Renting out your home: the ultimate guide

Do it right, and renting out your home can be a great source of income. But there are responsibilities and challenges you’ll need to be aware of. Here’s everything you need to know about renting out your home and the quickest and best way to find a tenant.

Rebecca Gamble Consumer Journalist

What are the main reasons for renting out your home?

There are many reasons why people rent out their home, such as:

• Needing to relocate for work: If you own a house and need to relocate for six months or a year you may decide renting out your home is the best option so you can return to it.
• Moving in with a partner: Renting out your home may be an option if you move in with a partner. Keeping your own property could be a good long-term investment.
• Difficulty selling: If you want to buy a new home but you’re having difficulty selling your current home, you may rent it out and buy a new one. This involves getting a Let to Buy mortgages read on for more on this.

How to rent out your house: The research to do first

You’ll need to do some groundwork before renting out your home to make sure it works financially. Here are 4 questions you’ll need to find the answer to:

1. How much can you rent your house out for?

Get an idea of how much you may be able to rent your house for by use our free rent calculator. Next, do further research by looking online to see how much similar properties are being let for.

Renting out your home for the right amount is important: set it too high and you may find it harder to find tenants. But set it too low and you could be missing out financially.

Use our Rent Calculator to get an idea of how much rent you should charge based on your property type, location and local demand.

2. Do you need a letting agent?

You’ll need to decide whether you’ll use a letting agent or be your own Landlord. Letting agents should be able to find tenants, advertise your property on Rightmove, Zoopla and other portals, organise and attend viewings, manage offers and obtain references from tenants and look after all the legal aspects of renting your property. Some lettings agents also offer full property management services.

However, letting agents charge for their services, Most letting agents will charge you a percentage of the rental income, with the average fee being around 8-10%.

Others like OpenRent charge a fixed amount for advertising to find a tenant or for tenancy creation including contract drafting, deposit registration and initial rent collection. OpenRent offers a range of advertising options to find a tenant including a free advertising option. They estimate that you will save over £1,834 per property using their service versus a high street letting agency.  They also offer additional services for a fee like tenant referencing, professional photos, floor plan and accompanied viewings.

Find your ideal tenant quickly and easily with OpenRent. Join over 6 million users and let them find you a tenant in on average just 6 days.

3. Do you pay tax if you rent your house out?

Rental income counts as taxable income. This is calculated on the profit you make, so you’ll need to deduct any expenses. Also, mortgage interest payments qualify for 20% tax relief while the first £1,000 of any income from property is tax-free.

The amount of income tax you pay will depend on your tax band, your other sources of income and whether the property is owned by you or a company.  

You may also need to pay Class 2 National Insurance in certain circumstances.

It can be a good idea to get independent tax advice.

4. Should I rent my property as a house in multiple occupation (HMO)?

Renting out a house in multiple occupation (HMO) means you could earn much more from renting out your property. A house in multiple occupation is when you let it out to three or more tenants who aren’t members of the same family but need to share facilities like the kitchen and bathroom.

But there are more hoops to jump through: If you want to rent out your property as an HMO in England or Wales you must contact your council to check if you need a licence. And if you’re renting out a ‘large HMO’ in England or Wales you must have a licence. A large HMO means it’s rented to 5 or more people who form more than 1 household, some or all tenants share toilet, bathroom or kitchen facilities and at least 1 tenant pays rent (or their employer pays it for them).

If you’re renting out your home as an HMO it can be harder to get a mortgage, some letting agents won’t manage them and it can be harder to sell a property if it has been converted into an HMO.

Can I rent out my house on a normal mortgage?

Whether or not you can rent out your house with a normal residential mortgage will depend on your lender and how long you plan on renting out your home for.

Your lender may grant you ‘Consent to Let’ which typically allows you to let your property for a maximum of 12 months while maintaining your current mortgage. This may be a good solution if you believe the local market will have improved in a year’s time and you intend to put the house up for sale again.

Alternatively, you may speak to your lender about switching your residential mortgage to a Buy to Let mortgage. There may be fees involved, such as an arrangement fee and the rate of the mortgage may differ from your current rate.

