eSmart Property issue 10 by Steve Wright

eSmartproperty The digital property magazine JULY/AUGUST/SEPTEMBER 2008

Planning ahead for higher MORTGAGE payments

how to keep your monthly payments manageable

Professional property investors a dominating force in the buy-to-let market

Financing your overseas property purchase you’ll need to navigate a raft of different schemes

Also in this issue: Addressing the nation's housing shortfall

standards must increase to meet growing demand

Forecasting future cashflow

to fix, or not to fix?

New standards

reducing the risk for both borrowers and lenders

PLUS: NEW STANDARDS… REMORTGAGING... NEW REVOLUTION FOR HOUSE BUILDING... NEWS IN BRIEF...

Q: Do you want to explore your property options? A: Tell us what you need? Click here *

In this

Issue New standards… reducing the risk for both borrowers and lenders

Buying a property for your offspring…

05 06

what are your options?

Existing property makeover… should you expand or improve?

New revolution for housebuilding… cutting the cost of getting on the housing ladder

Developers attempt to entice buyers… Stamp duty land tax… Scotland’s housing market bucks the trend… prices continue to remain more affordable

capturing discounts and incentives tax on buying property

08 09

Remortgaging… are you paying over the odds for your mortgage each month?

Professional property investors…

11 12 13 14

a dominating force in the buy-to-let market

Sellers wait for mortgage lenders…

more favourable lending criteria needed for those unable to raise finance

Moving abroad… one minute guide

Lenders tighten their lending criteria…

15 16

more borrowers take out fixed-rate products

Planning ahead for higher MORTGAGE payments… how to keep your monthly payments manageable

06 eSmartproperty JULY/AUGUST/SEPTEMBER 2008

23 In this

Issue >> Buy-to-let INVESTMENTS… your questions answered

Safeguarding your property for future generations…

18 20

don’t’ fall foul of inheritance tax

Addressing the nation's housing shortfall…

standards must increase to meet growing demand

New energy performance certificate legislation…

environmental impact of a rental property

Financing your overseas property purchase…

you’ll need to navigate a raft of different schemes

Rules affecting landlords… the laws and regulations of buy-to-let

Need some respite from your mortgage?

25 26

tighter household finances look for a little payment relief

Considering letting a room? make sure you understand the rules

Forecasting future cashflow… to fix, or not to fix?

Furnished residential properties… are you claiming your full allowance?

Overseas properties… buying off plan

Buy-to-let… pre landlord checklist

RENTING A PROPERTY Tenants checklist…

27 27 28 30 31 32

securing your new home

Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

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NEW STANDARDS Reducing the risk for both borrowers and lenders

The Council of Mortgage Lenders (CML) is introducing new standards for industry professionals who act for lenders on newly-built property transactions. The new procedures, which come into effect on 1 September this year, will ensure that the conveyancing and valuation processes capture the true value of the property, reducing risk for both borrowers and lenders. Some lenders have been concerned that the valuation and conveyancing processes do not always capture discounts and other incentives that buyers may be able to negotiate with developers when purchasing newly-built property. This may mean that,

renovated property to complete a new 'disclosure of incentives' form. This will be reinforced in the CML's Lenders' Handbook, which sets out specific requirements for conveyancers acting on behalf of lenders in property transactions.

The measures are being introduced to help sustain confidence in the market for newly-built properties. in some instances, lenders might unintentionally offer a mortgage based on a valuation of a property that is higher than the true price paid for it. From the beginning of September, lenders will require builders or developers of any newly built, converted or

new properties is more reliable and robust. In September, the Royal Institution of Chartered Surveyors will be amending its guidance to members to reinforce the requirement to disclose incentives to lenders. The Home Builders' Federation and Homes for Scotland have also recently reinforced their own codes of conduct to encourage greater transparency about discounts and other incentives. In addition, a number of major builders are taking their own steps to address the issue.

The measures are being introduced to help sustain confidence in the market for newlybuilt properties. This will also enable lenders to know about discounts and other incentives so they can be sure that the decision to offer a mortgage is based on a reliable valuation of the property. The new measures will provide additional security and safeguards for borrowers, as well as lenders.

The CML has been working with surveyors and house-builders to ensure that the valuation of

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our digital property magazine to someone you know, please email us with their details and we’ll send them a copy.

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BUYING A PROPERTY FOR YOUR OFFSPRING What are your options?

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The continuing credit crunch is likely to mean that the remaining months of this year will remain weak for the housing market. However, the indirect benefits from the Bank of England’s special liquidity scheme should begin to inject some much needed funds in to the mortgage market. As securing finance has become increasingly more difficult for twenty or even thirty something adults, many parents and grandparents are stepping in, sometimes with cash to purchase a property, or for a deposit, or in other ways. So if you your offspring

(2008/09 tax year) for payment of the tax. Although you need to consider, if you are selling investments or other assets to pay for a property for your child, capital gains tax (CGT) or income tax could be payable. Insurers can tailor “gift inter vivos” policies to cover children for an IHT liability on a gift in case you die within the seven years. The same careful planning is essential if you decide to gift the property you are living in. This solution can work if you have the resources to purchase a new, typically smaller, place for yourself. But if you

As securing finance has become increasingly more difficult for twenty or even thirty something adults, many parents and grandparents are stepping in, sometimes with cash to purchase a property, or for a deposit, or in other ways. are currently in this position and you want to help them with buying a home, what are your options? The ideal solution is to obviously buy a property for your children outright if you can afford it. Provided that you live seven years from the date of the purchase, the gift is exempt from inheritance tax (IHT) at the current rate of 40 per cent. The reality however for many people will be very different when you consider the effects of rising inflation, lower investment returns and the likelihood of long-term care, so you should consider all the scenarios before you make a substantial gift. In some cases, the gift could even bring the remainder of the donor's estate below the £312,000 threshold

continue to live in the property, it is classified by HM Revenue & Customs as a gift “with reservation of benefit” and subject to full IHT even if you die after the seven-year period, unless your children can prove that you paid a fair market rent. There are other ways to help, if gifting a property outright is not within your means. The simplest is to give a deposit. This has the same tax implications as the gift of property, but anyone can make IHT-free gifts of up to £3,000 a year. Where income, for instance falls short, having access to a substantial deposit will increase your mortgage scheme options. The larger the deposit, the better the choice of product and lower the rate of interest.

