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?
Well, 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.
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
We’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
He’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.