Considering renting out my property - what do i need to think about?

[superbiatch]

Hi guys and girls

I need some advice. My finances are in a right mess since I lost my guaranteed overtime a few months back, thankfully my full time hours are as secure as they can be.

This brings me to my problem, there is too much month at the end of the money and Christmas is certainly not about presents this year. I'm now considering renting out my property and have a few questions. Do i legally have to tell my mortgage provider I am planning to do so? Will it have any tax implications for me even though i won't be making anything, just covering the mortgage and service charge? It will be up to the tenant to cover all the other costs and obviously an agreement will be in place.

I have a choice whether to rent it to family or put it in the hands of an agency, which will cost me a percentage I understand.

The idea being I will have quite a few hundred pounds freed up each month in mortgage payments, electricity, council tax to name but a few which can be outlaid against some of my debts (credit cards and loan).

Is there anything I need to be aware of?

This is a last resort for me before I start having to miss payments on credit, so any help is very much appreciated :)

[Wayfair]

Loads of good advice here SB.

http://www.direct.gov.uk/en/HomeAndCommunity/Privaterenting/RentingOutYourProperty/DG_189124

http://www.direct.gov.uk/en/HomeAndCommunity/Privaterenting/Tenancies/DG_189101

And here are the tax bits.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435



0o0 just found this about telling your mortgage people..

http://www.thisismoney.co.uk/mortgages-and-homes/ask-an-expert/article.html?in_article_id=501403&in_page_id=109

[progers]

You would need to tell your mortgage provide otherwise it could invalidate your house insurance which could be very serious in case of a fire etc.

You would need a different house insurance, also certificates for testing of any gas appliances and possibly a fire inspection of the property to ensure there are adequate escape routes for any tenants.

You would obviously be taxed on your rental income.

[Flyboy]

Hi guys and girls

I need some advice. My finances are in a right mess since I lost my guaranteed overtime a few months back, thankfully my full time hours are as secure as they can be.

This brings me to my problem, there is too much month at the end of the money and Christmas is certainly not about presents this year. I'm now considering renting out my property and have a few questions. Do i legally have to tell my mortgage provider I am planning to do so? Will it have any tax implications for me even though i won't be making anything, just covering the mortgage and service charge? It will be up to the tenant to cover all the other costs and obviously an agreement will be in place.

I have a choice whether to rent it to family or put it in the hands of an agency, which will cost me a percentage I understand.

The idea being I will have quite a few hundred pounds freed up each month in mortgage payments, electricity, council tax to name but a few which can be outlaid against some of my debts (credit cards and loan).

Is there anything I need to be aware of?

This is a last resort for me before I start having to miss payments on credit, so any help is very much appreciated :)

Where are you gonig to live?

[superbiatch]

You would need to tell your mortgage provide otherwise it could invalidate your house insurance which could be very serious in case of a fire etc.

You would need a different house insurance, also certificates for testing of any gas appliances and possibly a fire inspection of the property to ensure there are adequate escape routes for any tenants.

You would obviously be taxed on your rental income.

Buildings insurance is provided within the service charge, but i pay my own contents - so I would inform the management company who manage the building?

Its the tax stuff I'm struggling with, I don't intend on gaining anything from it - just covering essential costs.

Where are you gonig to live?

Hopefully my guy will let me stay with him (been here almost a month already!) otherwise its a bench.

[Flyboy]

You would need to tell your mortgage provide otherwise it could invalidate your house insurance which could be very serious in case of a fire etc.

You would need a different house insurance, also certificates for testing of any gas appliances and possibly a fire inspection of the property to ensure there are adequate escape routes for any tenants.

You would obviously be taxed on your rental income.

Although you are correct about informing the mortgage provider, the risk of not doing so has nothing to do with insurance. The mortgage compnay will insist on the landlord having specific insurance, but that will be a contractual issue, rather than one of insurable risk. You are also correct about the landlord's gas certificate and now many properties wil be subject to an electrical and energy efficiency inspection. Fire inspections on single dwellings are not normally necessary, unless there are specific requirements and requests from relevant departments. There may be an escape requirement if the dwelling is more than two storeys high.

---------- Post added at 11:20 ---------- Previous post was at 11:17 ----------

Buildings insurance is provided within the service charge, but i pay my own contents - so I would inform the management company who manage the building?


The management company may ask you to pay surcharges for the additional risk. You will still need to inform your contents insurer.


Its the tax stuff I'm struggling with, I don't intend on gaining anything from it - just covering essential costs.

Then what is the point of letting your property?

[danielf]

Then what is the point of letting your property?

I think she means that the money received will be put towards paying the mortgage and service charge, rather than for 'profit', which begs the question if tax is due over all the rent, or if she can deduct the mortgage costs for tax purposes.

