'Accidental landlard'

Sami_x

Hi there,

It looks like my OH and I will becoming landlords in the near future.

We own a flat that we can not sell due to negative equity. We are desperate to move to a bigger place so we can start a family.

Our lenders have agreed to change our mortgage to accommodate letting the flat out. This is where I am starting my research...with the basics. Any advice would be greatly appreciated.

Looking at rentals in our area it looks like we will be making a small loss each month (and a further lose with agent fees). Will furnished or unfurnished have an affect on how much we can charge? Is it worth the hassle as I understand that furnishings need to comply with fire regulations and we will need contents insurance? Building insurance is sorted.

Is there more of a market out there for people wanting furnished over unfurnished?

We are most likely going to go with a full management letting service as as you can tell from the questions above we are clueless.

Advice appreciated

kingstreet

Have you asked the freeholder for consent to sublet?

Werdnal

The often recommended newbie guide for landords, courtesy of GM, is here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

I have always let my property (13 years now), unfurnished and Agent I originally used suggested there is little difference in rent between the 2. You must ensure everything your supply is up to current fire regs, and all electrical applicances are safe - PAT testing is not compulsory, but advisable as otherwise how can you be sure?

Read the link and all the associated links within it, and if you have specific questions, come back and ask again.

As its a flat, I assume its leasehold - does lease allow letting?

You mention lenders have "agreed" - have you got this is writing yet, with details of the costs for consent (they rarely do it for free), plus any specific clauses - length of consent etc?

TBH, if you fear you are already going ot be making a loss, how are you going to afford the mortgage on the let, the mortgage/rent on your own new property and cover missing rent, damages and major repairs. If a tenant stops paying, it could take a couple of months and a court application to get them removed from the property, without any rent coming in.

You will have more costs than you probably appreciate, plus only the mortgage interest is an allowable expense against income tax on the rent you receive. - you have to complete a self-assessment for your rental income for HMRC. If you have a repayment mortgage, you cannot deduct that from your rental profit, and depending on your other household income, you may even end up paying tax on it.

If you are letting with no profit and possibly facing other running costs and losses, do you really think its going to work? Might be better to sell at a loss, and start again than carry that loss around your neck month in, month out for the foreseeable future! Letting is by no means guaranteed income, and letting at a loss can quickly strangle you ...

Sami_x

kingstreet wrote: »

Have you asked the freeholder for consent to sublet?

Yes, and they have thankfully agreed

Sami_x

Werdnal wrote: »

Read the link and all the associated links within it, and if you have specific questions, come back and ask again.

Thanks I will.

Werdnal wrote: »

As its a flat, I assume its leasehold - does lease allow letting?

Yes i have this in writing

Werdnal wrote: »

You mention lenders have "agreed" - have you got this is writing yet, with details of the costs for consent (they rarely do it for free), plus any specific clauses - length of consent etc?

Yes, i have this in writing, they are charging us £60 for the change and an increase of 0.75% on the mortgage.

Werdnal wrote: »

TBH, if you fear you are already going ot be making a loss, how are you going to afford the mortgage on the let, the mortgage/rent on your own new property and cover missing rent, damages and major repairs. If a tenant stops paying, it could take a couple of months and a court application to get them removed from the property, without any rent coming in.

it is likely to be a small loss. We also having savings. It is a fairly new apartment with no much that could go wrong with it.

Werdnal wrote: »

You will have more costs than you probably appreciate, plus only the mortgage interest is an allowable expense against income tax on the rent you receive. - you have to complete a self-assessment for your rental income for HMRC. If you have a repayment mortgage, you cannot deduct that from your rental profit, and depending on your other household income, you may even end up paying tax on it.

We need to look into this.

Werdnal wrote: »

If you are letting with no profit and possibly facing other running costs and losses, do you really think its going to work? Might be better to sell at a loss, and start again than carry that loss around your neck month in, month out for the foreseeable future! Letting is by no means guaranteed income, and letting at a loss can quickly strangle you ...

Thank you for taking the time to reply. It is mainly about quality of life. We brought the flat in 2007 for 110k, a 2 bed in the block sold for less than 100k we are a one bed flat. My OH and I have a good income. We want to be able to move on with our lives and have a family, if this means 'leaking money' over 'using all our savings' and starting again we would prefer to loose money on the former. I hope I have made some sense. I'm pretty confident that I come across as a little naive but hopefully not 'ridiculous'

kingstreet

Are you buying another property?

If so, bear in mind lenders tend to require a bigger deposit for a second property. For example, Abbey/Santander limits such to 80%, while Nationwide's limit is 85%.

Many lenders will ignore a let property in the background as long as it's self-financing. Your income may be taxed some of the cost of the mortgage on the let if the rent will not cover it all.

Sami_x

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kingstreet wrote: »

Are you buying another property?

If so, bear in mind lenders tend to require a bigger deposit for a second property. For example, Abbey/Santander limits such to 80%, while Nationwide's limit is 85%.

Yes, we are buying another property, we have an a mortgage in principle, we have given all our details to our mortgage consultant, the application fee , booking fee and valuation fee has come out of our bank. We are just waiting on it to be agreed and they will instruct our solicitor to do searches etc (no point spending more money until its been agreed).

kingstreet wrote: »

Your income may be taxed some of the cost of the mortgage on the let if the rent will not cover it all.

I'm sorry, I'm sure its me but what do you mean by the above quote? Could you just clarify this please?

kingstreet

The lender will take some, or all of the mortgage payment for the let property, out of your income before working out how much you can borrow. They are trying to ensure you could afford to pay both mortgages, if you had to.

An in-principle doesn't take into account you are buying a second property. What's the loan to value of your purchase and which lender?

Sami_x

Its 95% LTV Leeds building society. They agreed £180k but the LTV is £163k for the property that we want to buy.

Advisers in the past have stated that we can borrow up to £220k if we ignore the flat (we owe 60% of it via shared ownership). You might remember me from previous posts regarding that

G_M

As I say in my linked post, choose your agent with care. They are unregulated, and vary in quality, professionalism, and even knowledge of letting law, considerably!

Furnished / unfurnished. Often depends on area & target market. Students & young people have nothing, so expect more white goods, furnishing, broadband etc.

Older professionals, families etc often have furniture and don't know what to do with it when looking at a furnished place.

My answer? Be flexible! Unfurnished other than cooker & maybe fridge/freezer, but offer to provide more if a good tenant wants it. It's about balancing the cost of furnishing against cost of the property taking longer to let (lost rent) etc

There are also tax implications as you'll see when you research the HMRC link!

edit: love your thread title! Evil landlard getting fat on tenants' profits.......

BitterAndTwisted

You want to start a family, with all the potential decrease in income and additional expenses that entails and the first property won't even pay for itself? Risky. Very, very risky.

If once you do have a family and you either get the tenants from hell who run up months and months of rent-arrears and it costs you thousands to get shot of them, only to find they've caused thousands of pound's worth of damage, or it's empty for months on end, how will your finances look then? Don't say "it can't happen" because, although not common, it does.