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Given that money is likely to be tight for first-time buyers, the last thing they want to be doing is paying more than they need to each month. You could consider downsizing to free up cash or release equity in your home, if you would like to gift a deposit but are short of ready money. The latter means either raising a loan with your home as security or selling part of your property while retaining the right to live there. These may be possible solutions if appropriate to your situation, although neither route should be undertaken before a thorough financial review. Whatever way you secure a deposit for your child, you may want or need to boost your child's borrowing ability, especially if their income is low. A guarantor mortgage is one that takes your income into account and where you are liable if your child defaults. If your child cannot get a regular or even a guarantor mortgage, a joint mortgage, where both you and your child are liable, may be the last resort. This puts your assets at risk and could have considerable CGT repercussions. For wealthier parents, an alternative to gifting a home or deposit is to put a property in trust. This gives your children a secure base but allows you to maintain control. Trusts are liable to IHT of 20 per cent.

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Existing property

makeover

Should you expand or improve?

In this current economic climate many people have not been able to move and are now considering ways of improving their existing property. The popular solution is to either expand or improve with the aim of adding value to a property. Here’s our quick guide to making the most of your home: n An extension is usually the top option for adding value, as long as work is properly carried out. A good extension should create at least one extra room and be used to bring light into the house. n A loft conversion is next on the list as it can increase the number of bedrooms and bathrooms, two key valuation factors. n A new kitchen should also add value. n A conservatory does not count as an extension as it is thought to be a relatively cheap and easy add-on. But it does increase that all important space. n C hanging the central heating can reap financial rewards. It’s important to use an accredited tradesman to fit new boilers and pipes, and invest in an energyefficient boiler (this will help your energy rating when you sell), high water pressure and a thermostat.

n C reating a new bathroom is less popular than redoing the garden or buying new flooring and furnishings, despite adding more value than they do. If you have lots of bedrooms and one bathroom, adding an en-suite will usually be a good option. n R edecoration may only add a couple of thousand pounds to a property’s value, but it may well entice those crucial buyers. n L aying laminate or wood flooring can give a chic, uniform new floor throughout the house or in problem areas. Buyers tend to like exposed floorboards or tessellated wood. n W ith a view to making an overall good impression, homeowners should focus on the garden. This will make the property look cared for, but will not hugely increase its value.

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New revolution for

housebuilding Cutting the cost of getting on the PROPERTY ladder

A scheme to deliver more affordable homes for young families and first-time buyers has been set out by the housing minister Iain Wright. Under a new radical amendment to the Housing and Regeneration Bill, new Community Land Trusts (CLT) will be able to cut the cost of getting on the housing ladder as buyers will only pay for the building, not the land, of a property. CLTs puts communities in the centre stage in agreeing what land should be developed for, including building more affordable homes, as local residents and businesses participate in and take responsibility for planning and delivering development schemes. Housing minister Iain Wright said, "We have to constantly look at new ways to meet the long-term demand for more homes. Community Land Trusts puts local communities at the centre stage of delivering the homes our first-time buyers and young families desperately need. "They provide an opportunity to give people the practical tools to solve the problem of affordable housing in a way that is right for the community." The new measure is part of the next steps in the government's series of further measures and reforms designed to help alleviate the current challenges in the housing market and to support the vital delivery of more homes over the long-term. It is also a big feature of the government's drive to deliver a fundamental shift in power, influence and responsibility into the hands of communities and citizens.

Did you know? A CLT is an independent trust which owns or controls the land and facilities, but not the property, for the benefit of the community. CLTs work by enabling occupiers to pay for the use of buildings and services at prices they can afford, while the value of land, subsidies and other equity benefits are permanently locked in, on behalf of them and future occupiers, by the Community Land Trust.

Under a new radical amendment to the Housing and Regeneration Bill, new Community Land Trusts (CLT) will be able to cut the cost of getting on the housing ladder.

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Developers attempt to

entice buyers

Capturing discounts and incentives

The Royal Institution of Chartered Surveyors (RICS) has announced it is to tighten the standards for the valuation of new-build properties. It is hoped the changes to the organisations 'Red Book,' the rules used by surveyors to make valuations, will allow experts to capture discounts and incentives offered against newly built homes. Discounts of this kind have become increasingly prevalent of late, as developers attempt to entice buyers. From 1 September this year, RICS will make it mandatory for members to ask the seller, builder or developer on site, or their selling agent, for a copy of any 'disclosure of incentives' for the new home property under consideration. The form, prepared in

build market from fraudulent activity. Buyers, lenders and valuers have all been victims of the non-disclosure of incentives by developers with many buyers finding themselves left with a mortgage that is worth more than the property’s real value. All parts of the property industry are in agreement that standards must be maintained and that the consumer must be protected from any disingenuous practice. The changes will not be limited to the valuation process. The CML

will also make changes to the conveyancing process requiring developers to disclose incentives, and the Home Builders’ Federation (HBF), and Homes for Scotland have amended their code to encourage transparency amongst their membership. Loop holes in the process have been reported as resulting in the increase in the number of frauds, particularly city-centre newbuild developments with buyers being left with negative equity immediately after their purchase.

