Setting up a rental property can be a surprisingly complex endeavour, with a variety of logistical, legal, and financial issues to take care of before your property even hits the market. Renting out a property for the first time can be especially stressful, as you learn the ins and outs of the letting process. From acquiring a mortgage to finalizing all necessary administrative and compliance documents, the responsibilities of the landlord are far-reaching.
To learn more about what these responsibilities entail, check out our complete guide for the first-time landlord down below.
Ensure all property financing and necessary permissions to let are obtained
Buying property with the intention of letting requires a substantial financial investment. Buy-to-let mortgages are the most common mortgage type for landlords. Their interest rates tend to be higher than standard mortgages and most are paid on a monthly interest-only schedule. A buy-to-let mortgage’s lending maximum is dependent upon your rental income, with most lenders expecting your rental income to be 25% to 45% higher than the mortgage payments. Additionally, a standard loan deposit of around 25% will be required upon approval.
If you have a residential mortgage, you will need to gain permission from your mortgage lender for any letting purposes. Letting under a residential mortgage is time-limited and will result in extra fees being added to your standard mortgage rate as well. Not informing your mortgage lender about letting can result in repossession of property or immediate repayment of the entire loan.
For those that aren’t freeholders of their property and wish to let the property, permission from the freeholder must be received. Typically the lease agreement will contain a clause pertaining to letting approval. If letting is permitted, freeholder permission, for the most part, will be granted. To learn more about the difference between leaseholders and freeholders, check out our guide here.
Weigh the costs against potential returns
Before deciding to let a property, you must analyse the returns alongside the necessary expenses of being a landlord. As a property investor, you should assess your property’s rental yield and capital growth. Rental yield refers to the estimated annual return on investment from your property. Capital growth, also known as capital appreciation, refers to the rate by which your property value increases or decreases.
While the notion of a strong rental yield and capital growth may be enticing, you must also take into consideration the required expenses that come with letting. These expenses include but are not limited to:
- The mortgage interest.
- Agency fees.
- Tenancy void periods (i.e. lost rent and out-of-pocket expenses such as Council Tax and utilities).
- Maintenance and refurbishments.
- Compliance inspections and documentation.
- Tenancy services such as inventory inspections and professional cleaning.
- Insurance payments.
Landlords also have to pay annual landlord income tax, the rate of which is determined by your income tax bracket. With much of the tax relief previously available to landlords withdrawn in recent years, it's also important to consider the impact of any rental income on your tax status, as it's now far more common for landlords to find themselves pushed unexpectedly into a higher band.
Make sure that your property meets the required safety standards
One of the most critical obligations of being a landlord is ensuring all mandated safety standards have been met. Keeping a checklist for all necessary inspections, along with their latest inspection date can help you stay organized. Safety compliance requirements include:
- EPC - the Energy Performance Certificate provides information on your property’s energy usage as well as typical utility costs.
- Gas safety certificate - this certificate acts as a gas safety record for all gas appliances present within the property.
- Smoke and carbon monoxide alarm installation.
- Fire safety - the property and all furniture included must meet the minimum safety requirements.
- Licensing - most common with HMO properties, but can apply to all rental accommodation in a local authority area.
- EICR - a valid Electrical Installation Condition Report is required, with every rental property due for inspection at least every five years.
- Deposit registration - all assured shorthold tenancy deposits need to be registered with a government approved deposit scheme.
Understand all legal requirements
Landlords have a number of substantial legal obligations that need to be addressed before tenants move in.
As mentioned above, landlords must have the correct licensing in place for their property. Types of licensing include mandatory HMO licensing, additional licensing, and selective licensing. Additionally, landlords must register all tenancy deposits in a government-approved tenancy deposit protection program, which include: the Deposit Protection Service, MyDeposits, and the Tenancy Deposit Scheme.
Landlords must also legally comply with the Right to Rent. The Right to Rent refers to the mandated check all landlords must conduct for potential tenants regarding their legal right to live in the UK. The UK government provides a comprehensive list on who is entitled to the right to rent, in addition to British and Irish citizens.
Landlords are also required by law to ensure that their tenants receive a copy of the UK government's 'How to Rent' guide before they move into the property.
Decide whether you’ll be using a lettings service
Letting services help landlords with some of the most complicated aspects of the letting process. While it’s possible to go through the letting process by yourself, the necessary administrative tasks, along with the long list of compliance checks can be an absolute nightmare. Letting agencies help alleviate the workload by assisting with a myriad of tasks - from viewings to offer negotiations.
However, lettings agents are notorious for charging extortionate fees for terrible service and providing a less-than-inspiring customery journey. Fortunately, several disruptive PropTech startups have developed far more effective alternatives for letting and managing properties by applying innovative technology to common customer pain points. PropTech companies allow landlords to manage the process of renting out a property more efficiently while increasing transparency and keeping costs low.
Home Made provides a variety of hassle-free, trustworthy services to help you rent your property without stress. Our hybrid approach, with both in-person service and online tenancy administrative work, helps landlords let properties at a fraction of the conventional cost while remaining hands-off throughout the process.
Take care of all the necessary tenancy administration
In order to formalise the tenancy, the terms of the tenancy will need to be established and agreed upon by all parties. It's also essential to ensure that your incoming tenants receive copies of all the relevant documents that landlords are required to provide by law. Tenancy administration involves handling the following documents:
- The tenancy agreement and any related contracts (such as a Deed of Guarantee).
- Compliance documentation.
- Deposit registration, including distribution of the prescribed information.
- The government-issued 'How to Rent' guide.
Once the above is addressed, you will need to ensure that your receive the first month's rent and deposit in full before granting access to your property.
Check tenants in and arrange an inventory
Before tenants move in, it's important to organise for an inventory inspection and schedule of condition to be drawn up for the property, ideally by an independent professional. The inventory records the condition of your property at the start of the tenancy and should be updated at the end of a tenancy to track any discrepancies after your tenant's leave.
Though it isn't a legal requirement for landlords to arrange an inventory inspection and provide tenants with a report, we strongly recommend that landlords do so. In the event of any deposit disputes, it is essentially impossible for a landlord to sustain a claim with a deposit scheme if they are unable to provide inventory reports as evidence that damage occurred during the tenancy. This means that you won't be able to recover any of your costs from the deposit.
During the tenant check-in process, make sure to provide your tenants with a key, a list of utility provider information, and your own contact information for any future concerns. Inventory clerks will often provide a check-in service at no additional cost, and can meet your tenants at the property if you aren't available or don't wish to be directly involved. If you use a lettings service, they may also be able to assist by releasing keys directly to the tenants in their office or arranging for someone to meet them at the property at the start of the tenancy.
At Home Made, we offer a hybrid lettings solution that adds value at every stage of the rental process. With our proprietary technology and data-driven marketing processes, we can help you to achieve higher rental yields and significantly lower operating costs, all while providing exceptional customer service that improves the rental experience for all stakeholders.
Our median time-to-let from point of listing is just 8 days and our clients save an average of £2,300 per tenancy with us. We charge 3% plus VAT for tenant-find services, 4% plus VAT per month for full management services, and there are no fees for renewals. For more information on our services, visit our landlord page.Book valuation