Are you an accidental landlord?
An ‘Accidental Landlord’ is a home owner who decides to rent their property due to circumstance rather than on purpose, it is often that they have difficulty selling and therefore decided to rent it instead. There are any number of reasons that someone might become an accidental landlord, these tend to be people in a second or third home or sometimes those of a deceased estate where property maintenance may be costly. The National Landlords Association reveals that “24% of UK landlords came into the market accidentally”. It’s been found that the most common reasons people become an accidental landlord is because they need to relocate for a job or they have a growing family and need more space.
It seems that when this type of vendor comes to put their property on the market, they find the current price of the house would leave them with negative equity. Therefore in the long term they benefit from renting it instead. At the same time, they will also benefit from the property gradually increasing in value as well as receiving rent on the property. As a result, the vendor then becomes a landlord without the intention of becoming one, but benefits from the situation.
The findings from a National Landlords Association (NLA) survey, which asked landlords why they first entered the buy to let (BTL) market, show that:
11% were by chance, e.g. through inheriting property
5% acquired an extra property, e.g. when they met a spouse
5% intended to sell but experienced difficulties
3% had to relocate for work, either home or abroad
Central London was found to have the highest proportion (31 per cent) of accidental landlords. This is closely followed by Wales (29 per cent) and then the East of England and Yorkshire, both with 27 per cent. The North West had the least with just 15 per cent claiming to have got into the business unintentionally.
Carolyn Uphill, Chairman of the NLA, said:
“The figures show that there are a significant number of people who find themselves as landlords without ever having really planned to enter the market.”
“While a BTL property can provide a steady return, you’re in business to provide a home for someone else so you need to know your obligations and make sure that you have a plan to make a success of it all.”
“Alternatively, enlisting the help of a letting agent is an option if you prefer a more hands-off approach; just make sure they are a member of a reputable trade organisation.”
Naturally, accidental landlords tend to struggle to tackle all the property do’s and don’ts when it comes to letting. So, with that in mind, we’ve put together our top tips for accidental landlords.
If you don’t notify your insurer that your home is now being used as a rental property, your insurance policy will most likely be invalidated. That could be a very expensive mistake. In addition, we advise that you look at taking out public liability insurance to protect you against any incident which takes place in or around your property.
As well as your insurer, you should also talk to your mortgage provider to let them know that you intend to rent your property. Depending on the type of mortgage you have – and who you have it with – you may have to switch or alter your current contract.
By law, there are several legal obligations which all landlords must adhere to. These include things like ensuring any deposits are placed in a government tenancy deposit scheme, and ensuring that the property you’re letting is safe. Make sure you are familiar with the Rent Smart Wales scheme, as this applies to all landlords in Wales.
Regardless of who you are letting to, it is essential that you write a clear and legally binding tenancy agreement. This is the contract between you, as a landlord, and your tenant(s) which lays out the terms and conditions of the tenancy e.g. duration, rent, late fees etc.
Before letting your property, it is a good idea to take a full inventory and schedule condition of the property. This document is argued to be one of the most important documents and is the most useful piece of evidence you have when finalising a tenancy. Make sure these are signed by both parties and photos are date stamped, not doing so could mean you lose a chunk of deposit to recover damages etc.
Ensure that all the utilities (gas, water, and electricity etc.) are transferred into the name of your tenant(s) and make sure you state their responsibility for payment of utilities in your tenancy agreement.
All the rent you receive from your tenant(s) is classed as income by HMRC. As such, it needs to be declared in a tax return at the end of the year.
Capital gains tax
When you sell a property which you have previously rented out for a profit – you will be liable for capital gains tax. You pay capital gains tax on any gains you have made over the initial purchase price of the property. This is charged at a flat rate of 18% (excluding advance rate tax payers).
You should also be aware that there are several tax deductions which you are entitled to claim as a landlord. These are expenses which you can deduct from your taxable rental income. For example:
- Mortgage interest charges
- Letting fees
- Repairs and maintenance
- Energy efficiency improvements
If you are an accidental landlord and you would like us to help value your property, we can give you the confidence that your property would be well looked after, and as well as obtaining a healthy monthly rental we can also put the property on the market for sale, as we have lots of investment landlords who are happy to buy a property with a tenant remaining at the property (in-situ).
Published: December 18, 2015BACK TO NEWS LIST