Local knowledge. Mutual understanding.

Things to consider beforebecoming a Buy to Let Landlord.

Mortgages

Becominga Landlord

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Finding a property

If you are looking to rent out aproperty for the first time, youmay already have one in mind,such as one you have inherited,or even your existing home ifyou are moving to a secondproperty.If this is the case, and you have a mortgage on the property, it isimportant to inform your lender of your intention to let.

Depending on the lender’s policy, they maygrant a ‘consent-to-let’, allowing you toremain on your residential mortgage dealfor an agreed period of time, but if you areplanning to rent out a property for a longerperiod, the likelihood is that you will need toapply for a Buy to Let mortgage.

For new property purchases you will needto ensure you are buying a suitable home inthe right area that will attract the type oftenant you want. If you are letting for the firsttime, it may be best to stick to a local areayou know well, so you can weigh up thepros and cons of the neighbourhood andbe able to answer questions fromprospective tenants. It also means you willbe close by if you are needed.

What type of tenant do you wish to attract?The answer to this question will help youdecide where to look and what type ofproperty to look for. It is also a good idea tospeak to local letting agents to get an ideaof which areas are consistently popular withthe type of tenant you are targeting and theaverage monthly rent you could expect toreceive.

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Buy to Let mortgages tend to be moreexpensive than residential mortgages, simplybecause the risk is a lot higher to the lender.This may mean a larger deposit, usually atleast 25%, higher interest rates and therecould also be higher fees to consider. Tounderstand the differences between Buy toLet and residential mortgages, the Council ofMortgage Lenders can provide more indepth information.

The affordability of a Buy to Let mortgage isbased on the rental income you expect toreceive, rather than your salary, although youwill still be expected to earn a minimumamount, so it’s important to do your sumsbeforehand. Buy to Let isn’t a get rich quickscheme. While you need to cover your costs,including monthly mortgage repayments,insurance and taxes, if you set the rent toohigh you won’t attract any tenants, resultingin an empty property.

This means you will be left to cover themortgage repayments and other outgoingsassociated with the property along with yourmortgage/rent payment on your ownresidential property.

Don’t forget to factor in other initial costs,such as stamp duty, decorating andfurnishing the property to a decent standard,advertising for tenants and covering thecosts of any vacant periods betweentenants, currently an average of 32 days.**

Bear in mind there is likely to be a particularlylengthy initial vacant period after youpurchase a property while you make itsuitable to rent out, but this depends on howefficiently you carry out any work requiredand the state of the property on completion.

You might need to pay tax on any profitsyou make on renting out a property. Findout more about the tax implications onrented property: www.gov.uk/renting-out-a-property/paying-tax

The FinancialsUnless you are planning to buy a property outright, you willneed a Buy to Let mortgage, which is a type of mortgage that alender has agreed to grant you to finance a property you do notintend to reside in.

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It is therefore important to understand yourobligations and be aware of any changes inlaw, not only to keep your tenants happy butto ensure you are acting within the law. Tenant safety should be a priority and youmust ensure that electrical appliances aresafe for use and all soft furnishings complywith current fire safety regulations. Gassafety is of utmost importance and landlordsmust ensure all gas appliances and fittingsare safely installed, maintained and annuallychecked by a Gas Safe registered engineer.A copy of the gas safety check record(CP12) must be given to the tenant prior tothem moving in and within 28 days of theannual check being carried out. ALegionnaires Risk Assessment should alsobe carried out.

Maintenance of the property is also yourresponsibility. This means if anything thatyou have supplied for your tenants becomesfaulty, you’ll need to arrange to have itrepaired or replaced. While tenants areresponsible for any damage they cause,general wear and tear does happen and if aboiler stops working or shower starts leakingthat’s up to you to fix, and quickly.

Before a tenant moves in to the property youwill need to get all the paperwork sorted – awritten tenancy agreement (usually anassured shorthold tenancy agreement)should be drawn up and signed. Thetenancy agreement should set out thelength of the tenancy, monthly rent and whatthe tenant can and cannot do in theproperty. Making an inventory and takingphotographs of the condition of theproperty, at both the start and end of thetenancy, is a good idea in the case ofdamage or theft. You can use our inventorytemplate as a starting point.