accordance with guidance from the Council of Mortgage Lenders (CML), will consist of 12 questions which disclose the full details of all financial and non-financial incentives and also details of any third party interest in the transaction. These new standards are being introduced to help restore confidence in the new-build market Did you know? and help to improve n £180,000 - Average UK property price last year, according to the Land Registry transparency in the new n 1.17m - Number of property transactions in England and Wales in 2007 build valuation process. n £155bn - Total amount of money borrowed to finance home purchases in 2007 The change to n £129bn - Total amount borrowed to remortgage existing properties in 2007 the 'Red Book' will (Statistical source: Council of Mortgage Lenders) protect the new

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STAMP DUTY LAND TAX

Tax on buying property

Stamp duty land tax (SDLT), as it is officially known, is charged as a percentage of the price paid for a property. It replaced Stamp Duty in December 2003 and is a tax on the purchase price of land and buildings. When you buy houses, flats and other land and buildings you may have to pay SDLT. In recent years, stamp duty bills have increased as the thresholds have not kept pace with the housing market. The higher stamp duty bands have not been changed since they were first introduced more than a decade ago. You don't have to pay any SDLT on a residential property costing £125,000 or less. Above this amount you pay between 1 per cent and 4 per cent of the purchase price. You can only avoid stamp duty if your new property costs less than £125,000, or up to £150,000 in certain "disadvantaged areas."

Otherwise, you must pay 1 per cent of the purchase price on properties between £125,000 and £250,000, rising to 3 per cent on properties costing between £250,000 and £500,000. Above £500,000, you have to pay 4 per cent of the price. Few purchasers can escape the stamp duty net, and the hefty bills can hit first-time buyers particularly hard. The chancellor Alistair Darling made one minor concession in his first Budget speech earlier this year which affected shared ownership properties. These schemes allow people who cannot

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afford to buy a home outright the chance to buy a share of a property, while paying rent on the remainder. They are typically open to council or housing association tenants and key workers, such as nurses and teachers. Stamp duty is now only payable on shared ownership properties when buyers own 80 per cent or more of the equity in their home. The 2007 Budget announced that relief from SDLT for zerocarbon homes would be introduced from 1 October 2007. All qualifying houses under

£500,000 are exempt and houses over £500,000 have their SDLT bill reduced by £15,000. A zero-carbon house must be ‘zero carbon’ over the course of the year. The house can be connected to mains electricity and gas but needs to have sufficient additional renewable power to cover the average consumption of a house over a year. In order to achieve this, the fabric of the building has to be insulated and built to very high standards and the house needs to incorporate renewable energy technologies.

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Scotland’s housing market bucks the trend Prices continue to remain more affordable

Data published about the Scottish mortgage market by the Council of Mortgage Lenders (CML), has shown that while the credit crunch is restricting lending for house purchases across the whole of the UK, Scotland is fairing much better. One of the reasons for this may be that housing in Scotland remains comparatively affordable, so borrowers may not have been affected as much by the tightening of lending criteria affecting all national markets. Scottish home-buyers typically borrow less relative to their incomes and mortgage interest payments consume a smaller proportion of their incomes, because house prices are more affordable than the UK average. According to the CML in the first quarter of this year, the average Scottish customer borrowed 2.87 times their

income, compared with 3.14 in the UK as a whole, and mortgage interest payments accounted for 16.9 per cent of the average Scottish borrower’s income, compared with 18.5 per cent in the UK. Scottish house prices have been rising relative to the UK in recent years, but are still on average 25 per cent lower. With lending less restricted in Scotland, its share of the UK market for lending for property purchases had risen to 11.2 per cent by the first quarter of this year, compared to 8.4 per cent a year earlier.

As in the rest of the UK, remortgaging in Scotland is stronger than lending for property purchases. Year-on-year, the volume of remortgages in Scotland was unchanged, with a total of 20,000 loans in the first three months of this year matching the same period in 2007.

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REMORTGAGING

Are you paying over the odds for your mortgage each month?

If you consider that you are paying over the odds for your mortgage each month, then switching mortgage provider could be an option to help you save some money. If you are currently paying your lender's standard variable mortgage rate, there could be lower rates available from other providers. You have to do the sums to make sure that what you gain through switching provider is not lost through higher charges. The first step is to check the terms and conditions of your existing mortgage. Itâ&#x20AC;&#x2122;s important to find out if you are tied-in to your mortgage deal and if there are any redemption penalties or early repayment charges. You must decide if it is worth switching if you are locked-in to a different rate or to remain until the penalties have expired. If appropriate to your situation, the process should take about a month to complete. You will receive a mortgage offer of advance, if the lender's surveyor is satisfied with the value and condition of your home. Your new lender will liaise with your existing company and once you have received a completion statement from your solicitor or new lender, the process is completed.

The four main mortgage types are; fixed, capped, discounted and flexible.

Fixed-rate mortgages These can be ideal if you require the certainty of knowing what your monthly repayments are and prefer to be able to regulate how much you pay each month. The rate is usually fixed for between two and five years.

Discounted loans This loan type offers you a reduction off the standard variable rate for a set period. If rates fall further, the rate that you pay will also go down. However, when rates rise, so will your mortgage payments.

A capped-rate loan These set a limit on the rate you will pay. If rates rise, your payments will not go above that level. However, if rates fall below the cap so will your repayments.

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Flexible mortgages If you want to be able to overpay and underpay when you choose and without penalty, then this mortgage could be the right solution. These are ideal for people who have fluctuating incomes or who want to clear their mortgage early. An increasing number of fixed, capped and discounted deals have more flexible features as well. When considering your remortgage options, always obtain professional advice for your own particular situation and read the key facts document thoroughly. Avoid deals with extended redemption penalties and while these have been phased out in recent years, a number of lenders have reintroduced extended penalties to clamp down on so-called 'rate tarts' who move around frequently to get the best deal. Some lenders offer dedicated remortgaging services with free

legal work and valuations but others will charge for this service. The crucial point to remember is that the benefits of switching provider must outweigh any charges that you incur.

