Reluctant landlords: Tips to let your property

Landlord Expert
By Landlord Expert January 10, 2011 10:52

 

IF your home is for sale but you’re at the end of your tether trying to get the price you want, you could find yourself among the growing band of reluctant landlords. While there has been some evidence that property prices are improving, some analysts maintain they will be stable through 2011 while others expect a drop of about 6 to 7 per cent.

A reluctant landlord is a homeowner who cannot find a buyer because of the recession and housing market decline, so turns to the rental market.

This development has caused an influx of former private homes into the rental market, says the Association of Residential Letting Agents (ARLA), which warns owners to tread carefully.

“While owners forced to let out their home can reap significant benefits by holding on to their home, letting can be full of potential hazards, especially for inexperienced landlords,” says Ian Potter from ARLA. “This could be material issues, such as a tenant mistreating a property, to financial problems, such as a landlord not being able to meet mortgage payments.”

If you plan to be a first-time landlord in 2011 here’s our guide to renting out a property that was once your home.

Talk to your lender and insurer

Unless the property was bought with a buy-to-let mortgage you need to get permission from your lender or you could be in breach of your contract.

Lenders treat applications case-by-case but may keep your mortgage unchanged if the property is being let on a short-term basis.

If you plan to rent for longer, your rate may rise or your lender may stipulate that you must switch to a buy-to-let mortgage.

Rates and arrangement fees can be higher than on a residential loan and you may need more equity in your home because loan-to-values (LTVs) tend to be lower.

“Check buildings and contents insurance to make sure it is suitable if the property is let out and make sure you arrange specialist lettings insurance,” says Chris Norris from the National Landlords Association (NLA).

 

Finding tenants

When letting, decide whether to pay an agency to find tenants or to seek them yourself through a website such as Gumtree. The key is to find someone who will pay their rent on time and take good care of the property.

“Check the tenant’s references before they move in and run a credit check to see if your prospective tenant has a history of bad debts,” says Norris.

As a landlord you will need everyone occupying the property to be on the tenancy agreement. This will usually be an “assured shorthold tenancy” in which all tenants will be held “jointly and severally liable” for the rent if things go wrong.

Before setting the rent, check on similar properties and decide whether to run the contract for 12 months or with a break clause.

 

Inventories and deposits

Once you’ve found your tenants, prepare a full inventory of the premises and get this signed and dated by both parties.

“If possible take photo or video footage to support the inventory,” says Norris.

At the outset you’ll also need to take a deposit, usually one month’s rent. Make sure you abide by new landlord regulations that require you to place the money in one of three Government-approved tenancy deposit schemes.

The schemes divide into two types. The Deposit Protection Service holds the deposit and only releases it at the end of the agreement.

Alternatively, MyDeposits and the Tenancy Deposit Scheme offer insurance-backed schemes under which the deposit is held by either landlord or letting agent and an insurance premium is paid to cover any claims by the tenant.

At the end of the tenancy the deposit must be returned quickly, minus the cost of putting right any damage to the property.

 

Furnishings and gas appliances

An important decision is whether to let your property furnished or unfurnished. “If your furniture is precious take it with you or put it into storage,” says Potter from ARLA.

Alternatively, if you do decide to provide furnishings check these comply with the Furniture and Furnishings (Fire Safety) Regulations. “There are regulations governing the installation of electrical equipment so make sure you’re clued up and get any equipment regularly tested,” adds Potter.

“The same is also true for gas appliances, which must be certified and checked annually,” he says.

 

Running costs and upkeep

Tenants will expect you to be prompt in responding to requests for repairs so make sure you’ve worked out how to deal with wear and tear as well as bigger problems when they occur.

At the end of the tenancy the tenants are required to give the property back in the same condition they let it in, allowing for wear and tear. It is at this stage that you will decide how much of the deposit should be returned.

During the tenancy you as the landlord aren’t entitled to visit your property as and when you please. You must first give notice to your tenants, usually a minimum of 24 hours.

Should you enlist a managing agent?

As a reluctant landlord you may want to avoid much of the hassle by letting your property through a managing agent.

“A reputable agent will know the ins and outs of the rental market much better than most novices,” says Norris. “They may also let your property more quickly, thanks to their greater ability to market it to potential tenants.”

Neil Young of letting and management specialist Young London adds that if you’re letting a former home a managing agent can help loosen any emotional ties.

“This will get you into the mindset of treating the property as an asset rather than your previous home, meaning you make sound business-minded decisions,” he says.

However, the main downside is cost, because reputable agent may charge about 10 per cent of the annual rent for a “let only” service and about 12-15 per cent for a “full management” service.

Both of these make appointing an agent less attractive if you want to maximise your earnings from the property.

To find a reputable letting agent contact an organisation such as ARLA (arla.co.uk) or the National Landlords Association (landlords.org.uk).

TENANTS OUTNUMBER PROPERTIES

If you plan to let your home in 2011 the good news is that would-be tenants are chasing an ever-dwindling number of rental properties.

According to the Association of Residential Letting Agents (ARLA), almost three-quarters of its member offices reported in the last three months of 2010 that there were more tenants than available properties.

Neil Young of letting and management specialist Young London says that with the mortgage market closed to many would-be first-time buyers pressure on the private rented sector is likely to rise. He says: “This, coupled with the underlying demographics of increasing housing demand, at a time when the supply of new homes remains at an all-time low, means the current upward pressure on rents is likely to continue well into 2011.”

The Royal Institution of Chartered Surveyors reports rents are rising, properties are being let quickly and landlords are experiencing very few voids when nobody is living in the property.

However, there are still issues surrounding mortgage availability.

“The buy-to-let market was certainly hit hard by the credit crunch and there are still far fewer providers of loans than in the past, which means rates and fees are higher and criteria tighter,” says Melanie Bien from broker Private Finance.

“However, Paragon recently returned to the market and Santander has said it is considering offering buy-to-let mortgages this year.

“This may persuade other lenders to follow suit as there will be plenty of demand.”

Further, rising rents will make it easier for landlords to meet lenders’ tight criteria.

Young also warns that with rents increasing, landlords should ensure tenants do not run into payment arrears.

 

Landlord Expert
By Landlord Expert January 10, 2011 10:52

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