Become a landlord in England and Wales
If you would like to become a landlord, you are not alone. It has been estimated that there are now 1.75 million landlords in the private rented sector in the UK.
This helpful yet simple guide is intended to take you through the whole procedure from the preparation of all the landlord documents required by law to setting up an emergency fund, vetting your prospective tenants and listing an inventory of your property contents.
Introduction for prospective landlords
There are two ways that a property owner could become a landlord.
The first is when they become an ‘accidental landlord’. This could be either because they inherit property or because their personal circumstances change. Perhaps they decide to live with their partner, so their own home is left vacant. Instead of selling the second property, they decide to rent it out to make some money.
The second way that people become a landlord is that they make the decision to invest in a buy-to-let property.
Whatever your reason for becoming a landlord, your legal and financial responsibilities are the same. However, the initial process is slightly different, so we will consider them separately.
Renting out an inherited property
One very common way people become landlords in the UK is when they inherit a property they do not intend to live in themselves. In this situation many owners choose not to sell the property, either for personal, sentimental or financial reasons.
If you have inherited a property, you may have to wait up to a year for it to clear probate. If the person who left it to you has a mortgage on the property, you will have to contact the lender about putting the loan in your name and changing it into a buy-to-let mortgage.
Renting out your former home
For many property owners, a change in personal circumstances is what starts them on the journey to becoming a landlord.
You may move in with your spouse, move abroad or move somewhere else for work or personal reasons. In such cases it is common to consider renting out your former home to generate income.
Check before you rent your house out to ensure you are not breaking any agreements with your mortgage provider.
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Renting out your home if it has a current mortgage
If you have an outstanding mortgage on your own property and are moving out, your loan will probably be a residential mortgage. The terms and the conditions of this financial product stipulate that the property must be used as your primary residence.
You cannot, therefore, simply move and rent it out as this breaks the agreement you made with your mortgage provider. They would therefore be within their rights to demand the immediate payment of the outstanding loan in full.
Obtaining consent to rent
The first thing you need to do is to make an application to them for a ‘consent to rent’. This is very straightforward, but they will probably charge you an administrative fee to change the mortgage terms and could possibly increase your monthly mortgage payments.
A ‘consent to rent’ is only usually valid for a few years, so as soon as possible you should switch to a buy-to-let mortgage. You could take this out with the same mortgage provider, or you could shop around for a better deal with another lender.
If you bought your property as shared ownership, you need the permission of the other owner before you can rent out the property.
Finally, you should check the property’s documents. If it is a leasehold property (rather than a freehold), you will need the landlord’s permission to rent out the property. This is because many freehold properties do not permit subletting.
Obtaining a buy-to-let mortgage
As long as you meet the eligibility criteria of the lender and have a deposit of at least 20% of the property purchase price, obtaining a buy-to-let mortgage is quite simple.
Regarding affordability, a buy-to-let mortgage provider is more concerned that you will be able to meet your mortgage repayments after deducting all the extra expenses you will have as a landlord such as maintenance costs. For this reason, the affordability check does not depend on your monthly salary but on your rental cover.
This means that the rent that you charge your tenants should be 25%-45% higher than your mortgage payment.
Apart from the way that affordability is calculated, buy-to-let mortgages have higher administrative charges and a higher interest rate than a mortgage you would take out to buy your own home.
Before deciding whether to go ahead with a buy-to-let mortgage application, you should draw up a realistic budget. This will ensure that you have all the money to cover the expenses of a property purchase such as Stamp Duty on the property as well as the minimum 20% deposit.
You should also research average rents vs. property prices in the area where you wish to buy a property. This will reassure you that you will be able to make money after you become landlord. This will also increase the chances of your mortgage application being approved.
- Tenancy Agreement Template Word Doc
- AST Tenancy Agreement Template PDF file
- Printable Landlord Inventory Template
Purchasing the right rental property
If you buy the right rental property, you can reduce the number of months that the property is left empty and make the highest possible return on your property purchase.
Factors to consider when buying property as a landlord include location, property type and its price, prospective tenants and condition.
1. Location of the rental property
If you plan on being a hands-on landlord, then the property you buy should be within easy reach of your home. This means that you can respond quickly to any issues your tenants may have such as emergency repairs.
Using a letting agency allows you to go further afield and even buy property at the other end of the UK.
Rural properties can be much cheaper, but it might be more difficult to find tenants than in big towns and cities.
2. Type of property and price
Flats, bungalows, terraced, semi-detached houses are just some of your options when it comes to choosing property type. Be careful of non-standard property types and those made of unusual materials as this can affect your chances of being granted a buy-to-let mortgage.
To a certain extent, the type of property you choose will depend on your budget and who you intend to rent to.
3. Prospective tenants
Before buying a property, you should visualise who your ideal tenants are. Some landlords prefer families since they tend to look after the property better whilst others would prefer young professionals as they think they are less likely to default on the rent.