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Professional property investors

A dominating force in the buyto-let market

Professional property investors are the dominating force in the buy-tolet market, and they have taken a long-term view when building their portfolio of property investments, according to new research from John Charcol. Landlords holding ten or more properties, own 95 per cent of the buy-to-let stock. While 30 per cent of buy-to-let investors own just one property and this group accounts for just one per cent of buy-to-let housing stock. Further research showed that 97 per cent of buy-to-let investors intend to keep their investment properties even if property prices fall. On top of that buy-to-let investors appear to be in the market for the long-run, with nearly two-thirds saying that they intend to keep their properties for at least ten years, with a third expecting to keep them for over 20 years.

Sellers wait for

mortgage lenders

More favourable lending criteria needed for those unable to raise finance

With an increasing number of people unable to raise finance to purchase a property, demand for rental properties has risen at its fastest pace since July 2007, according to a recent survey by the Royal Institution of Chartered Surveyors (RICS). The current problems in the housing market are primarily the result of the credit crunch in the banking system, which has caused severe damage to the balance sheets of many of the UK's lenders. Some would-be sellers are even retreating from selling and letting or re-letting their properties as they wait for mortgage lenders to offer buyers more favourable lending criteria. That extra demand has pushed up rents, with gross yields increasing at their quickest rate since the survey started in 1999. RICS said 28 per cent more of its surveyors reported an increase in new tenant

lettings than a fall, compared with 17 per cent in January. Instructions to let properties were up by 29 per cent in the three months to April. This compared with a 2 per cent fall in the previous three months, according to RICS. RICS said 23 per cent more UK surveyors reported a rise in gross yields, compared with 5 per cent in the previous quarter. It added that gross yields were now increasing at their fastest pace since the survey began in April 1999. Landlords selling their properties when tenant leases expire fell from 4.6 per cent in the

previous quarter to 4.2 per cent, the survey showed.

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MOVING ABROAD ONE MINUTE GUIDE

n I f you decide to keep your property in the UK and it is going to be empty or rented out, you will need to let your mortgage lender and insurance providers know. n Contact your local council, their Council Tax department and electoral registration unit will need to know when you are leaving and a forwarding address. n Notify your utility companies that you are moving in order to get your final bills and provide a forwarding address for them to send you any outstanding payments or refunds. n Tell your bank, building society or any financial institution that you have a policy or agreement with that you are moving abroad. n Arrange for your mail to be forwarded by asking for a re-direction form at a Post Office, allow enough time for this to be set up as it can take a few weeks n When the new mortgage goes through make sure you have the funds available in the right currency at the right time to pay the vendor and lawyers, agents, notaries and others. n Ensure your mortgage funds are in place to cover your first mortgage repayment, and if necessary, set up a regular transfer from your UK account.

n C heck to see if you are required to apply for a residence permit if you are planning to stay in the country for more than short-breaks. This is also applicable for EU countries and maybe a prerequisite to obtaining healthcare. n From the moment you become the owner it is important to make sure the property is insured. n Make contact with the utility providers to ensure that the various services will be connected up in your name. n Your new local authority will require you to register as a taxpayer (equivalent to Council Tax) and also for Income Tax, if you are going to let your home. n Make sure that your appliances work, either those sold with the property, or supplied by the developer. n If the property is a new development, you may be able to buy a furniture pack from the property developer. Otherwise you will need to arrange for it all to be shipped abroad using an international removal company.

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Lenders tighten their

lending criteria More borrowers take out fixed-rate products

Market activity during a traditionally a busy time of year for mortgages has been muted by funding shortages and, more recently, dampened consumer demand. Lending for house purchase increased slightly from April to May, according to the Council of Mortgage Lenders (CML). Loans for house purchase increased by 4 per cent in volume to 52,700, and by 2 per cent in value to £7.9 billion, although both were 44 per cent lower than May last year. However, there was a steep decline in remortgaging from April to May. There were 71,000 loans for remortgages, down 14 per cent from April and 23 per cent from May 2007. The value of remortgage lending declined by 13 per cent in May to £9.6 billion, which represented 39 per cent of all lending compared to 42 per cent in April. The number of loans to first-time buyers rose by 4 per cent from April to 19,200, but was 41 per cent

lower than May last year. Home movers took out 33,500 loans, up 4 per cent from April, and down 46 per cent from May last year. Gross lending declined to £24.5 billion, down 6 per cent from April and 22 per cent from May last year. This is the seventh consecutive month that gross lending has been lower than its position a year before. This data records activity related to completions. Recent mortgage approvals data from the Bank of England indicates that the number of loans for house purchases will fall further still in coming months. Affordability measures remained stable in May, but are still well below the peaks of last summer as those able to obtain mortgages are less stretched financially. First-time buyers typically borrowed 3.3 times their income, compared with 3.39 in July last year.

Despite fixed rates becoming relatively more expensive, take up has revived. This suggests borrowers are looking for peace of mind over future payments in these uncertain times. Fixed-rate mortgages increased in popularity in May, accounting for 66 per cent of all new loans, up from 59 per cent in April. Gross mortgage lending declined to an estimated £23.8 billion in June, down 3 per cent from May and 32 per cent from June 2007, according to the CML. The decline between the first and second quarter was a marginal 1 per cent. However, an increase would typically be expected in spring. The year-on-year decline has gathered pace in recent months; lending in the first quarter of 2008 was down 11 per cent on

12 months earlier, while the second quarter was down 21 per cent. Government efforts to help housing associations purchase new-build properties and borrowers to save for a deposit have been welcomed, but are likely to have only a marginal impact on the housing market. The recent reduction in shortterm fixed-rate mortgage costs is a small bit of welcome news for hard-pressed households facing significant pressures on their finances from the higher cost of food and fuel, in particular.

