To change your mortgage to lease agreements: How to obtain income as an accidental owner

Accidental property owners can not rent their house and keep the residential mortgage

Contrary to popular belief, not all owners are in the real estate business by choice. The circumstances of people often change, which results in the need to move out of the house but not sell.

Some people temporarily move abroad to work, while others leave a property when they move with a partner or when older parents move into long-term care.

A slow real estate market, combined with the Brexit uncertainty, means that many people are now more likely to stay in their homes while waiting for the price of housing to stabilize, even if they need to rent elsewhere.

Here, The Mail on Sunday offers the legal, financial and practical basis of these "accidental owners" to let out their properties.

Accidental property owners can not rent their house and keep the residential mortgage

Accidental property owners can not rent their house and keep the residential mortgage

1. MORTGAGES AND TAXES

Accidental property owners can not simply rent their property and maintain their residential mortgage. To allow a property without your mortgage lender failing, you need the "consent to leave" of the lender or a specialized mortgage to buy to rent.

Mark Harris, CEO of SPF Private Clients, a mortgage broker, says: "Consent to leave tends to be short term, if your lender agrees, they may not do anything, charge a flat fee or charge the fee. of interest during this period.

& # 39; Very often, consent to allow will be for a finite period, typically six or 12 months. If the property is going to be left for the long term, then the owners need a purchase mortgage to rent. "

Buy-To-Let lenders typically require that the rent cover 125 percent of the mortgage repayments; Then, if your mortgage is £ 1,000 per month, you would need a rental income of at least £ 1,250 per month. Most lenders require a deposit, or capital, of at least 25 percent of the value of the property.

There are also higher rates for the mortgage agreement, often a percentage of the loan amount, instead of a fixed amount.

The way landlords are taxed began to change in April 2017. Under Section 24 of the Finance Act, the tax relief that allows homeowners to offset the cost of mortgage interest with their income is gradually reduced. for rentals.

Last April, this tax reduction was reduced to 50 percent. It will fall again, up to 25 percent, in April 2019, and then up to zero percent in April 2020, when it will be replaced by a tax credit equivalent to 20 percent of the mortgage interest.

I'm in a career break so it's good to have regular property rewards

Claire Loader became an accidental owner after meeting her now husband Dave, 47, and moving into her home.

She let her house out of a room in Taunton, Somerset, which she had bought two years earlier in 2009 when she was a mature student. Now she is the mother of Emma, ​​4 years old, and Jack, 2 years old.

Passing: Claire Loader left home after moving in with her partner

Passing: Claire Loader left home after moving in with her partner

Passing: Claire Loader left home after moving in with her partner

Claire, 36, says: "Initially I left my property to a friend but it was not well taken care of and it was moldy when it moved in. I returned to the house in 2012 for six months and when I moved again, I decided to use a rental agent to Find and manage tenants.There have been about five tenants since then, found by the rental agent & # 39;

She adds: "I'm having a professional break right now and it's nice to have a regular income from the property.

"The mortgage is only of interest and there is enough equity in the property, I bought it for £ 70,000 and now it's worth around £ 125,000, so I'm not too worried about paying the capital."

Given her past experience, Claire would warn other owners not to allow her friends, as it can make it difficult to raise concerns.

She adds: It's easier to use a third party to deal with any problems that arise. We paid the agent around £ 50 a month and have always found a new tenant when they move. Make sure you have a good contract and protect the deposit. You also need to have the proper insurance. "

2. FIND A TENANT

Attracting the right tenant can mean the difference between a stress-free experience and a constant headache. The ideal tenant will pay the rent on time each month, will comply with the terms of the lease and will cooperate if the property needs repairs.

Homeowners should carefully review prospective tenants before committing to a tenancy. This means conducting a credit check, viewing salary receipts or bank statements to assess affordability and obtaining references from previous owners.

The 2014 Immigration Law imposes an obligation on landlords to verify that a tenant has the legal "rental right" in England. The owners can receive a fine of up to £ 3,000 or even be sent to prison for up to five years if they leave a property to illegal immigrants.

Owners in England must request to see the original documents of the tenant. This could be a residence permit, an immigration status document from the United Kingdom or an endorsed passport.

These rules do not apply in Wales, Scotland or Northern Ireland.

3. LETTING AGENTS

Many owners hire a rental agent to find a tenant or administer the entire rent. Using a third party means that you will not be bothered by maintenance inquiries or late rent payments, but the delivery of the reins has a cost. Agents generally charge 10 to 15 percent of the rent to fully manage a property, but many charge additional fees for signing or renewing contracts, obtaining referrals, performing credit checks and managing inventories.

Sam Mitchell, executive director of online real estate agent HouseSimple, says: "Many owners use a rental agent to find tenants and then take pleasure in managing the property themselves to save on management fees, which can be quite important. The advantage of delivering property management to an agent is that you will not have tenants to call you at all times of the day and night when something goes wrong. "

4. TENANT CONTRACTS

Most private owners leave the property in a guaranteed lease agreement. These agreements usually have a fixed term of six or twelve months, then continue monthly or are renewed for another fixed term.

