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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.

becoming an accidental landlord

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 timing an issue? Check out our guide on the best time to sell

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.

Mortgage Finder

Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.

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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.

See how to get help with financial and tax advice

Insurance issues

Standard home insurance won’t cut it for a rental property so you’ll need to contact your insurer or financial adviser and explain the situation.

Depending on the policy you take out, landlord insurance should cover you for damage to the property, malicious damage (if your tenants leave the house in a less than perfect state!) and loss of rent.

Speak to our home insurance partners at A-Plan who can advise you on what insurance you will need

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 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 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

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.

Find a professional today. From gas safety certificates to fixing faulty shower heads, our partners at Checkatrade can help

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