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Planning ahead for higher MORTGAGE payments

How to keep your monthly payments manageable If you are coming off a fixed-rate mortgage in the near future, it’s important to plan ahead for higher payments. You should have been given written confirmation of the length of your loan when you took out your mortgage. If you cannot find this information, contact your lender and they will be able to help you. Normally, when a fixed-rate mortgage comes to an end, the interest rate you pay will go up. This means that your monthly payments will also go up, sometimes by quite a large amount. Check when your fixedrate mortgage comes to an end, and find out how your lender will work out your interest rate after that. Even if there are still some months to go before your fixed rate runs out, it makes sense to check what the new payment amount would be if you were to come off the fixed rate now, and then plan ahead for payments at that monthly level to avoid potential financial problems later on.

If it is too late for that and you are already coming off your fixed rate, then check whether your lender offers any better deals than the normal rate you will otherwise have to pay. You could also shop around to find out whether remortgaging would give you a more attractive deal, although bear in mind that some products attract high fees and there may be an early repayment charge for your existing mortgage. If you think you will have difficulties in paying the new rate, contact your lender as soon as possible. Sometimes they might be able to re-arrange some of the terms of your loan to help keep your monthly payments manageable, although bear in mind that these arrangements can make your loan more expensive in the long run, so it is better to try to keep up your payments if you can. If a solution cannot be found, you should seek advice as soon as possible. This is important, because certain options such as selling your home may affect your legal rights

Normally, when a fixed-rate mortgage comes to an end, the interest rate you pay will go up. This means that your monthly payments will also go up, sometimes by quite a large amount.

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in relation to re-housing. You may need to think about whether there are other areas of household spending that you could cut back on, but make sure you are paying all your essential household bills first. Also, you must pay your mortgage before any unsecured credit debts. If you have unsecured credit debts you may be able to negotiate with your lender to reduce your payments.

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BUY-TO-LET

INVESTMENTS Your questions answered

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Q: What is buy-to-let? A: This is a form of residential investment where you buy a property, usually with the aid of a mortgage, and rent it out. The 1988 Housing Act made investment in residential property more attractive to landlords when it introduced a new type of tenancy giving landlords more control over their properties. Prior to the current credit crunch the increased availability of loans at attractive rates of interest for buy-to-let purchasers also increased the appeal of owning rental property. When you buy a property to let out, you are becoming a landlord. And owning investment property is not like owning your own home. Instead you are effectively running a business. Q: How do I go about researching the market? A: You should carefully research the market where you want to buy your property. You can either do this yourself or employ a specialist letting agent to help you find the area and property you are looking for. If you research the market yourself, you will need to gather information from estate agents, local papers, local employers and even the local authority, about the demand for and supply of, rented housing. Q: What considerations should I have about tenants? A: You need to think about the type of tenant you are aiming to attract. Are you hoping to attract single people, or families, as they will have different requirements? It is important to remember your property should have features that are attractive to would-be tenants, rather than would-be purchasers. Q: How do I choose a location for the property? A: You need to consider how close the property is to local amenities such as shops, transport and schools, and are these the type of amenities that are important to your tenants? So, if you are aiming to let your property to say a family with school-age children, how close the nearest schools are, will be an important influence on where they choose to rent. Q: What type and size of property should I consider? A: Think carefully about buying a property whose size is attractive to households looking for rented accommodation in the location you have identified. As well as the size, type and location of your property, what about its condition? Have you assessed whether the property will require expensive maintenance. Generally speaking, older homes require more attention.

Q: If I manage a property myself, what will I be responsible for? A: If you manage it yourself, you will be responsible for, finding tenants, checking tenants’ references, collecting the rent and maintaining the property and dealing with any problems.

percentage of the value of the property you need to borrow. The size of the loan is usually linked to the expected rental income. As a guide, your lender will expect your monthly rental income to be between 25 per cent and 50 per cent greater than your monthly mortgage payments.

Q: What are my legal responsibilities? A: Your legal responsibilities as a landlord include, carrying out repairs, ensuring the safety of gas and electrical appliances and ensuring that the furniture and furnishings meet fire safety requirements. You should also consider familiarising yourself with landlord and tenant law, to understand your responsibilities as a landlord, and the rights your tenants enjoy. The Department of Communities and Local Government (DCLG) have published a useful guide for landlords in England and Wales called "Assured and assured shorthold tenancies.”

Q: What mortgage should I choose? A: A buy-to-let mortgage is specifically designed for the purpose of financing a property that is to be rented out. Mortgage lenders will look at the market value of the rent a property could attract as well as your income and credit worthiness when assessing a mortgage application. When you choose a mortgage, your choice will be between a repayment mortgage or an interestonly loan. You may be able to choose between fixed rate and variable rate mortgages. Fixed rate loans will give you some certainty about your mortgage repayments whilst variable rate loans could move up or down. You should also remember that your mortgage payments could rise if interest rates rise, depending on the type of mortgage you have. But before choosing your mortgage, you should consider taking professional advice to discuss your options. Buy-to-let mortgages are not regulated.