[Aragorn]

How about just 'rent-a-room' as that can be tax-free?
If you do rent the whole house, don't let it to family/friends - it will end in tears :( You need to think about whether you want the hassle of dealing with the tenant direct (the agent justs finds them) or let the agent handle everything for a cut of the rent ( can offset the fees against the rent for tax purposes).
You also need to be dispassionate (?) about the house - you may not love it as much when you finish renting it.

---------- Post added at 11:28 ---------- Previous post was at 11:26 ----------

I think she means that the money received will be put towards paying the mortgage and service charge, rather than for 'profit', which begs the question if tax is due over all the rent, or if she can deduct the mortgage costs for tax purposes.
Yes, mortgage interest is an allowable expense when calculating whether there is a taxable profit.

[Flyboy]

I think she means that the money received will be put towards paying the mortgage and service charge, rather than for 'profit', which begs the question if tax is due over all the rent, or if she can deduct the mortgage costs for tax purposes.

The tax due wil be on the profit less allowable expense, including (but not limited to) mortgage interest, rents and rates, professional costs and management fees, maintenance, wages and insurance. A deduction of ten percent of the gross rent is allowable for wear and tear on furnished lettings.

---------- Post added at 11:33 ---------- Previous post was at 11:31 ----------

How about just 'rent-a-room' as that can be tax-free?
If you do rent the whole house, don't let it to family/friends - it will end in tears :( You need to think about whether you want the hassle of dealing with the tenant direct (the agent justs finds them) or let the agent handle everything for a cut of the rent ( can offset the fees against the rent for tax purposes).
You also need to be dispassionate (?) about the house - you may not love it as much when you finish renting it.

You beat me to it Aragorn, that is the reason why I asked the OP where they were going to live.

Superbiatch, why don't you get your partner to move in with you? With the two of you sharing, it would cut your costs in half.

[danielf]

Superbiatch, why don't you get your partner to move in with you? With the two of you sharing, it would cut your costs in half.

Presumably: her partner would then have to rent out his property?

[Flyboy]

Perhaps, but I was just wondering. Maybe he is renting? Either way she doesn't have to follow my suggetsion.

[superbiatch]

Superbiatch, why don't you get your partner to move in with you? With the two of you sharing, it would cut your costs in half.

Presumably: her partner would then have to rent out his property?

Correct! He owns too, we're both commitment phobes haha :D

Seriously, its the only answer I can see to help me out financially for the time being.

[MovedGoalPosts]

Mortgage companies may want to move you to a different product (change of interest rates and other terms) from a owner occupier to a buy to let landlord. Small print normally means you do have to notify them.

If your property is leasehold, you need to check the lease for specific provisions on subletting. It might not even be allowed. Where is is permitted there will undoubtedly be notice needed to the managing agent / freeholder You might have to provide indemnities agains t damage, confirm arrangements for access in emergency etc. There might be other costs - can keys be cut for access to a building?

Buildings and Contents policies will need to be considered. Both may no longer cover you if you are not resident yourself. What about void periods between lettings, are there special provisions for inspection, draining down water, etc. If there is a claim is loss of rent covered, and alternative accommodation for the tenant? What about accidental damage, or is a deposit alone adequate? What does the building policy cover? Carpets may be viewed as contents. If you are providing furnished accommodation then all your stuff will need a proper inventory, fire resistivity labels, etc. What about appliances? Do you have service agreements on boilers etc?

If letting to any joe blogs inevitably you would do that via an agent who will charge a fee on the rent acheived. But they will help you draw up a proper letting agreement and should advise you on insurances for tenant non payments, etc. It's up to you if you then want the agent to manage the property (tenant phones the agent in the event of breakdowns and other issue for the agent to resolve, albeit you get recharged the repair costs), or you self manage and get all the hassle.

Gas systems require an annual safety check. Electrics are every few years. If thee sorts of checks identify issues you'll have to pay for them to be fixed.

Any income you receive (even if you rented a room as a lodger) can be taxable. There can be some offsets, i.e lodger income alloances (it's wrong to say that is tax free, just that there is an allawable incvome) and often one can also offset other costs of letting such as agent's fees, repair costs, etc. But that is a matter for your tax return and accountant as to the allowances you are able to get.

Remember that some costs, i.e. council tax, might be bourne by the tenant, but only for the period they are letting the property. You would need to pay if there are any voids.

Take care with letting to a family member. You should still have a proper letting agreement so you don't give them unexpected rights to stay there regardless.

Bottom line, letting a property could get you out of a financial hole, but could also get you into a bigger one, if you try and do it on the cheap.

[superbiatch]

Thanks everybody for all your advice. Thankfully my apartment block has a lot of already sub-let apartments so I'm sure that won't be a problem. There is also no gas supply and I have the relevant eletrical certificates, these get renwed annually by the management company who organise a check for me.

