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10 points of law every UK landlord should know and adhere to
May 19, 2014Article by Ray Withers
The ongoing rental boom has brought with it a surge of new landlords, eager to capitalise on the UK’s reliable and profitable property market. With a massive unbalance in supply and demand, landlords can be super-selective with their tenants, their terms and their prices, but is it really that simple to be a successful buy-to-let landlord?
This article looks at the 10 golden rules prospective landlords need to consider. First, though, let’s recap on the market.
Renty-somethings on the rise
More people are renting than ever before. Some are simply unable to get onto the property ladder, trapped by soaring house prices; and some simply enjoy the freedom and don’t want the responsibility of becoming a home-owner.
Whereas renting used to be the mainstay of younger generations, now a significant number of thirty-something couples with young families are becoming serial tenants. Typically they would like a larger property for their growing family, but cannot afford to buy the size of house they need.
The fastest-growing sector of the tenant market is now the 35 to 44 age bracket, with many of these choosing or having to houseshare. This trend is said to be driven largely from financial constraints resulting from marriage break-ups, redundancy and job relocation, with a number of users sharing city properties during the working week and then returning to their families at the weekend.
New, tougher mortgage regulations, designed to prevent a repeat of the reckless lending seen before the financial crisis, are also restrictive to many people getting onto the property ladder.
5.7 million in the private rented sector by 2018
Currently, there are 4.14 million people renting privately in the UK and Savills predicts this will reach 5.7 million by 2018.
Another recent trend is that of the live in landlord. With the rising cost of living and pension plans not providing the returns they promised, an increasing number of over-fifties are turning to the lettings market to support their incomes. According to the rental company Spareroom.co.uk, the number of people aged 55 to 64 on its websites who are taking in lodgers has soared by 93% in the past two years, while the number of over-65s letting out a room rose 46% between 2011 and 2013.
4,300% house price rises and 16% compound annual returns
The attractions in becoming a landlord are clear. House prices have risen an astronomical 4,300% in the past 40 years and with rising house prices come higher rents. Average rents rose 64% between 1996-97 and 2007-08 and are expected to rise by another 2% in the next 12 months (according to RICS).
Becoming a landlord in this climate is proving highly lucrative and buy-to-let specialist lender, Paragon Mortgages, reports that just £1,000 invested in an average buy-to-let property purchased with a 25% deposit in the final quarter of 1996 would have been worth £13,048 in the final quarter of 2013. This is a compound annual return of 16.3%
The golden rules of becoming a landlord
The number of landlords in the UK leapt during 2013, seeing an increase of 24% in one month alone (June to July). It is clear this is a hugely popular market choice right now. However, becoming a landlord means accepting certain responsibilities and legal obligations. It also has tax implications, so investors need to understand what they are taking on before purchasing a buy-to-let property.
Hands-on or hands-off?
A key decision is how hands-on or hands-off an investor landlord wants to be. There are many advantages to using a managing agent – they take the hassle out of being a landlord; they will have standardised tenancy agreements in place; they know how best to advertise the property; and they know how best to deal with any maintenance or tenancy issues which may arise.
An agent will also look to minimise voids, as a loss in income for the landlord also means a loss in income for them. A good agent will also be able to keep the landlord up to date with legal property requirements and obligations, from maintenance standards and certification, through to tenancy law.
It’s also worthy of note that a new plan announced by government ministers now means all letting agents will be required to publish full details of the fees they charge. This is said to ensure a fair deal for landlords and tenants, closing off the opportunity for a small minority of rogue agents to impose unreasonable, hidden charges.
10 Points of Law
According to the UK Government’s information and advice service, landlords are required to:
- Maintain your property to safe standards and ensure it is in a good state of repair.
- Place the tenant’s deposit in an authorised deposit protection scheme.
- Let the tenant know who they are (even if using an agent).
- Let the tenant live in the property undisturbed.
- Provide an Energy Performance Certificate.
- Provide a written tenancy agreement.
- Ensure gas equipment is safely installed, correctly maintained and inspected annually: and provide the tenant with a copy of the gas safety check record.
- Ensure the electrical system and any appliances supplied with the property are safe.
- Follow fire regulations, providing fire alarms and extinguishers; and ensure all furnishings and fittings supplied with the property are fire safe.
- Repair certain parts of the property in the event of a problem, along with any common areas.
All buy-to-let landlords need to comply with the government’s requirements when renting out a property, so it is important to understand the latest legislation in full. Non compliance with legislation can result in hefty fines. Inside Housing reported on a landlord in the UK private rented sector being fined over £24,000 for tenant safety breaches in October 2013.
In terms of tax obligations, landlords of buy-to-let properties usually have to pay tax upon purchasing the property (Stamp Duty Tax), tax on the income earned through renting out the property (income tax) and tax at the time the property is sold (capital gains tax). The law has recently changed regarding landlords of UK properties who are based overseas, so foreign investors acting as buy-to-let landlords must ensure they comply with the latest regulations. Expenses incurred, however, can be offset against some of these taxes, so investors should speak with their IFAs to find out more.
How to take all the hassle out of the process
Ray Withers, CEO of Property Frontiers, comments: “The current legislation and tax accountability might seem a little hefty when first considered, but the capital gains far outweigh the paperwork and a good managing agent will be able to help with much of the donkey work. An agent like Property Frontiers can also assist with the whole process, from finding and completing due diligence on the best opportunities to suit your own personal portfolio and individual investor needs, so ensuring the entire process of purchase and ongoing management runs as smoothly and is as hands-off as possible. All you should have to worry about is receiving your income!”
Get in touch on +44 1865 202 700 to find out more about becoming an investor landlord, expanding your portfolio either in the UK or internationally and to receive details of the latest investment opportunities as and when they happen.