Dilemma, or no brainer?

Dancing_Amoeba

I have spoken to my mortgage company about renting out my house and they have agreed providing i pay them £450.00 (Abbey) I'm going to live in my Girlfriend's home.
3 "Agents" have been round and think somewhere between £950 and £1050 pm all good so far as my mortgage is currently £1050pm and should come down quite a bit when the fixed rate runs out in August.:j
A neighbour is going through a divorce and wants to rent my house after having to sell their family home. She works part time and has 2 kids and will be applying for housing benefit. She wants to rent it for 3 years (so no voids) as she thinks it will take that long to get a deposit together to buy another house. She is willing to pay £900pm
The agents will take 10%-12% plus tenant find
Do I go through an agent or do it myself with this neighbour?
If I go with the neighbour do i tie her in to a 3 year contract or 1 year with a 6 month break, or something else?

Your opinions will be most welcome!

TroJon

If you've already got ur neighbour lined up, go to smiths and buy a landlord info pack, read through it and for £15 you will saved hundreds if not thousands in agent fees!

If/when she no longer wishes to rent from you, and you don't know anyone who wants to rent from you at that point, then go for an agent.

Issues I can forsee at moment;

1) The rental income doesn't seem high enough to cover mortgage - usually at 125%, yours at moment is sub 100%.

2) 3 years is fairly long, and many mortgage lenders require you to let out on the assured shorthold tenancy, which won't be a problem, but generally means no to the council housing/council benefit tenants, unless they're going private renting?

Dancing_Amoeba

Thanks for the reply TroJon.
I'm not worried about the mortgage shortfall as it's my only property and can easily top up the extra, as I said, I will be living with my girlfriend so no further rent or mortgage just basic living costs.
I think she is wanting to do the rent privately with the council adding to her income. also will get some guarantor, her parents were mentioned.

TroJon

Dancing_Amoeba wrote: »

Thanks for the reply TroJon.
I'm not worried about the mortgage shortfall as it's my only property and can easily top up the extra, as I said, I will be living with my girlfriend so no further rent or mortgage just basic living costs.
I think she is wanting to do the rent privately with the council adding to her income. also will get some guarantor, her parents were mentioned.

No probs - I completely understand that some people can afford it due to other arrangements such as yourself - but actually many buy-to-let mortgage lenders will have it in their terms to have 125% monthly rental income. The 125% used to be based on an amount as 125% of the monthly interest only amount at variable rate, whereas now it's based on the exact mortgage and product (rate) you would take - which increases that number significantly...

Also, all situations are able to change no matter how solid they seem! The amount of people who think their jobs were super-stable, only to find now the unemployment in the uk is 2million+, surely says something about certainty regarding uncertainty in employment!

silvercar

No problem with renting to someone you know, it saves the agent fee. Do rent it on a proper basis. I would suggest a 12 month ASt with a 6 month break clause, after that you can continue on a periodic ASt or sign another agreement. Make sure the tenant understands that they need to pay the rent and sort out any housing benefit claim themselves. Do take a deposit and protect it in one of the 3 tenant deposit protection schemes. A guarantor would be useful.

tbs624

Within your costings you also need to allow for LL insurance, annual gas checks & safety certificate, have an emergency fund for necessary repairs/maintenance etc and to be able to deal with any delay in rent payment until the potential tenant's LHA claim has been sorted out. If you know this person how will you feel about needing to chase her up over any unpaid rent if there are problems?

If you join a national LL association, or a local affiliated one, you can get discount on your LL insurance premiums (membership fees are tax deductable), they can provide you with up to date tenancy agreements and advice on legalities/ tenancy deposit schemes etc.You need to fully understand your legal obligations as a LL from the start so have a look over on landordzone and take a look at Shelter's website too.

pinkshoes

Dancing_Amoeba wrote: »

She works part time and has 2 kids and will be applying for housing benefit. She wants to rent it for 3 years (so no voids) as she thinks it will take that long to get a deposit together to buy another house. She is willing to pay £900pm

This seems contradictory. I thought housing benefit were for those struggling, so if she's going to be saving money each year (enough for a house deposit!), why does she qualify for housing benefit?

If you trust her, then it'll save you a lot in fees. Read up on everything to do with being a landlord, tenants rights etc... make sure you get her to pay a deposit equal to 1.5x months rent.

A 6 month contract would be good initially - for you if she's rubbish at paying rent, and for her if you're a rubbish landlord :rotfl: Tell her after that, you can renew with yearly contracts, and reassure her you have no plans on selling, so it's hers for as long as she pays the rent. I guess she's looking for stability.

Dancing_Amoeba

pinkshoes wrote: »

This seems contradictory. I thought housing benefit were for those struggling, so if she's going to be saving money each year (enough for a house deposit!), why does she qualify for housing benefit?

If you trust her, then it'll save you a lot in fees. Read up on everything to do with being a landlord, tenants rights etc... make sure you get her to pay a deposit equal to 1.5x months rent.

A 6 month contract would be good initially - for you if she's rubbish at paying rent, and for her if you're a rubbish landlord :rotfl: Tell her after that, you can renew with yearly contracts, and reassure her you have no plans on selling, so it's hers for as long as she pays the rent. I guess she's looking for stability.

She will be struggling initially I guess, she told me she has no equity in the house that has been sold, and works part time. I know nothing about DSS or whatever you call it now so I'm only going by what she says and talking to others it appears true that as she has Two kids, a boy and a girl, then she is entitled to get some sort of funding to house them, a fixed amount.
If she can manage to save a little for a deposit then so be it, if she wants to stay in the property longer then that's fine by me, as long as she pays the rent and is a good tenant.

Thanks everyone for the replies, I was feeling a bit uncertain if I was doing the right thing but I'm a more confident now.