Your choice of tenants will also affect the location of your property. This is because the amenities they would like will be a major selling point for your rental property.
Buying a family home which is miles from schools and recreational amenities for children will reduce the number of would-be tenants and increase the chances of the property standing empty for long periods.
4. Condition of the rental property
Buying a property at a bargain price, perhaps at a property auction, and then doing it up so that you can rent it out at a much higher rent is a great way to make money. However, it requires you to budget for the necessary repairs.
You should also consider the time frame. Remember that the longer the property renovation work takes, the longer you will have an empty property not making any money and for which mortgage payments will still be due.
Your responsibilities as a landlord
Your responsibilities as a landlord are important as there are financial penalties if you do not abide by the rules. Also, the treatment of your tenants affects what kind of relationship you have with them. The happier they are, the more likely they are to stay in the property. This means that you will not have to fork out money every year advertising the property and vetting new tenants.
Most of the rules regarding your obligations as a landlord concern the safety of your tenants and the structural integrity and maintenance of the property. Before a property is rented out, all gas and electrical domestic appliances should be checked by a qualified engineer.
A fire alarm should be installed on each floor and all furnishings and furniture provided by the landlord should meet fire standards. Also, a carbon monoxide alarm is compulsory in any room which contains a solid fuel burning appliance such as a coal fire.
To be considered inhabitable, a rented property should have a heating system, adequate sanitary fittings and cold and hot water. The property should also be well ventilated with enough natural sunlight.
In the case of an appliance or heating system breaking down, the landlord is responsible for repairing or replacing it without any unreasonable delays.
Any inspection would require landlords to provide documentation.
As a landlord, it is important that you are well organised and keep all documents related to the property in a file and look over them regularly. This will ensure that you do not miss deadlines for any certification which needs to be periodically renewed such as landlord registration.
The documents you need as a landlord are:
Gas appliances need to be checked once a year by a registered Gas Safe engineer. The gas safety check record should be made available to tenants within 28 days of their moving into the rented property.
Since July 2020, an EICR (Electrical Installation Condition Report) must also be provided for tenants in England. This certificate regards the safety of the electrical wiring, fittings and appliances and must be renewed every 5 years.
Energy efficiency certification
Before renting out a property, it must be inspected by an accredited DEA (Domestic Energy Assessor). They will survey the property and make recommendations, if necessary, about changes to make it more energy efficient. The DEA will also give the property a rating from A-G.
Since 2020, the rules have changed, and properties need to have a minimum of an E rating. Failure to have an EPC (Energy Performance Certificate) can result in a fine of up to £5,000. In Scotland, this certificate must be displayed in the rental property.
Written tenancy agreement
The most common tenancy agreement in England and Wales is an AST (assured tenancy agreement) which is known as a SAT (short assured tenancy) in Scotland. These types of tenancy usually run for a period of 6-12 months.
At the end of the term, the property returns to the owner, a new tenancy agreement is signed, or the agreement is automatically renewed on a month by month basis (called a periodic tenancy).
The other type of tenancy is an assured tenancy (known as a protected tenancy in Northern Ireland). This tenancy protects occupants to a greater extent. Tenants can only be evicted if they break the terms and the conditions of the tenancy agreement such as by non-payment of rent.
Tenancy agreements are important because they ensure that both landlords and tenants are aware of their rights and responsibilities. The agreement covers the terms and conditions of the lease and sets out details about how much rent must be paid, when and how it must be paid and what restrictions (if any) there are.
It might also include a ‘break clause’. This allows either party to break the contract at any time during the first 6 months.
Whether to rent out the property as unfurnished or unfurnished depends on who you will be renting it to. Families would usually have their own furniture while students tend not to.
In general, furnished accommodation can command higher rents. However, there is a real possibility that furniture could be damaged – either accidentally or deliberately – by your tenants.
Tenants and their rights
By law, landlords must provide tenants with an information pack explaining their rights and responsibilities. These easy-to-read guides vary slightly in different parts of the UK but contain the same basic information.
According to the Homes (Fitness for Human Habitation) Act 1985 (and updated in 2019), tenants have the right to a safe, comfortable home with all the amenities working such as hot water, heating, toilet facilities, etc. Section 11 of the Landlord and Tenants Act of 1985 covers the maintenance of the property and the timely repair or replacement of anything broken.
By law, tenants have the right to know the identity of their landlord within 21 days of moving into the property.
Tenants are also protected from unfair terms on the written tenancy agreement. Even if they sign the agreement, a landlord can be penalised if the terms are deliberately misleading or unclear. Similarly, tenants have legal protection from extortionate rents, unreasonable rent increases and eviction.
Another important right that tenants have in the UK is the right to ‘live in quiet enjoyment’. If a landlord bombards their tenants with calls, text messages and emails about rent arrears, this could be considered harassment and is heavily penalised.
