A Guide to Becoming a Landlord

Despite the widespread financial uncertainty witnessed in recent months, landlords and the buy to let market seem undeterred, with the number of buy to let landlords increasing by 83% in 2021 alone. With the total amount borrowed by UK landlords totalling £18 billion, we highlight what you need to know when renting out a property for the first time and taking those first steps to becoming a landlord.  

What Do I Need to Become a Landlord? 

Energy Performance Certificate 

One of the most essential steps on the journey of becoming a landlord is obtaining an Energy Performance Certificate for their rental property. This crucial document allows both owners and aspiring tenants how environmentally friendly the property is, offering the landlord actionable steps to help improve the energy efficiency of the rental, alongside an estimation of its running costs for tenants.  

Although EPC’s will only need to be renewed every 10 years, landlords will be legally obligated to ensure that their current certificate is valid before presenting their rental opportunity to potential renters. Additionally at the start of each new tenancy owners will need to issue each of their tenants with a current EPC within 30 days. Landlords that fail to provide their tenants with this documentation will be prevented from issuing a section 21 notice in an attempt to reclaim possession of the property, with a further civil penalty of £200 being incurred. However, for owners that let out a property that does not meet the minimum energy efficiency standard of an “E” grade will be fined up to £4,000.  

Buy to Let Mortgage

Whilst it is worth noting that a buy to let mortgage is not the only way in which to rent a property, it is by far the most viable option for many as the price of property soars. Those with an existing residential mortgage need to note that if they wish to let out their home they either need to gain permission to let from their residential mortgage provide, allowing tenants to occupy the property for a short period of time. However, if the owners wish to become a landlord and let on a more long-term basis they will need to re-mortgage on a buy to let loan. If the owner of a property decides to let out their property whilst still on a residential mortgage and has not first gained permission to let from their provider they will be found in breach of their mortgage.  

Landlord Insurance

Whilst it is worth noting that landlords are not legally obliged to take out landlord insurance, many buy to let mortgage providers will demand this as a stipulation of the loan. The most common form of insurance cover for landlords is building insurance, protecting the structure of the rental property against damage caused through storms, flooding, fires, accidental damage and vandalism.  

Further to this, landlords that are providing a fully or partly furnished rental opportunity may need to consider taking out landlord contents insurance. Similarly, to residential contents insurance this will cover the belongings introduced to the property the landlord in the event of damage or theft; but it is worth noting that such insurance policies will not cover the tenant’s possessions and they will need to take out their own cover once they move in. 

What Fees Are Associated With Being a Landlord? 

Agency Fees

Typically more appealing to landlords that wish to take a more “hands-off” approach to running their portfolio, letting agents will handle the daily management of an owner’s rental properties. Of course, this comes at a cost, with landlords commonly paying approximately 10-15% of their monthly rental income for this service. 

Rental Advertising Costs

Commonly landlords will turn to letting agents to find them the ideal tenant for their rental property. Perhaps the most popular service offered by letting agents, the let only service, as it is commonly known, is typically charged as a one-off fee, seeing the landlord hand over around one week’s rent.  

Of course, if owners wish to have a more elaborate marketing plan for their rental property, seeing them hire professional photographers, directors and perhaps even obtaining a 3D digital floor plan, all of these will only increase the advertising costs for landlords. However, these efforts could help them find a tenant much faster making it more appealing to those that are renting out a property for the first time. 

 Buy to Let Mortgage Costs

For landlords that do not fully own their rental property, they can expect their largest monthly expenditure to be the interest payments on their buy to let mortgage. As is well known the deposit an owner must give to a provider is far higher than those seen across the residential mortgage market; however, the more those on their way to becoming a landlord can provide for this deposit, the less they will be expected to pay each month in interest. With this being said, landlords that choose to take out a variable rate buy to let mortgage will not have the security of a consistent interest payment rate, but rather this will fluctuate in accordance with the rates set by the Bank of England.  

Void Periods

Simply put, a void period is when a landlord is unable to find a tenant to occupy the property, leaving them without a rental income and solely exposed to mortgage payments, management costs, repair bills and the many other costs that come with becoming a landlord.

Property Maintenance

It goes without saying that the amount a landlord can spend on maintaining their rental property will of course vary between owners. With this being said it is commonly seen across more experienced landlords that smaller repairs are made periodically, preventing a significant build up of issues in the property, potentially presenting a risk to the occupant’s health, safety or impeding their use of the rental. Not only does this approach keep tenants happy, but ensures owners won’t be surprised with an eyewatering bill for crucial repairs.  

Refurbishment

As of 2019 contemporary research suggested that landlords spent an average of £3,134 a year on refurnishing their rental property. Landlords in the North West of England were shown to spend the least on refurbishment, averaging £2,738 annually, compared to owners within the capital of London who put approximately £3,197 towards refurbishments every year. But with owners being encouraged to increase the energy efficiency of their rental property in order to meet the revised Minimum Energy Efficiency Standard of a “C” rating by 2025, these figures are likely to increase.  

What Are a Landlord’s Responsibilities?   

Right to Rent Checks

Landlords are legally obligated to assess each of their tenants right to rent within the UK. This will see owners take copies of official identification documents such as passports and visas, with follow up checks being performed to periodically validate this right to reside within the UK. If the owner of a rental property neglects to carry out these checks then they could face an unlimited civil penalty alongside a prison sentence.

Protect the Tenancy Deposit

Whilst again landlords are under no obligation to take a security deposit from their new tenants, if they choose to do so the appropriate amount must be entered into a government approved deposit protection scheme. It is also worth noting for those that are in the process of becoming a landlord and renting a property for the first time that the 2019 Tenant Fees Act established a limit on the amount landlords can request their tenants pay for this deposit, typically equivalent to the cost of five weeks rent.  

There are three scheme that landlords can choose from to protect the sums, but details of the scheme alongside confirmation of the amounts being protected, the address of the rental property, contact details for the scheme and landlord, with reasons under which deductions can be made from the amount being returned to the tenant must be provided to tenants within 30 days.  

If it is found that the owner of a rental property has not taken steps to protect their tenant’s security deposits, not only can the courts legally compel them to enter the amounts into a scheme, but also repay the tenants up to three times the original amount that should have been protected in compensation.

Are Landlords Responsible for Repairs?

When renting out a property for the first time it is essential to understand a landlord’s responsibility for repairs. Landlords are responsible for arranging repairs regarding the external structure and exterior of the rental property, comprising the roof, guttering, drains, walls ect. It is worth noting that owners are legally afforded a reasonable amount of time to conduct repairs, with this timeframe being largely dependent on the task at had, with the allocation for fixing a broken window being far shorter than structural issues.

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