When selling up seems impossible, renting out can be a handy alternative. We take you through what you need to consider if you’re thinking of renting out your home.
Renting can be a cost-effective and even lucrative tack to take when, for whatever reason, selling your house doesn’t suit you.
For example you might not be able to sell your house in a slow market or might not be able to get the asking price you originally wanted for it – in these cases renting the property instead of trying to sell it can be a gainful alternative.
Otherwise, you might simply not be ready to sell your property but wish to live elsewhere for a while, such as for example to take a career break and live abroad for a number of months. You would want to come back to your house at the end of this time but meanwhile you could be earning rent on the property.
On the other hand, you may simply have a second property that would otherwise go empty, and you want to earn a second income on that property by renting it out.
Whatever your reason, anyone can rent out a property with the right know-how.
How do I get started?
Talk to your mortgage lender
First and foremost, when you decide to rent out your house you must let your mortgage lender know of your intentions. Failure to tell your mortgage lender you are renting out your house is likely to mean you’re breaking the legal terms and conditions of your mortgage contract, so before you do anything else, approach your mortgage lender and ask their permission. You’ll usually have to obtain something called a ‘consent for lease’ from your lender before you can get started.
Do your research
Before you start setting the wheels in motion to make your house a rented property, it’s a good idea to do a bit of your own research into the letting market. Look into the sorts of properties being let in your area and how much rent they are asking for.
You should also start looking around at the different lettings agents in your area, the sort of service they offer, how much they charge, and so on (if you decide to use a lettings agent rather than a DIY approach, of course).
Of course you don’t have to use a lettings agent when renting out your property, and you can do the whole thing yourself (although if you decide to do this it is likely to be a good idea to seek the advice of a solicitor, accountant, or at least someone who has done it before).
Using a lettings agent however can cut out a huge amount of the legwork of renting out your property as they will advertise your property for you, show prospective tenants around, draw up a tenancy agreement, and can deal directly with the tenant on your behalf if you’d prefer to keep things at a distance.
Agents however will generally charge around 10-15% of the rental income you receive, though you may feel this is worth it for the extra work they do for you. Ask your lettings agent how much they feel you should charge for rent, but remember that this decision is down to you so it may be useful to gather opinions of two or three agents before settling on a figure.
You may prefer that your lettings agent does this completely on your behalf if you are employing the services of one, or you may prefer to meet potential tenants before deciding on who you would be happy with living in your property. If you’re using an agent they can also perform reference and credit checks on potential tenants to ensure everything is above board - if not, you will need to do this yourself
You’ll need to decide whether to let your house furnished or unfurnished, but remember that if you do leave some of your own furniture or belongings in the rented property these should be minimal – it’s also a good idea to remove anything from the property that’s precious or fragile; at the least they’ll show wear if you keep them in the property and at worst they could be damaged or stolen.
Before the new tenants move in you’ll have to make sure any repairs on fixtures and fittings have been carried out and all appliances are in good working order, plus it may be a good idea to give the property a mini-makeover to ensure everything is well-presented and up-to-date.
It’s very important that your current insurer knows of your intention to let your property, both in terms of your buildings and your contents home insurance. These policies may need to be amended or added to as necessary now that your home is becoming a let.
Crucially, you’ll also now have to sort out a new type of insurance known as landlord insurance. This covers your home when you aren’t living there and have tenants living there instead. It may also be worth looking for landlord insurance that would pay out in the event that your tenants default on making payment if you are worried about this happening.
While you might be making a tidy second income from your tenants’ rent, any rental income you receive may be taxed at your usual rate (20% if you are basic rate taxpayer, and 40% if you are a higher-rate taxpayer). You would have to take into account this deduction as well as any deductions from your agent if you are using one, then see how much you are left with.
This net figure would have to at the very least cover the mortgage payments on that property, and ideally leave you some surplus in case you need to do any maintenance and repairs on the property. As such you’ll really have to sit down and do the math to make sure it is worth it financially before you decide to rent.
You may also need to factor in a back-up fund in case you need to continue paying the mortgage between tenants when you aren’t receiving any rental income. Remember, if you are moving to a new house and now have two properties to look after, there’s double the chance one of them could need sudden expense repairs, so you’ll need to keep some money by for this too.
Ultimately the decision to rent out your house will mean that you go from being a home-owner and occupier to a landlord, and with your new status as landlord you will have certain new responsibilities. For example, as well as being responsible for all repairs, maintenance, and any necessary refurbishment to your rented property, you’ll have to make sure your home is up to scratch before you rent it out.
You’ll need to fit smoke alarms and extractor fans if you don’t already have them as well as have any gas appliances tested by a CORGI-registered engineer.
You’ll also need to make sure any upholstered furniture is fireproof. Landlords must also now have an Energy Performance Certificate arranged for their tenants, as well as register with the Tenancy Deposit Scheme which holds the tenancy deposit independently to then be returned to the tenant at the end of the tenancy as long as everything is still in good condition.
Answered on Jun 2 2013,