You must place a tenant’s security depositinto a recognised Deposit ProtectionScheme within thirty days of receipt. Themain aim of scheme is to ensure thattenants can receive their deposit back withina timely manner at the end of their tenancyproviding they have fulfilled all theirobligations e.g. met all the terms of theirtenancy, have not damaged the propertyand paid their rent or bills on time. Failure touse a Deposit Protection Scheme can resultin a large fine of up to three times thedeposit amount, plus costs if a tenantdecides to take legal action. Read moreabout Deposit Protection Schemes andhow they work at: www.gov.co.uk/deposit-protection-schemes-and-landlords/overview

Landlord ResponsibilitiesBecoming a Landlord doesn’t begin and end with buying aproperty and finding tenants to live in it – it comes with a lot ofresponsibilities, some of which can be demanding.

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It is also likely that it will soon become yourlegal responsibility to ensure all adultsoccupying the property have the right toreside in the UK and to evict anyone wholoses their right to reside. This has alreadybeen trialled over the past year in five UKcouncils, as part of the Immigration Act2014 and is now due to be rolled outacross the rest of the country according torecent government discussion.*** Youcan read more about this at:www.bbc.co.uk/news/uk-33754595

Of course, all prospective tenants shouldbe vetted to ensure you are happy for themto reside in your property, including asatisfactory credit check. You may alsowish to request a reference from a previouslandlord if this is available.

Although taking out landlord’s insurance isoptional it will most likely be required byyour mortgage lender and should includecontents cover if you are letting a furnishedproperty. Accidents can happen just aseasily as they could in your own home, so itmakes sense to have the right protection inplace. Some insurance providers offeradditional cover for malicious damage,legal expenses and unpaid rent, as well asthe opportunity to have your Buy to Letportfolio listed on one policy, making iteasy to manage.

Landlord’s Insurance is a requirement withall Buy to Let mortgages from NewcastleBuilding Society and we can introduce youto our partners Legal & General, who offercomprehensive cover for landlords.

You can get a quote from them by calling0800 027 5353 (lines are open Monday toThursday 9.30am – 8pm and Friday 9.30am– 6pm) and quoting NEWCASTLE.

Keeping up to date and complying withlandlord laws and regulations is your legalresponsibility and failure to do so mayamount to a criminal offence.

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While it comes at a cost to you, it does meanthey will manage the property on your behalfby liaising with tenants, receive the callswhen something goes wrong and arrangefor repairs to be carried out.

Remember there will be vacant periods inyour property, some longer than others. Youwill need to be able to continue makingmortgage repayments and cover other dayto day costs during these periods so you willneed to ensure you have adequate fundsavailable.

It may also be a good idea to keep somesavings available for use in emergencies. Forexample, a boiler replacement could becostly.

To help make sure you haven’t missedanything before you move a new tenant in,we’ve created a handy checklist.

If you are planning to use a Buy to Letportfolio to provide income during yourretirement, be aware that many Buy to Letmortgages require you to have an alternativeincome.

Speaking to a Financial Planning Managerfrom our wholly owned subsidiary NewcastleFinancial Services Limited (NFSL)* can helpyou to put your retirement goals in place.Call 0345 600 4330 for an appointment(lines are open Monday to Friday 8am –6pm).

Things to considerWhether you don’t have the experience, or you just don’t havethe time, it may be worth paying a letting agency to manageyour property.

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Local knowledge. Mutual understanding.

Newcastle Building Society Principal Office: Portland House, New Bridge Street, Newcastle upon Tyne, NE1 8AL.Newcastle Building Society is authorised by the Prudential Regulation Authority and regulated by the Financial ConductAuthority and the Prudential Regulation Authority. Newcastle Building Society is entered in the Financial Services Registerunder number 156058. You can check this on the Financial Services Register or by contacting the Financial ConductAuthority on 0800 111 6768. Call 0345 734 4345 or visit us online www.newcastle.co.uk. Details correct at time of print(September 2015).

Buildings and contents insurance is arranged by Newcastle Building Society and provided and underwritten by Legal &General Insurance Limited.

*Newcastle Building Society introduces to Newcastle Financial Services Limited. Newcastle Financial Services Limited isan appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority.

**Source: www.hollier-browne.co.uk/news/articles/Landlords-enjoy-quick-reletting-periods-801792792.aspx (June 2015)

***Source: www.bbc.co.uk/news/uk-33754595 (August 2015)

IF YOU FAIL TO KEEP UP WITH REPAYMENTS ON YOUR MORTGAGE A RECEIVER MAY BEAPPOINTED AND / OR YOUR RENTAL PROPERTY MAY BE REPOSSESSED.

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