Deposits and deposit protection schemes
The size of deposits varies according to the annual rent payments. For properties under £50,000 a year, landlords are only allowed to charge a maximum of 5 weeks’ rent as a deposit. For properties whose annual rent comes to over £50,000, the deposit is capped at 6 weeks’ rent.
Within 30 days of receiving a deposit from tenants, landlords must pay the money into one of the UK’s deposit protection schemes. There are separate schemes for the different countries in the UK, but they all operate in exactly the same way by holding onto the deposit until the tenancy comes to an end.
Landlords must notify their tenants which of the schemes is safeguarding their deposit and provide all relevant details about it.
5 Useful Tips for becoming a landlord
1. Using a letting agency to rent out your property
Using a letting agency has both pros and cons. Although they have the expertise to help anyone becoming a landlord deal with all the rules and regulations, they also charge monthly fees.
If you decide to hire a letting agency, you should check their credentials and preferably choose one which follows a Code of Practice and operates a client money protection scheme.
2. Set up a landlord emergency fund
You should put money aside as a landlord emergency fund as soon as possible. This should be the equivalent of 3-6 months’ rent. Not only will this cash be able to pay for emergency repairs, but it can also be used to make mortgage repayments during the inevitable periods of non-vacancy.
3. Decorate your rental property
It is much better to decorate your rental property in neutral colours such as white or cream. The property will appeal to more tenants and so you will find it easier to rent it out.
Also, make sure that you de-clutter as much as possible, especially if the rental property was your former home.
4. Vet your prospective tenants
You should carry out the necessary checks before choosing a tenant. In this way, you are more likely to choose a good financially stable tenant and avoid future problems.
Your investigation of their background should include an identity check and a credit check (including details of current debts, previous evictions, etc.) You should also ask for character references from previous landlords and their employer.
5. Draw up a property inventory
When your tenants move into your property, it is good idea to have prepared two copies of a inventory of the house contents. You should go through it with your tenants and both parties should sign every page.
You should keep a copy with your rental property documents and the other should be given to your tenants. An inventory will make it easier to prove if anything is missing when their tenancy ends.
Included in our tenancy agreement pack is a printable landlord inventory document for exactly this purpose.
Another good idea is to take photos of the condition of the property. You may wish to claim part or all their deposit when they leave because of damage they have caused. Clear dated photos will provide proof of your claims.
What is the National Landlord Association?
The National Landlord Association (NLA) was a professional body for landlords in the private rented sector in the UK. In April 2020, it merged with the Residential Landlords Association to become the National Residential Landlords Association (NRLA). It has over 80,000 members and membership fees start from £75 a year.
As part of its role in offering advice, help, encouragement and support to its members, the NRLA runs training programmes and seminars throughout the year.
The NRLA also acts in the best interests of its members by lobbying about issues affecting private landlords – on both a local and national level. It also acts a spokesperson in the media for any issues which affect the private rented sector and landlords.
Becoming a landlord FAQ section
How can I become a landlord?
Once you have researched the private rented sector and bought a property, you must make sure that all your documentation is in order such as landlord registration and insurance. The property also needs to be prepared and checked so that there are no issues with its amenities.
You could use a letting agency to market the property or you could do it yourself by advertising it in the local press, on local noticeboards or online (through social media or property portals). Before you enter into a tenancy agreement, you should always make sure that you carry out a thorough background check.
Is landlord insurance expensive?
Monthly premiums work out at £10-£20 per month for basic coverage consisting of buildings insurance, home contents insurance and public liability cover. However, the price that you pay depends on a range of factors such as the property itself and the number of exclusions and add-ons in your policy.
What landlord insurance do I need?
As a prerequisite for a mortgage, you must have buildings insurance. If you are renting out a furnished property, you should also add a home contents cover to your policy. It is advisable to have public liability cover since this will pay any legal fees and compensation awarded by the courts if someone suffers an injury on your property.
It might be a good idea to consider home emergency cover, rent guarantee insurance and alternative accommodation cover as add-ons.
Do I need to register as a landlord?
It is compulsory to register as a landlord if your property is located in Scotland, Wales or Northern Ireland. In England, about 60 local councils run a selective landlord licensing scheme so you should always check with them before renting out your property. If you are the landlord of an HMO property, licensing is mandatory.
How do I evict a tenant?
Before evicting a tenant, they must be served with a notice asking them to vacate your property. The type of notice you serve depends on which part of the UK your property is situated. Which section notice you serve also depends on whether you want them to leave because the tenancy agreement has come to an end or because they have broken its terms and condition. For example, delayed or non-payment of rent or damage to the property.
How can I be a good landlord?
Being a good landlord is critical to your relationship with your tenant and their relationship with you. Be considerate, lenient, and understanding of your tenants circumstances. Abide by the laws and your responsibilities as a landlord. Keep your rental property in good condition and repair any structural or other problems quickly.