Are you an accidental landlord?

Are you an accidental landlord?

What is an accidental landlord?

As the name would suggest, an accidental landlord is someone who didn’t particularly intend to become a landlord. Perhaps you inherited a property, or you moved in with a partner and for whatever reason, haven’t sold your property. Maybe you split from a partner and can’t afford to live in your own property. Or maybe you’re working away from home at the moment, so have rented your property out.

There are all sorts of reasons why you may find yourself in the position of renting your property! In fact, This IS Money reported at the end of last year that there had been a massive increase in accidental landlords, with an estimated 80,000 properties now being rented across the UK as a result.

Why would you consider becoming a landlord rather than selling your property?

Help to BuyWell, the answer to that is simple. Rental payments are often considerably more than the cost of a low mortgage and the annual rate of rental growth increased by 1.6% last year. That said, it was slightly less in the south-east.

And if you’ve got your mortgage covered by rent payments, it takes away the pressure of having to get a quick sale, allowing you time to reflect on what you want to do, while you watch the market.

Landlord responsibilities and liabilities 

It is important to note, however, that in becoming a landlord, you take on a number of responsibilities, both in respect of the rent you receive, in respect of the property and in respect of your tenants.

Notify your lender and insurer

The first thing you must do if you decide to rent your property is to notify your lender of the change in circumstances. You should also notify your insurers.

Your lender may grant you a Consent to Let mortgage (which normally allows you to let your property for 12 months although you can sometimes reapply) while maintaining your current mortgage.

Alternatively, you may need or want to switch your residential mortgage to a buy to let mortgage. Although this is not necessarily complicated, it may include an arrangement fee and a different mortgage rate. You may also be offered a lower loan to value.

At the end of the Consent to Let period, you will have to decide whether to reapply, switch mortgage type or cease letting. How your lender responds to your application will depend on their individual approach.

It’s worth noting when considering your mortgage, that on average, most accidental landlords only rent their property for approximately 15 months and rarely seek a second tenant after the first has vacated.

Tax issues

You also have to declare any rental income for tax purposes and this is at a time when, unfortunately, the government is clamping down on landlords. Tax relief on offsetting mortgage interest payments against rental income is being gradually phased out (and will be replaced by a tax credit).  This year landlords will be only allowed to offset 50%, falling to 25% in 2019 and zero in 2020.

There are also changes to the wear and tear tax allowance previously available to landlords, diminishing the relief that’s available.

Stamp Duty and Capital Gains Tax

Changes to the stamp duty regulations mean that if you purchase a new property before you’ve sold your rental property, you will get hit with a 3% additional stamp duty charge.  And on disposal of any property, there could also be significant Capital Gains Tax implications.

A rise in mortgage interest rates

After enjoying low interest rates for a considerable period of time, there is now almost daily speculation in the financial press that there will be a hike in interest rates (and therefore in mortgage interest rates) at some point this year. How this will affect accidental landlords remains to be seen.

All these issues need to be given proper consideration before you make the decision to rent your property. And that’s before you take into account your actual legal responsibilities to your tenants.

Your landlord responsibilities

home safetyWe’ve blogged about your legal responsibilities as a landlord before but by way of a quick reminder, they include:

  • Right to rent. Under the Immigration Act 2014 landlords must check that their tenants have a legal right to rent in this country. You will have to check that they are eligible to be in the UK and allowed to rent. Failure to do so can result in severe penalties.
  • Tenancy deposit. There are rules about how you hold tenant deposits.
  • Safety checks. You will need to ensure a registered engineer checks every gas appliance and provides a record for the tenants. There are also fire and electricity safety issues and regulations with which you need to comply.
  • You will need a properly prepared tenancy agreement.

You don’t have to rule it out

It may sound like I’m a bit negative about accidental landlords. But I’m not. In the right circumstances, they can be an attractive and financially rewarding solution.

However, what I can’t stress enough is the importance of taking professional advice before you decide to become a landlord. Letting your property means you are in effect running a business, and it should be approached and treated in the same way.

Know your responsibilities, know the risks, as well as the perks and you’re far more likely to make it a success.