Danielle Clements, a property litigation specialist with Gorvins Solicitors, says: "A fortuitous tenancy assures tenants certain stipulations they must meet and also certain rights to protect them, such as not being evicted without notice." The agreement means the tenant has a legal interest in the property and that the owner has waived certain powers on their property, for example, can not appear without notice and demand entry to the property.This has to be agreed with the tenant & # 39;

Owners may be required to offer tenants a three-year contract if new government proposals become law.

The plans under consultation mean that the owners would be tied for three years, but the tenants could leave before the end of the minimum term.

The objective is to provide more security to the tenants. Owners usually oppose the plans, which will make mortgage lenders cautious when approving loans.

Tenants: As a landlord, you must do a credit check to assess if they can afford the property

Tenants: As a landlord, you must do a credit check to assess if they can afford the property

Tenants: As a landlord, you must do a credit check to assess if they can afford the property

5. EVICTION OF A TENANT

Assuming the fortuitous lease is insured, homeowners must follow the procedures set forth in the Housing Act of 1988 to evict a tenant. You can issue a notice of section 21 if you want to recover the property after a fixed term ends, or a notice of section 8 if the tenant has breached the terms of the lease.

In either case, if the tenant does not withdraw when requested, you will need a possession order from a court to regain possession of the property.

Saida Bello, a housing attorney with the national firm Setfords Solicitors, says: "There are strict rules of procedure to follow when it comes to evicting a tenant." The court has a grim view of any action that could be considered harassment and is a crime. evict a tenant without the correct court order. "

6. PROTECTION OF DEPOSITS

Most landlords ask tenants for a deposit equivalent to four to six weeks' rent to cover property damage or unpaid rent. The deposit must be protected in one of the three deposit protection schemes approved by the government: the Deposit Protection Service, MyDeposits or the Lease Deposit Scheme. All of these schemes execute dispute resolution services that can intervene if the landlord and the tenant can not agree to deductions from the deposit at the end of a lease.

Owners who do not protect a deposit run the risk of having to pay their tenants up to three times the amount of the deposit, and can not evict them through a notice in section 21.

7. VITAL PAPER

Owners are governed by more than 100 laws, many of which relate to the documentation that must be in place at the beginning of a lease. The owners must give the tenants the following documents:

  • A copy of the government's "How to rent" guide.
  • A copy of the deposit protection certificate.
  • A certificate of energy performance.
  • A gas safety certificate.

Homeowners must also arrange to install a smoke alarm on each floor of the property and a carbon monoxide detector to install in any room where solid fuel is used.

In England, the majority of homeowners who leave a house in multiple occupancy, often referred to as an HMO, will need a license from their local authority. Around 70 councils in England also apply additional or selective licensing schemes. Owners can check with their local council if they need a license or consult with the National Association of Owners. Wales, Scotland and Northern Ireland have mandatory owner registration plans.

8. INSURANCE

Normal residential housing insurance will not be valid once a property has been issued. Owners need specialized owner insurance to cover the building and any content they own, such as furniture. There are several extras that can be added to the policy, including liability coverage if a tenant is injured on the property, legal coverage to recover unpaid rent and loss of income in the event the property becomes uninhabitable, such as after a flood or fire.

Richard Truman, chief operating officer of Simple Landlord Insurance, says: "Peace of mind does not have to cost the land, when shopping, look for quality coverage, good reviews and clarity about what is covered and what is not.

"Do not discard the extras, such as legal coverage, adjust them to your property and check the prices before automatically renewing them next time."

Master the legal minefield – or risk thousands of pounds in fines

Changes: MP Karen Buck bill will give tenants new rights

Changes: MP Karen Buck bill will give tenants new rights

Changes: MP Karen Buck bill will give tenants new rights

Owners must keep up with constantly changing rules and regulations.

For example, as of April 1, newly rented properties required a minimum energy efficiency rating of E and this will apply to all rental properties as of April 2020. Owners can receive fines of up to £ 4,000 if their Property does not meet the required standards.

The 2015 Law of Deregulation comes into force for all leases on October 1 (it has been in force for the new leases since October 2015). The law changes when and how eviction notices can be issued.

Meanwhile, the Homes bill (Fitness for Human Habitation) is working in Parliament.

Presented by Labor MP Karen Buck, the bill will give tenants the right to sue landlords who let property be in a poor state.

Another bill that is likely to become law within the next year is the Tenant Fee Act. This will stop allowing agents to charge rates to tenants for referrals, credit checks and to establish a lease. It will also limit the deposits to six weeks of rent.

All this will mean a big deficit for the agents that probably start charging higher rates to the owners.

Owners should consider joining a professional body such as the National Association of Owners to keep up with the legislation.

The director of the association, Chris Norris, says: "A quick search at any property owner or forum will bring back horror stories of accidental landlords who did not prepare properly before letting their property out.

& # 39; Membership is useful, especially if you are not sure of your legal responsibilities.

It will provide all the necessary support to address every aspect of the rental of your property & # 39;

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