Beginner's Guide to Letting

How to make lettings work for you: a beginner’s guide

• 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 maximum of 12 months while maintaining your current mortgage.

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.

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 detectors in rooms with open fires or wood-burning stoves.
• Ensure that electrical installations are tested and certificated as being safe, for example by having a trained professional carry out inspections. Also ensure that portable appliances are PAT tested.
• Protect tenants from legionella by having a risk assessment conducted.

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 a 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 or unwanted fines. Saving your time and money is key to being a successful landlord.

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.

An unfurnished property should still include basic items like appliances such as dishwashers and washing machines. Part-furnished properties sit somewhere in the middle, so may include furniture like tables and chairs, as well as the basic furnishings. Part-furnished and unfurnished properties offer tenants the chance to use their own furniture.

• Remove items of sentimental value, these may be off-putting if the property feels like it doesn’t ‘belong’ to a tenant.
• Remember that less can be more – and certain items will have to comply with regulations, such as upholstered furnishings
• 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 furniture complies with fire safety requirements.

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.

Getting an inventory carried out by an independent third party is a good idea. Also, asking the tenant to sign to confirm the property’s condition at the outset is also advisable as this can help mitigate the risk of disagreements later on.

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 be single or married, tend to be younger (20 – 30) but many over 30’s also fall into this category. 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 size of educational hubs. Students can be less fussy but still look for certain features such as proximity to campus, good transport links and access to bars, cafes 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 this audience. The number of rooms in the property; storage; an outdoors area; all are key features. 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 can present an option for landlords. These tenants cover a broad range, from families to single individuals.

A good letting agent can help landlords to understand their prospective tenants own unique set of circumstances, including how these 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.

Protecting your investment

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 take out a landlord insurance policy. As well as covering the building and its contents, we also offer specialist rent and legal protection insurance. Landlord insurance can include rental protection cover and some policies can cover legal costs in the event of a dispute. While landlord insurance does come at a premium due to the increased risk, most standard homeowner insurance policies will be invalidated if you let out the property. So to protect the building, contents and rental income, it’s a good idea to look at your options. Your local branch can help provide more information on our 5* Defaqto rated landlord insurance policy which is underwritten by AXA Insurance.

Tax

From initial property purchase through to on-going 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.

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 the coronavirus pandemic can lead to a number of legal changes. Letting agents are best placed to check and offer assurance that your property is being managed within the law.
• Maintenance – from time to time accidents may happen and repairs may need to be carried out on your property. Letting agents can arrange for repairs to be undertaken and ensure the property is taken care of.

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.