If you decide to buy a property to let out and need to borrow money towards the cost of the purchase, you must get a buy to let mortgage and will need a deposit of at least 25%. You must provide tenants with an assured shorthold tenancy (AST) which is a contractual arrangement to let your property to them. If you are buying a flat or apartment, you should also check the terms of your lease as there may be restrictions on sub-letting and it may even be forbidden.
As a landlord, you will also need to consider your legal responsibilities, from ensuring the property is fit for human habitation and free from hazards throughout the tenancy, to protecting the tenant’s deposit in a government-approved scheme. It’s crucial you know and understand these before letting out your property as there can be serious consequences if you do not abide by them.
Under the Tenant Fees Act 2019, it is also illegal for prospective tenants to be charged fees, either by you or via a letting agency and you can be fined or prosecuted if found to be in breach of the Act. If you engage a letting agent to manage the letting on your behalf, it is your responsibility to ensure that they comply with any relevant regulations. You should get a written agreement from them to confirm exactly what they will and won’t do on your behalf and what they will charge you for this.
While it may seem like a good idea to buy a rental property in large student towns, you need to be aware that Houses of Multiple Occupation (HMOs) – where three or more people who are not related to each other, share bathroom and/or kitchen facilities - are subject to additional rules and you should check with the local authority to ensure you comply. If the property is large, you may even require a licence before being able to rent it out.
Another important consideration to make is how the rental income may affect your UK tax status, especially if you are usually exempt from paying tax. You should research the tax obligations you will have as a landlord to ensure you pay the correct amount and at the right time. You can deduct certain expenses from the rental income, including mortgage interest, insurance, and letting agent fees before calculating the rental profit. You may also be able to claim some allowances to bring your tax liability down. Any income and profit earned should be reported on a self-assessment tax return which you should register for by 5 October following the tax year you had rental income.
Once the preliminary checks have been made to ensure you are compliant with all of the regulations and rules, you will then need to make certain that the property is also in compliance. This includes getting gas and electricity checks on appliances and installations; making sure that smoke and carbon monoxide alarms are properly installed and fully functioning; that an Energy Performance Certificate (EPC) has been issued to the tenants; that any furniture supplied has the required fire safety labels and is fire resistant; and that the water supply is in working order and has been risk assessed against exposure to Legionella.
You should issue tenants with a written tenancy agreement. You can use a government template or seek legal advice to ensure it complies with all legislation if you wish to write your own. You will need to consider how long the initial tenancy will be for and if it will be periodic or for a fixed term. You should also outline who is responsible for property related bills, such as electricity, gas, water, or council tax. You should not discriminate against a tenant or prospective tenant on the basis of race, gender, disability, sexuality or religion.
It is also a legal requirement that you conduct right to rent checks to make certain that prospective tenants are legally allowed to rent, and protect any tenant deposit towards damage or unpaid bills when they move out in a government approved scheme. You must also provide the tenant with your contact details in case of an emergency as part of the Landlord and Tenant Act 1987.
You may also wish to take references for prospective tenants, agree an inventory with them when they move in, request a rent guarantor, and take out landlord’s insurance to protect yourself and your investment.