A beginner's Guide to Letting

Read our helpful guide with hints and tips to get you started and succeed in the buy-to-let market, and how to make it work for you.

- How to make buy-to-let work for you
- What are the pros and cons of letting and selling?
- Do I need a buy-to-let mortgage to let out my property? 
- Is my property suitable for letting? 
- Types of tenants
- What are my costs? 
- Do I need a letting agent?

How to make buy-to-let work for you

Considering becoming a landlord? Maybe you’re thinking of purchasing a buy to let property or you’ve recently inherited a second home and you’re not sure what your next steps should be. We have great news; becoming a landlord can offer the potential for exciting financial opportunities, but it’s a good idea to do a little research first. 

This guide is designed to help you understand:

• What the lettings process involves.
• The pros and cons of letting a property.
• The costs involved.
• How a letting agent can help you.        

If you’re thinking about the long-term, think twice before you sell. When it comes to growing a financial nest egg, bricks and mortar could be an ideal solution. Property has traditionally been a reliable way to make money:

What are the pros and cons of letting and selling?

The first step in determining the viability of letting or selling is to compare the pros and cons of each. We picked out the most pertinent points to help you understand what letting or selling could mean for you.

Selling

Pros

• It’s a single (albeit involved) transaction that releases capital gain without any on-going commitment.
• Property may still sell regardless of its level of repair.
• Allows you to release equity and reinvest.

Cons

• Depending on the market at the time, you may end up selling for a lower price than expected.
• It can be difficult to sell a home with sentimental value.
• Selling may take longer than expected and could delay other investments.
• No rental income which could have contributed to financial security in later years.
• Capital gains tax may be a consideration.

Letting

Pros

• Provides a steady and consistent income.
• The potential for capital appreciation.
• Property can be kept in the family.
• The process of finding a tenant is usually quicker than the process of selling.
• You can choose to sell (or move back in) at a later date, when personal and market conditions best suit you.

Cons

• You may need to invest money to ensure legal requirements are met.
• There is a risk that tenants may not meet their contractual obligations e.g. payment of rent and looking after the property.
• Having to pay additional taxes on the extra income.

Do I need a buy-to-let mortgage to let out my property?

Yes – if you’re on a residential mortgage, the majority of lenders will require that you switch to a buy-to-let mortgage. Moving to a buy-to-let mortgage is not uncommon, but acceptance does depend on a number of factors, including:

• The term and type of your current mortgage.
• What you intend to do with your property.
• Any other mortgages you may have.
• Your current and future living arrangements.

As a short term solution, you may be able to get something called a Consent to Let policy, which allows you to let your property for a certain period of time (typically up to 12 months) while maintaining your current mortgage.

Is my property suitable for letting?

Properties must be brought to a certain standard before you can let them out, and once you have found a tenant, you need to maintain the property to ensure it’s safe and legal for someone to live in.

Prior to letting, you will need to:

• Install a smoke alarm on each floor of the property.
• Place carbon monoxide alarms in any room which contains a fixed combustion appliance.
• Ensure that electrical installations are tested and certificated as being safe, for example by having a trained professional carry out inspections.
• Also advisable to have portable appliances tested.

A comprehensive list of your legal obligations is set out in our Terms of Business.

Landlords (and sellers) also need to commission an Energy Performance Certificate (EPC) for their properties – a rental property must have minimum rating of E or it will be illegal to let it out. Breaches can result in substantial fines.

Making sure that your property meets compliance standards will keep you and your tenants safe and legal.

You will reduce the potential for any issues at the outset or later on such as tenant complaints, fines or prosecution. Saving your time and money is key to being a successful landlord.

Do I need a license to let out my property?

The Housing Act 2004 states that a property that is let to three or more unrelated sharers, who share a kitchen and/ or a bathroom, is a House in Multiple Occupation (HMO). If there are less than five sharers the property may not be subject to mandatory licensing, although some local authorities implement selective and additional licensing and you should familiarise yourself with their policy.

What about furnishings?

You need to decide whether your rental property will be furnished, part-furnished or unfurnished. A furnished property will usually include every necessity, e.g. beds, curtains and light shades. Some properties even include cutlery, towels and appliances, like ironing boards and toasters. Upholstered furniture must comply with the relevant safety standards.

Whatever furnishing approach you decide to take for your property, you should be able to demonstrate the condition of it at the beginning and end of the tenancy.

• Remove items of sentimentalvalue, these may be off-puttingif the property feels like it doesn’t ‘belong’ to a tenant.
• Think about your possible tenants. A family may well have their own furniture they may prefer to use, but a student may need a property to come ready-furnished.
• Make sure that upholstered urniture complies with fire safety equirements.