Q: What happens if my property is empty? A: During any periods when you are unable to find tenants for your property and it is empty, you will still be expected to continue to repay your mortgage. So you need to think about how you will meet your mortgage repayments in these circumstances. This could particularly apply if you choose a property in an area where the supply of rental property exceeds demand from tenants. Q: What maintenance of my property would I be responsible for? A: As well as managing your property, you are responsible for maintaining it. Besides repairs and regular maintenance, properties can benefit from routine improvements which maintain their attractiveness with would-be tenants. You may find that your property is in need of an overhaul after a tenancy finishes. Naturally, you will have to finance this yourself. What is more, your property is likely to be empty and you will not receive a rental income, while your property is being improved. Q: Should I use a managing agent? A: Given the number of different responsibilities you face as a landlord and the limitations on your own time, you may find it prudent to use a managing agent to look after your property for you. This will cost you a percentage of your monthly rental income. Q: What size of mortgage could I obtain? A: This will depend on your own personal situation and how much you can afford to pay. If you take out a mortgage, you should work out what

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Q: What other costs do I need to consider? A: You will need to pay for buildings insurance, consider contents cover, if your property is furnished, maintenance costs, periods when you are receiving no rental income because the property is empty or the tenants have fallen behind with their payments and mortgage repayment increases because of interest rate rises, which you may not be able to recover immediately from rent increases. Q: What taxes could I have to pay? A: The profits from renting property are taxable. However, you will be able to offset some of the costs you incur as a landlord against tax. You may have to pay the following taxes, income tax, Stamp Duty when you buy your property and Capital Gains Tax when you sell it.

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IHT only applies if the taxable value of your estate (including your share of any jointly owned assets and assets held in some types of trusts) when you die is above ÂŁ312,000 (2008/09 tax year), but this will rise over the coming years to ÂŁ350,000.

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Safeguarding your property for future generations

Don’t’ fall foul of inheritance tax

Anyone with a home, in this current tax year, worth more than £312,000 could potentially be affected by inheritance tax (IHT). Inheritance tax is the tax that is paid on your 'estate', everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime, which includes property. IHT only applies if the taxable value of your estate (including your share of any jointly owned assets and assets held in some types of trusts) when you die is above £312,000 (2008/09 tax year), but this will rise over the coming years to £350,000. The threshold at which point you have to begin paying IHT during the 2008/09 tax year for married couples and those in civil partnerships is £624,000 following the chancellor's announcement in his pre-Budget Report last October. The joint married couples IHT limit will be raised to £700,000 from 2010. If the value of your estate, including your home and certain gifts made in the previous seven years, exceed this figure, tax will be due on the balance at 40 per cent. You must pay IHT within six months from the end of the month in which the death occurs, otherwise interest is charged on the amount owing. Tax on

some assets, including land and buildings, can be deferred and paid in instalments over ten years. A person's estate includes everything owned in their name; the share of anything owned jointly; gifts from which they keep back some benefit, such as a home given to a son or daughter but still lived in by the parent; assets held in some trusts from which they receive an income. Against this total value is set everything that the deceased person owed, such as, any outstanding mortgages or loans, unpaid bills, and costs incurred during their lifetime for which bills have not been received, as well as funeral expenses. Any assets you pass on to a spouse are free of IHT. The same concession applies to same-sex couples who register under civil partnership laws. Making a will stops any assets being divided under the rules of intestacy, where even spouses

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are not guaranteed to inherit everything. It can also be the first step to reducing an IHT bill. Most couples who own a home together are joint tenants. This means that if one person dies, the other automatically becomes the outright owner of the property. The alternative is to register as 'tenants in common,' each owning half the property absolutely. This means that on death, your share may be left to someone else to reduce the size of your estate. A selection of investments are given 'favourable' treatment for IHT purposes, including farms and farmland. You can take out an insurance policy to cover all or part of the inheritance tax bill. Whole-oflife insurance written under an appropriate trust can provide a lump sum on death that is outside an estate. On death, the proceeds of the policy can be used to settle the tax bill.

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ADDRESSING THE NATION'S

HOUSING SHORTFALL Standards must increase to meet growing demand

The government has been focusing resources in the wrong sectors of the market in its push to address the nation's housing crisis, according to think tank Centre for Cities (CFC). While attention has been directed towards the idea of home ownership for all, not enough emphasis has been placed on driving up the number and standards of homes for rent to meet growing demand. A report from the Department for Communities and Local Government committee (CLGC) recently illustrated the need for some 50,000 new rental properties annually in order to meet demand. The CFC argues in the present economic climate, it is becoming clear home ownership, either fully-owned, or via shared equity schemes, such as the Open Market Homebuy scheme,

can put financially vulnerable people at risk of repossession. Meanwhile your average wouldbe first-time buyer is finding it increasingly difficult to find good quality, affordable homes to rent. "The government is focusing too much on home ownership, and not enough on homes for rent," said Dermot Finch, director of the Centre for Cities. "Demand for rented housing is increasing all the time but supply isnâ&#x20AC;&#x2122;t keeping up. Unless this changes, the young and job movers will have difficulties finding somewhere decent to live." In response the think tank urged the minister for planning and

housing, to encourage institutional investment in high-quality, privaterented housing. This will help deliver the government's ambitious target of three million new homes by 2020 and give young people better housing choices, before they are ready to buy, argues CFC. By 2021 it is estimated that the UK could have just over three million renters, 600,000 more than in 2001, according to research from analysts Hometrack. At current rates of house building, by 2021 at least one in five new houses will need to be homes for rent to meet demand. However, the figure presently stands at 12 per cent. This compares to Switzerland and Germany where two thirds and a half of all households rent respectively.

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New energy performance certificate legislation Environmental impact of a rental property

The National Landlords Association (NLA) has warned its members they are likely to face stiff financial penalties if they fail to adhere to new energy performance certificate (EPC) legislation. Total bills could top some £500 million if landlords fail to provide all tenants with an EPC, following the compulsory introduction on 1 October this year. It is feared the burden could be particularly hard for those unwilling landlords, forced to let their properties as average prices fall. With the introduction of EPCs for the private-rented sector, details of the energy efficiency and environmental impact of a rental property will need to be made available to prospective tenants at the earliest opportunity. Although climate change may not always be a landlord’s first thought, an energy efficient

property with lower fuel bills will be more attractive to cashstrapped renters, argues the NLA. "Many landlords across the country are already investing in energy saving measures in response to a growing market demand for environmentallyfriendly properties," said NLA chairman, David Salusbury. "Although it’s certainly true that we would have preferred the market to have led this movement towards more energy efficient homes, the NLA, as always, is seeking to make it as easy as possible for landlords to comply with the new rules." An EPC is currently valid for ten years and can be reused as many times as required within that period. Landlords do not have to commission a new EPC each time a new tenancy starts but they are required to give a copy of the latest

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EPC to new tenants. Furthermore, while landlords are not obliged to make any of the changes suggested on the EPC, measures that could be taken to improve the property’s energy efficiency and environmental impact rating are highlighted.

