Becoming an accidental landlord

Keen to move house but struggling to sell your property? You're not alone. Many homeowners in the UK have become so-called 'accidental landlords' as a result of the unstable housing market. We take a look at everything you need to know if you're looking to do the same.

Angela Kerr Director, Editor

What is an accidental landlord?

Not every landlord is in the property business by choice. In many cases homeowners find themselves with little option but to rent out their home because they struggle to find a buyer.

Circumstances often change, resulting in the need for a house move. Homeowners may decide to move in with a new partner. A job opportunity may require moving to a new location. A new baby may mean your current home becomes unsuitable. The natural next step would be to sell up and move on but unfortunately that’s not always as easy as it sounds.

Rather than staying put, many homeowners decide to turn their home into a rental property, using the rent to pay the monthly mortgage repayments and freeing them up to make their next move.

These landlords who find themselves in the rental market not necessarily through choice but rather through necessity are known as accidental landlords.

Is a short-term let an option while you try to sell?

There may be another option to consider from our partner, Flyp so that you can earn rental income while you sell your home.

Flyp aim to boost your income by ‘hand selecting’ flexible occupants to stay in your home while it’s on the market for sale. This means you’ll still be earning cash from your home as you try to sell it. They also manage all of the headache of viewings and ensure that the property is cleaned and viewing-ready at all times.

Flyp’s service may be an option to consider to help you earn rent and sell at the same time. Their selling service also provides access to multiple agents at a sole agency fee, so they are worth comparing against other local estate agents.

Additionally, Flyp offer a transformation service if the property needs any enhancements or staging to help it sell. If you sign up with the company and use its ‘Staging to Sell’ service, the company’s tradespeople will make improvements to your property at no cost to you in a bid to increase its value and help it sell faster.

Think your home would sell better with a few improvements but not sure where to start?  Our partners at Flyp can help transform your home to maximise its sale price and achieve a successful sale. Find out more about their transformation service.

Will I need to change my mortgage to rent out my home?

The first thing you’ll need to do is contact your mortgage lender to make them aware of your situation.

As a short term solution, the lender may grant you a Consent to Let which allows you to let your property for a maximum of 12 months while maintaining your current mortgage.

If your lender is willing to grant you this, it could 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. It’s worth noting, however, that the lender does not have to grant you the Consent to Let.

A more long-term solution is to switch your residential mortgage to a Buy to Let mortgage. This is relatively straightforward, however, depending on your current deal, you may be offered a lower loan to value (the amount of money the lender is willing to offer you compared to the cost of the property). You may also face 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. You remortgage and release some cash to put down a deposit on a new home. You then let out your current home and use the rental income to cover the mortgage on your existing home.

Buy to let mortgages

Buy to let mortgages are a lot like residential mortgages with some key differences:

• The amount you can borrow on buy to let mortgages is based on how much rent the property can generate versus the cost of the mortgage. Typically, lenders will want your expected rental income to meet at least 125% of the monthly interest payments on the loan.
• Buy to let mortgages may also require you to have a minimum salary, typically £20,000-£25,0000.
• Interest rates are higher on buy to let mortgages than standard mortgages due to the greater risk involved.
• The minimum loan to value required for buy to let mortgages is generally 20-25%.
• Arrangement fees on buy to let mortgages can be higher than on conventional mortgages. These are sometimes calculated as a percentage of the amount you borrow, rather than a flat fee.

For advice on buy-to-let and other mortgage options, speak to our fee free mortgage brokers at L&C

Will I pay income tax?

Yes, as a landlord, you will pay income tax on the rental income you receive.

In the past landlords have been able to claim tax relief on the mortgage interest they pay on their mortgage repayments. They would only pay tax on the profit they made.

However, this has changed. Landlords pay tax on their entire rental income (not just the profit) and they are only able to claim tax relief on mortgage payments at a rate of 20% – regardless of what tax band they’re in. A landlord in the higher tax band, therefore, will pay tax on rental income at 40% or 45% but will only be able to claim 20% back as tax relief.

Insurance issues

Standard home insurance is designed to cover the home you live in, not the ones you rent out. Landlord home insurance will make sure your property and any contents you own in it are covered. You may also want to take out add-ons such as rent guarantee insurance, which can cover you if a tenant fails to pay their rent one month. Get quotes now for Landlord home insurance.

Landlord obligations

As a landlord you’ll have certain legal obligations that you’ll need to adhere to.

• Right to rent
  Under the Immigration Act 2014 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
  All deposits you take from tenants must be kept in a government-backed tenancy deposit scheme. There are three you can use –  MyDeposits, Tenancy Deposit Scheme and Deposit Protection Service.
• Safety checks
  You will be responsible for ensuring the property is safe for your tenants. This includes getting a registered engineer to carry out a gas safety check on each gas appliance and providing a copy of the safety check record to the tenants. You’ll also need to follow fire safety regulations (including making sure any furniture is fire resistant) and make sure all of your electrical fittings are safe.
• Licensing
  Depending on where your property is located, you may have to purchase a license. Landlord licensing schemes are in operation in various locations across the UK (and throughout Wales). The licenses are proof that the property is up to standard – and you’ll have to pay for the privilege of having one. Prices vary depending on location.
• EPC rating

  And if you’re planning to rent out your property, you must get an EPC Certificate. 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’. However it’s important to note that this may change in the future. That’s because under the Minimum Energy Performance of Buildings Bill the government wants to increase this to a minimum EPC rating of C for new tenancies from 2025 and for all rental properties by 2028, where practical, cost-effective and affordable. Under the proposed changes the maximum amount landlords will need to spend on energy efficient improvements would increase to £10,000. See our guide to EPCs for an update

Organise your EPC. Get instant quotes from Domestic Energy Assessors in your local area.

Get your house rental ready

Perhaps one of biggest challenges accidental landlords face is letting go of the emotional attachment they have to their property. It’s one thing to sell up and move on but watching someone else move into the house you’ve called home can be tough.

If you’re offering your property as furnished, think carefully about what furniture you want to provide. Remove anything valuable or sentimental. Aside from the fact they’re at risk of damage, it can be off-putting for tenants to rent a property that is filled with someone else’s belongings.

If you have any repairs you’ve been meaning to get round to, take care of them before letting the property out. Chances are you’ve already done this if the property has been on the market but if you think your property could benefit from a mini makeover to ensure it achieves optimum rent now’s the time to do it.

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, organise and attend viewings, manage offers and obtain references from tenants and look after the legal aspects of renting your property. Some agents also offer full property management services. 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 our partners OpenRent, charge a fixed amount for advertising to find a tenant or for tenancy creation. OpenRent offers a range of advertising options to find a tenant including a free advertising option. They also offer an advertising plus full tenancy creation service called Rent Now for just £69 which includes everything else you need to rent your house, such as: gas & electricity safety certification, inventories, photography and insurance. They estimate that you will save over £1,834 per property using their service versus a high street letting agency.  

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.

Can I sell the property if I have tenants?

Yes, if you’re a landlord you can sell a house with tenants although the process works differently depending on whether you’re selling the house with tenants in situ or with vacant possession:

• Selling a house with tenants in situ means the property is sold with the tenants still living in it and the new owner becomes the landlord. It’s also known as selling with ‘sitting tenants’.
• Selling with vacant possession means the property must be empty of occupants and their belongings by the completion date, with the exception of items agreed in the contract. The process of evicting your tenants and the amount of notice you’ll need to give will depend on your tenants’ tenancy type

Read more in our guide to Selling a house with tenants.