Another option if you have enough equity in your current home is to consider a Let to Buy mortgage. This involved switching the mortgage on your home to a Let to Buy mortgage (releasing equity in the process) and taking out a new mortgage on the property you’re buying.

It’s important to note that renting out your home without telling your mortgage lender could be a very expensive mistake. If your lender catches you doing it when the terms and conditions of your mortgage forbids it, they could potentially call in the entire amount of the loan.

Sort landlord insurance

There are specialist landlord insurance policies which may offer the cover you need. These generally cover:

• Buildings insurance: this covers any damage to the property’s structure
• Loss of rent insurance: Such as if you’re unable to rent out your house through no fault of your own such as flooding or fire.
• Contents insurance: This would cover your belongings in the property such as furniture. Your tenants would need to get their own contents policy to cover their own belongings.
• Tenant default/ rent guarantee insurance: This covers any rent lost if the tenant doesn’t pay.
• Liability insurance: This covers any legal costs if you’re taken to court.

Compare home insurance quotes from 50+ providers to find the best option.

Legal responsibilities for landlords

Whether you’re renting out a property for the first time or you’re an experienced landlord, you’ll have certain legal obligations that you’ll need to adhere to when renting out a property including:

• Right to rent: Landlords must check that their tenants have a legal right to rent in this country. This means checking they have the necessary documents to prove their eligibility to be in the UK and to rent here. A list of the acceptable documents can be found at Gov.uk. Failure to undertake these checks can result in a fine or even a jail term.
• Tenancy deposit: When renting out a property, all deposits you take from tenants must be kept in a government-backed tenancy deposit scheme.
• Gas and electrical safety checks: It’s a legal requirement for landlords to carry out regular gas safety and electrical checks on their property. A gas safe registered engineer should carry out a gas safety check on each gas appliance annually. While the Electrical Safety Regulations require electrical installations in rental properties every five years to be checked every 5 years by a member of the qualified and competent person scheme. Copies of these certificates must be given to tenants.
• Fire safety regulations: Landlords should make sure a range of fire safety measures are in place, including having smoke alarms on every floor and a carbon monoxide alarm in every room with a solid fuel burning appliance, while furniture and furnishings must be made from fire resistant materials.
• EPC rating: When renting out your home, it must have a valid EPC Certificate and it must have a minimum EPC rating of E unless you qualify for certain exemptions. If your property is in a lower band you’ll need to spend up to a maximum of £3,500 on energy efficiency improvements in order for it to reach band E. You can then register an ‘all improvements made’ exemption’. Find out more and whether you have an existing EPC.

Not got an EPC? Organise yours today. Get instant quotes from Domestic Energy Assessors in your local area.

What to know about tenancy agreements

It’s a legal requirement to provide a written tenancy agreement in Scotland, but elsewhere in the UK it’s considered best practice. When issuing the tenancy agreement in England, tenants must also be provided with a copy of How to rent: the checklist for renting in England.

What if there’s a dispute?

If you’re renting out your home and there’s a dispute with your tenants, it’s advisable to avoid going to court, if possible. Going to court can be stressful and expensive, so seek other ways to resolve the issue first.

Your first step should be to speak to your tenants. You may then wish to write a formal letter. If this doesn’t work you may choose to use a mediation service before going to court.

How to prepare your property ready for rental

You’ll need to decide whether you want to let your property furnished or unfurnished. Next, if you’re renting out your home you should:

• Make sure all the appliances are in good working order.
• Make any required repairs in the property.
• Remove anything from the house that’s fragile or valuable.
• You may also decide to give your property an update such as a fresh coat of paint.

Finding a letting agent

When you’re renting out your home it’s crucial that you pick the best lettings agent: you want the best service for the lowest fee. We’ve partnered with OpenRent, which has worked with 6.5 million tenants and landlords. It can find you tenants and help with referencing, contracts and more if you need it. Plus there’s a 100% free advertising option, no hidden fees and no renewal fees.

Getting a lodger

If renting out your home in its entirety isn’t an option but you want to earn some cash from your home, consider taking in a lodger. With the Rent a Room scheme, you will be able to earn up to £7,500 tax-free a year for renting out a furnished spare room. Read more in our guide Renting out a room in your house.

Frequently Asked Questions