I'm taking on board what a lot are saying about letting to family, and how much simpler it could be by letting through a reputable lettings agency - in fact i know of a few who let in my building so i may well have a chat with them. I also read that its best to let unfurnished but the wardrobes are staying as they'll fall apart if moved again :D

My only concern is if the mortgage company demand I change my mortgage to a higher interest rate and then i have no tenant which puts me in a worse position. But i suppose thats a risk i will have to take. I don't intend on milking the rental property, its more a means to an end whilst protecting my security whilst I'm in an awkward position.

[martyh]

Its the tax stuff I'm struggling with, I don't intend on gaining anything from it - just covering essential costs.



you will be gaining money though because someone else will be paying the mortgage ,you may not have any spare cash because the present mortgage money will go on other things ,but that isn't how hmrc will see it ,they will see it as a second income therefore you will have to claim it ,you may not actually pay tax but you will still have to claim it

I believe you have register as a landlord now as well

[TheDaddy]

You could always see if you can go interest only on the mortgage, it can knock a massive lump of your bill each month but of course you aren't actually paying it of, might help you out until you get things sorted...

[superbiatch]

You could always see if you can go interest only on the mortgage, it can knock a massive lump of your bill each month but of course you aren't actually paying it of, might help you out until you get things sorted...

Thanks for that, I'd already considered it but to be honest my debts are the problem so i think i need to sort that area out first. I think my credit record may be damaged for a while but at least I'll be able to keep a roof over my head. Needs must and my sanity is worth more than any credit record :)

[martyh]

Thanks for that, I'd already considered it but to be honest my debts are the problem so i think i need to sort that area out first. I think my credit record may be damaged for a while but at least I'll be able to keep a roof over my head. Needs must and my sanity is worth more than any credit record :)

I think your right ,a good credit record is only any good if ou want more debt which you don't
i gave up on my credit record years ago,it most definately isn't the end of the world :)

[superbiatch]

I think your right ,a good credit record is only any good if ou want more debt which you don't
i gave up on my credit record years ago,it most definately isn't the end of the world :)

Thanks for that, I just want to sleep at night again. I've got a mortgage, what the heck if i'm stuck with it for a few years yet?! At least they can't take that away from me if i pay it :)

[Hugh]

Thanks for that, I just want to sleep at night again. I've got a mortgage, what the heck if i'm stuck with it for a few years yet?! At least they can't take that away from me if i pay it :)
You may find that they may extend your mortgage term (thus reducing your payments), if you explain your circumstances (after all, it is in their interest, as well as yours, for your to stay in the house and keep paying).

[Flyboy]

In my experience with the associated costs, the reduction in payments rarely make it worth it. For it to have any significant affect, it would need to be extended by at least ten years; even then you are looking at less then eighty pounds a month.

[superbiatch]

Thanks guys, but as Flyboy says it probably wont save me that much. My mortgage is extremely manageable (like less than £400 pcm), its the debts I need to sort out.

[Mr_love_monkey]

One thing to bear in mind is that if you did convert over to a buy to let mortgage, the bank may want more money off you to bring down the amount of capital outstanding - generally for buy to lets they require a large deposit from the offset, compare to a 'normal' mortgage - this is usually so that the rent you get, covers the mortgage payments

[Taf]

A local rented out 3 houses. He didn't tell the water, gas or electricity companies that they were occupied though. Neither did he pay tax on his income, pay any insurance, or do gas safety checks. He told his tenants that council tax and water rates were his responsibilty, but they had to pay for gas and electricity by tokens.

Then all 3 lots of tenants claimed Housing Benefit... and the preverbial hit the fan as the word got out that all 3 properties were occupied, and had been for a couple of years.

He dropped the lot of them in it, by suddenly appearing with a "contract" stating that they were liable for all the utilty and council bills... AND the arrears!!

They all pleaded poverty when the bills appeared, stopped paying rent, got into huge debt, then all demanded council housing as they were about to be made homeless by the landlord.

Legal action went on for months. Very expensive legal action.

The landlord had to sell one of the properties, the other two now house his own family members who were claiming maximum benefits under "other names" until they too were caught.

Legal action is still ongoing.

[Mr_love_monkey]

When I first read the title I thought maybe this was going to be a prostitution thread...

[Flyboy]

One thing to bear in mind is that if you did convert over to a buy to let mortgage, the bank may want more money off you to bring down the amount of capital outstanding - generally for buy to lets they require a large deposit from the offset, compare to a 'normal' mortgage - this is usually so that the rent you get, covers the mortgage payments

If a property owner was doing this from the outset, that would most certainly be the case in almost all instances. However, most mortgage companies are prepared to be more flexible, on a case-by-base basis, when it comes to homeowners who are forced turn their existing properties into buy-to-let. They see it as as long as the mortgage is being paid, they have little choice. That said, I have seen mortgage companies do exactly as you suggest, a bit of a daft stance for them to take, because invariably they lose out, either the mortgagee defaults, or the they sell up and redeem the mortgage.