The type of approach you take with furnishings could depend on factors such as location and type of tenant you are aiming to attract, a good letting agent can help you decide on the approach.

Types of tenants

You will need to think carefully about what type of tenant your property will best cater for. If you market your property to the wrong audience, you may struggle to attract interest or waste time dealing with unsuitable tenants.

Knowing your audience is also crucial when it comes to setting the rental value and understanding how long someone may stay for. Here are examples of different tenants, all of which have the potential to be ideal for the right property.

Professionals

May comprise, single tenants, couples and sharers.The typical property associated with these tenants tends to be a modern apartment with all mod cons. Space is less of an issue than having somewhere that looks good, with parking and good online connectivity. Probably more of a short let (c 1 year) potential but more likely to pay a higher level of rent.

Students

There is high demand for student accommodation as numbers have grown significantly over recent years, with an increase in the size of educational hubs. Students can be less fussy but still look for certain features such as proximity to campus, good transport links and easy access to bars, cafés and other social facilities. Landlords can be added to a list of approved accommodation as long as certain standards are met making it easier to let a property, but students are shorter term renters, with a year being fairly standard.

Families

As you might expect, space is a significant factor for audience. The key feature include the property’s number of rooms, storage, space and outdoor area. Proximity to schools and colleges is also very Important in their search for a suitable property. A family rental could be for the long term – several years – because stability can be very important.

Housing Benefit Tenants

Tenants paying some or all rent using Housing Benefit are commonplace. These tenants cover a broad range, from families to single individuals.

A good letting agent can help landlords to understand their prospective tenant own unique set of circumstances, including how such tenants might be accommodated and supported.

Knowing your tenants

We understand that your property may be worth as much sentimentally as it is financially, so it’s vital you have tenants that you feel comfortable with.

Letting agents can undertake checks on tenant suitability, including their likely ability to make rental payments and their right to rent in the UK. It’s really important that these checks are carried out, to ensure that tenants are going to be reliable and able to meet rent payments.

There are also rules regarding deposit payments, which must be protected in a Government authorised Tenancy Deposit Protection scheme.

Here are some handy tips to ensure you get off to the best start with your tenants:

• Give your tenants a welcome pack, complete with information about local amenities and when the bins are emptied.
• Give them emergency contact numbers.
• Arrange a catch-up to see how they are settling in.
• Encourage written communication to ensure conversations can be kept and referenced should any future problems occur.

Carrying out all of this work on your own is not easy and can be time-consuming, especially if you’re new to lettings. To ensure you’re following all the required steps, you should seek advice from a letting agent, even if it’s just for peace of mind.

Alternatively, you could wish to offer your tenants the option to use a Zero Deposit Guarantee, which offers cover equivalent to 6 weeks rent. Details available through your local branch.

Before your tenant moves in, you are advised to take a 5 week deposit from them. Deposits must be protected by a government-approved Tenancy Deposit scheme.

What are my costs?

It is important to remember that there are costs associated with being a landlord, so it’s critical you have an understanding of what needs to be paid, although a letting agent can help with this.

Insurance

It’s important that you consider your insurance needs as a landlord. You’ll need a policy specially designed for landlords – a standard home insurance policy will not cover a property that is to be rented out. Your local branch can help provide more information on our 5* Defaqto rated landlord insurance policy which is underwritten by AXA Insurance. As well as covering the building and its contents, we also offer specialist rent and legal protection insurance, which covers rent arrears should your tenants default and legal services should you need to gain possession of your property.

Tax

From initial property purchase through to ongoing landlord charges to final release of a property, every stage carries a tax obligation. For instance, it’s possible you could have to pay a higher rate of income tax from letting the property out. Equally, there are expenses that are eligible for tax relief.

I'm ready to let out my property. What's next?

1. Have your property valued and appraised
2. Choose the type of agent service required
3. Put your property on the market
4. Receive feedback from viewings
5. Accept an offer
6. Obtain tenant references
7. Prepare pre-tenancy paperwork
8. Ensure legal compliance and safety certificates are in order
9. Sign the tenancy agreement
10. Tenant moves in

Do I need a letting agent?

Letting agents can offer assurance that everything is being done to the highest standard and with the best possible outcome in mind. Letting agents can also give peace of mind that the all-important quality of tenant you need is provided.

The benefits of using a letting agent include:

• Marketing ability – letting agents will be able to market your property much more effectively than you will alone.
• Tenant vetting – agents will arrange for tenants to be vetted.
• Offering support and advice – events such as changes in government and the regulatory framework. Letting agents are best placed to check and offer assurance that your property is being managed within the law.
• Maintenance – from time to time repairs may need to be carried out on your property.

We work with landlords at all different stages in their lettings journeys to help make lettings work for them. We have the experience and the knowledge to help you too.