It is feared the burden could be particularly hard for those unwilling landlords, forced to let their properties as average prices fall.

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Financing your overseas property

purchase Youâ&#x20AC;&#x2122;ll need to navigate a raft of different schemes

Financing an overseas property purchase requires a clear plan, lots of information and time to research and reflect on the financial, legal and investment implications of a particular property in a particular country. Typically you will have one of two choices. Do you obtain a local mortgage in the country where you are buying, or do you borrow in sterling from the UK? Opting for the option to choose a mortgage abroad can open you up to a raft of different schemes which vary considerably between countries. In Europe alone, there are major differences with Cyprus, Portugal, Spain and the UK offering mortgages in a variety of major currencies, while in Italy and France

they are available only in euros. It may make sense to think about getting a mortgage in that same currency if you plan to rent your property out and earn income in a foreign currency. Many Western European countries tie their mortgage base rates to the Euro Interbank Offered Rate (EURIBOR). This has been good news for British buyers as EURIBOR rates have traditionally been low and stable. Set up costs, however, are higher and lenders abroad will rarely take into

consideration potential rental returns when calculating your income. The main downside to borrowing in a foreign currency is the potential for exchange rates to move against you. All overseas property buyers will have to open a current account in the local currency where they have bought to cover utility bills and local taxes and so currency risks of some sort are all part of buying abroad. It is important to remember that emerging countries rarely enjoy the same degree of stability or reliability as the UK property market, and very few impart the same level of legal protection.

There are also often political or legislative issues operating in another country that a UK investor might be completely ignorant about, but these issues could severely affect the security of a particular purchase.

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Rules affecting

landlords The laws and regulations of buy-to-let

The rules affecting buy-to-let are more complex than many landlords envisage. Take a look at what you need to know. Lifting Machinery Regulations (1998) If the property has lifts, escalators or cleaning cradles then they need regular (usually sixmonthly) inspection by competent engineers.

Gas Safety (1998) This is one of the more obvious areas to be aware of. Landlords need to ensure any gas appliances are serviced by a CORGI registered gas engineer annually, and provide the tenant with a copy of a gas safety certificate after the inspection.

Electricity at work regulations (1989) Landlords are responsible not only for ensuring the safety of fixed installations - such as electrical wiring, which should be well maintained and regularly inspected - but also any portable appliances supplied, such as electric fires and even kettles. These all need routine safety-testing.

Control of Asbestos (2002) Landlords are responsible for identifying any asbestos-containing materials (ACMs) on their premises, and must have them analysed. (They are commonly found in ceiling tiles, pipe

lagging, door and wall panels and floor tiles). Once identified the ACMs need to be recorded, with signage put up if necessary. If required, the landlord must have the ACMs removed.

Pressure Systems Safety (2000) If the property has an air conditioning or refrigeration plant with a compressor motor exceeding 25 watts, then the landlord needs to ensure it is regularly inspected.

Defective Premises (1972) Landlords who sell a property are still liable for its condition and could be held responsible if it's later proved that the property hadn't been maintained properly, prior to the sale.

Disability Discrimination (1995 & 2005) Landlords, like everyone else, must not discriminate against a disabled person. In terms of property dealings, this means disabled people must be treated in exactly the same way as anyone else: for example, the same letting terms must apply and they cannot be refused access. In addition, landlords cannot refuse to give consent to tenants to sub-let to a disabled person.

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Did you know? The UK governmentâ&#x20AC;&#x2122;s own estimates suggest that approximately 230,000 new homes are needed every year but that only 160,000 new homes are actually being built. If this imbalance continues, there will be a shortfall of more than 1 million homes in the next 20 years. More demand, and less supply, can mean only one thing over the medium to long term, house prices will rise, even though there will be short term fluctuations.

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Need some respite from your mortgage? Tighter household finances look for a little payment relief

With the affects of the UK’s current economic climate taking a chunk out of many household finances we consider some different options to bring a little mortgage relief if your circumstances are getting somewhat challenging. To try and bring some respite to the sector mortgage lenders were urged by the chancellor at a recent mortgage summit, to let homeowners that were facing repossession to take a break from their payments. This is an option already offered by some banks and building societies, with many schemes allowing you to take a payment holiday. Check with your lender if they will allow you to take a payment holiday for a short time. Some mortgage lenders will even allow you to take a payment holiday for up to six months, even if you have not made any overpayments

previously. The money you do not pay is added to your overall loan, so you will eventually end up paying more. Some lenders will only allow you to take a payment holiday if you’ve previously overpaid. To overpay you will have typically needed to set up an account with a limit when you first agreed the mortgage, with subsequent payment holidays being deducted from the account. If you have an offset mortgage, find out if your lender will permit you to reduce your current monthly outgoings. Offset mortgages work by setting your savings against your

borrowings. The money, in effect, cuts the size of your overall mortgage, so you pay less interest. Although most lenders still require that you pay the same monthly rate, and so in effect overpay, there are some that may allow you to reduce your payments. The majority of lenders will also allow you to pay just the interest on a mortgage rather than the capital so reducing your monthly repayments, although this may become more difficult because of the credit crunch. You could consider extending the term of your mortgage which may also reduce the monthly cost. However, if you decide on this option to make the mortgage repayments more affordable, make sure this is a temporary measure and reduce it or make overpayments as and when you can afford to do so.