Graham Faulkner is Branch Director of EweMove Dorking

www.ewemove.com/dorkingHe’s bought and sold a lot of properties over the years and is also a portfolio landlord, as well as specialising in helping other landlords. Apart from his own experience and expertise, he can also recommend the right professionals, as tried and tested by him, to advise you.

Multi-award winning EweMove in Dorking is a residential property sales and lettings agency who pride themselves on being refreshingly different and standing out from the crowd. EweMove Dorking covers from Ockley to Oxshott.

Enquiries to 01306 406 506 or via email to dorking@ewemove.com

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Is a ban on gazumping the answer?

Is a ban on gazumping the answer?

Ban gazumping!

“To make buying and selling homes cheaper, faster and less stressful”.

That was one of the Government’s promises at the end of last year. Sounded good and we were all ears. A clampdown on gazumping, a practice which often leaves the original purchaser with legal fees and surveyors’ costs in respect of a house they’ve lost out on.

It’s certainly a popularity winning style headline but is targeting gazumping really getting to the root of the problem? Or could it prove more painful than ever before for those moving home?

The proposals

tips for moving houseAccording to the Land Registry, nearly 18% (200,000) of all house sales fall through every year. A fact that is now widely accepted as one of the causing factors of the enormous stress and anxiety which often surrounds a house sale or purchase.

As a result, the government proposes to try and reduce this number by bringing forward the point at which a house sale/purchase is legally binding for both parties. More specifically, by making the transaction binding at the point at which an offer is accepted. Any parties who withdraw after the offer is accepted would be liable for the other side’s wasted expenses.

But surely there’s a flaw in the proposals?

ban gazumping The trouble with the proposals is that they take a naïve approach to why a sale may fall through. Of course, there are occasions when sellers just accept a higher offer but there’s a lot more to it than that.

The enormous pressure on the housing market means that:

  • Buyers often make an offer almost out of a sense of desperation and often before they have any clear idea of whether and how much they can borrow or fund.
  • The boom in marketing properties online may undoubtedly make a property much more widely available, but it also makes the competition even fiercer with queues of viewers and open house events, making the pressure and competition feel that much more intense.
  • Unfortunately, not every estate agent is a property expert and some online portals will have very little to no interaction with the property itself. That means that faults in title deeds and paperwork or faults in the house itself may go completely unnoticed until quite far down the line. Of course, that, in turn, may affect borrowing.
  • Most residential property sales become part of an ongoing chain where the buyers and sellers have little control over the overall timing. Sometimes, unsurmountable difficulties can be caused by an unrelated third party, further up the chain.
  • If a sale is binding at the point an offer is accepted, this raises the questions of who pays for upfront costs like surveys and legal fees. And that on its own could be enough to put some buyers or vendors off altogether.

So, what is the answer?

banning ordersIt’s fair to say the house buying and selling process could do with a shake-up. After all, we’ve been using the same system for nearly 100 years. A ban on gazumping would be a popular policy and for a number of people, it would mean greater security and a great deal less stress.

But it would be wrong to think that this is a one size fits all solution. And it would be wrong to turn a blind eye to the additional and possibly much more distressing and expensive side effects that a ban could cause.

Pending a thorough overall of the entire system, my advice would be to be careful in your choice of professionals and don’t assume that a ban on gazumping offers complete protection. Choose an estate agent who is experienced, proactive and who understands property. Seek early advice about borrowing and instruct a conveyancer who is equally robust.

In recent years, too many people have paid the cost of trying to buy or sell with minimal assistance from professionals and with the current pressure on both the economy and housing, this is only set to get worse.

That said, at the moment the government haven’t announced how a ban would be policed and whether such a ban ever becomes law remains to be seen.

Graham Faulkner is Branch Director of EweMove Dorking

www.ewemove.com/dorkingHe’s bought and sold a lot of properties over the years and is also a portfolio landlord, as well as specialising in helping other landlords. Apart from his own experience and expertise, he can also recommend the right professionals, as tried and tested by him, to advise you.

Multi-award winning EweMove in Dorking is a residential property sales and lettings agency who pride themselves on being refreshingly different and standing out from the crowd. EweMove Dorking covers from Ockley to Oxshott.

Enquiries to 01306 406 506 or via email to dorking@ewemove.com