.

What is a Buy to Let Mortgage?

A buy to let mortgage is a financial product that is specifically for landlords who plan to let out a property, and not live in it.

Buy to let mortgages usually require higher deposits than standard mortgages, of between 25% and 40% loan to value rate. In addition, buy to let mortgages can sometimes have higher interest rates attributed to them compared with standard residential mortgages.

Please also be aware that are often arrangement fees due to up to 3.5% of the property’s value to consider as well.

There are different types of buy to let mortgages, however, most landlords seek interest-only mortgages. With this type of borrowing, the monthly repayments only cover the interest due, leaving a capital balance at the end of the mortgage term. Interest-only mortgages carry higher risks for the lender and therefore will typically incur higher interest rates.

Similarly, to standard mortgages, buy to let mortgages can be obtained with varying terms in relation to interest such as:

• Fixed-rate – Usually securing the interest rate linked to the mortgage for a set period of time, often between 2 and 5 years.
• Standard variable rate – This is the long-term interest rate often applied following the end of an introductory offer.
•  Tracker – A tracker rate follows the Bank of England base rate at a set percentage higher and will vary from month to month.

Why not visit or contact your local Ashtons branch?

• Estate Agents in Padgate
• Estate Agents in Culcheth
• Estate Agents in Stockton Heath
• Estate Agents St. Helens
• Estate Agents in Ashton-In-Makerfield

The process of switching to a buy to let mortgage

The easiest method of switching a mortgage type would be to approach the current lender to request an alternative mortgage type, however, this may not result in the most competitive rates or terms being achieved. In addition, depending on the circumstances there may also be early redemption penalties or other fees to consider.

Therefore, depending on the personal circumstances of the landlord, it may be worth exploring the wider mortgage market for the most competitive mortgage solution.

Legal Responsibilities

In addition to organising the most cost-effective yet appropriate mortgage, there are a number of legal responsibilities that a landlord needs to consider including:

• Obtaining an Energy Performance Certificate, or EPC – Current legislation for privately rented properties is that their EPC must have a minimum performance rating of an E grade.
• Ensuring that electric safety inspections take place.
• Compliance with the Tenant Fees Act and Tenancy Deposit Schemes.

In addition to complying with current legislation, a landlord is also responsible for ensuring that they are monitoring forthcoming changes to legislation and implementing changes as and when required.

Tenant Rights

Before making a decision about letting out property, it is highly recommended that some research is undertaken into Tenant Rights. The consequences of not understanding the rights of tenants can result in fines or even personal prosecution.

In summary, a tenant’s basic rights include:

• The right to live in a property that is safe and kept in a good condition. The tenants also have the right to see the EPC for the property that they rent.
• The right to have deposits returned at the end of a tenancy.
• The right to be protected from unfair eviction.
• A tenant also has the right to know who their landlord is.
• A tenant has the right to live within a rented property undisturbed.

Other Financial Considerations to Letting Property

There will be many other factors to consider when deciding whether to become a landlord or not, including:

• The costs of renting out the property – A decision of whether to use a letting agent to manage the processes of renting the property from advertising, undertaking viewings and the necessary legal checks on the tenants. Should a letting agent be used, the cost of their services will need to be considered.
• Furnishings – Properties can be leased furnished or unfurnished, however, either way, to protect both the tenant and landlord, an inventory should be undertaken at the beginning of a lease.
• Maintenance costs – The costs of repairs and maintenance will need to be factored into the calculations of the ongoing costs of letting out a property.
• Insurances – Buy to let insurance will cover the property itself as well as landlord liability. Building insurance is also likely to be a requirement from the lender.
• Taxes – There is a range of taxes to consider when letting out property including; income tax, capital gains tax and the initial stamp duty due when purchasing a property. For specific advice on tax, it is highly recommended that specialised financial advice is sought. The cost of such taxes should be taken into account when drafting a business plan, ensuring that plans to become a landlord are viable.
• Missed payments, rental disputes and periods of unoccupancy – A landlord should also consider the consequences of certain scenarios that result in a gap in rental income, such as a gap between tenants or a tenancy dispute. A contingency fund may be required for such circumstances, or research into insurance to cover such eventualities.

Summary

As with any big decision, research and consideration of all of the factors including legislation and costs should be undertaken.

Our specialised team of property and residential letting experts can provide guidance in the first instance of becoming a landlord, as well as providing ongoing letting agent support. In addition to our support, we also have a registered list of potential tenants seeking properties to rent.

If you’d like to find out more about how Ashtons can help you contact one of our branches for further information.