Need more information about property matters? Please email or contact us with your enquiry. If you would like us to email a copy of our digital property magazine to someone you know, please email us with their details and we’ll send them a copy.

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Forecasting future cashflow To fix, or not to fix?

Considering letting a room?

Make sure you understand the rules

If you are a taxpayer and are considering providing furnished residential accommodation in either your only or main home, then the rent-a-room scheme applies to the income generated. For example, you may benefit if you take in a lodger. The rules either exempt rental income or tax it on a more favourable basis. Under rent-a-room you can be exempt from income tax on profits from furnished accommodation in your only or main home if the gross receipts you receive (that is, before expenses) are currently £4,250 or less in the 2008/09 tax year. But you can’t then claim any of the expenses of the letting. In addition, receipts over the £4,250 exemption limit can be taxed on an alternative basis that may produce a lower tax bill. The excess of the gross receipts over the exemption limit is treated as the taxable rental income instead of the actual profit. For the purposes of the rent-a-room scheme, gross receipts include not only rents but also payments made to you for the provision of any other goods or services (such as meals, cleaning, and laundry) in connection with the letting. The £4,250 limit may also be halved if someone else receives rents from letting the same home.

The rent-a-room scheme applies to ordinary lettings of living accommodation in your own home. It does not apply to rooms let as an office or for other business purposes. But the scheme applies to genuine lodgers who study at home or who conduct some of their business work at home in the evenings or at weekends.

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If you are considering letting a room you should consider the following: n Does your lease allow you take in a lodger? n Would your lender object to you taking in a lodger? n Is your content insurance adequate?

It is tricky to know what your situation will be in five years' time, let alone 25 years. However, in the current economic climate many people are looking at fixed rate mortgage options to give them the security of being able to forecast their cashflow for future years. So if you are considering your options, here are some points to think about: n A fixed-rate will offer the security of stable monthly repayments. n Before choosing a longterm rate, consider your circumstances carefully. If they change you may face a penalty to switch the rate or repay. n If you can cope with fluctuating repayments, and believe interest rates have further to fall, choose a tracker.

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Furnished residential properties Are you claiming your full allowance?

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If you let a furnished residential property, then you can’t claim plant and machinery capital allowances on furniture, furnishings or fixtures within the property. However, instead a deduction can be claimed for either: a wear and tear allowance of 10 per cent of the ‘net rent’ from the furnished letting to cover the depreciation of plant and machinery, such as furniture and fridges supplied with the accommodation, or the net cost of replacing a particular item of furniture, but not the cost of the original purchase; this is called a ‘renewals allowance.' If you let both furnished and unfurnished properties, you must ensure that the 10 per cent is calculated only on the net rent from the furnished lettings. In addition if you receive a premium for the grant of a lease of furnished residential property, then the chargeable amount of the premium is included in the ‘net rent’ for the purposes of computing the 10 per cent wear and tear allowance for the relevant tax year. The 10 per cent wear and tear allowance is only designed to provide a measure of relief for the depreciation of the plant and machinery within a residential property. It isn’t intended to cover: n the capital cost of the residential property itself or the cost of improvements to the property; but you may be able to claim relief for repairs. n plant and machinery in other kinds of furnished accommodation, such as offices (where capital allowances may be claimed). The wear and tear allowance is calculated by taking 10 per cent of the net rent received for the furnished residential accommodation. To find the ‘net rent’ you deduct charges and services that would normally be borne by a tenant but are, in fact, borne by you (for example, council tax, water and sewerage rates). The 10 per cent deduction is given to cover the sort of plant and machinery assets that a tenant or owner-occupier would normally provide in unfurnished accommodation. These include: n movable furniture or furnishings, such as beds or suites, n televisions, n fridges and freezers,

n n n n n

carpets and floor-coverings, curtains, linen, crockery or cutlery, plant and machinery chattels of a type which, in unfurnished accommodation, a tenant would normally provide for themselves (for example, cookers, washing machines, dishwashers).

This list isn’t meant to be a complete list but gives an idea of the assets the wear and tear allowances covers. Title to the 10 per cent deduction does not depend on the provision of each and every item in the list. The relief is calculated simply on the net rents and not on the cost of particular items. But the deduction is only due if furnished accommodation is genuinely provided. A furnished property is one that is capable of normal occupation without the tenant having to provide, for example, their own beds, chairs, tables, sofas and other furnishings and cooker. The provision of nominal furnishings will not meet this requirement. If the accommodation isn’t furnished, or only partly furnished, the 10 per cent wear and tear allowance isn’t due. The possible advantages of the 10 per cent wear and tear allowance over the alternative, (the renewals allowance) are that: n it is simple to calculate, n you get a deduction from the outset; the renewals basis only gives relief when for example you replace the furnishings. If you choose to take the 10 per cent wear and tear allowance, you can’t later claim for the cost of replacing the assets (but you can claim the cost of repairing them). If you take the 10 per cent wear and tear allowance that is the only relief you can have for the depreciation of plant and machinery (furniture, furnishings and fixtures) of a type that, in unfurnished accommodation, a tenant would normally provide for themselves. However, in addition to the 10 per cent allowance, you can also deduct the net cost of renewing or repairing fixtures that are an integral part of the building. The net cost means the cost of the replacement less any amount received for the old item. Fixtures integral to the building are those that are not normally removed by either tenant or the owner if the property is vacated or sold. For example, baths, washbasins, toilets and central

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heating installations. Expenditure on renewing such items is normally a revenue repair to the building. It is due even though the 10 per cent wear and tear allowance has been deducted. You cannot deduct: The original cost of installing these fixtures, the extra cost of replacing a fixture with an improved version; for example, where a worn out but basic, cheap bathroom suite is replaced with an expensive, high quality suite; you can only deduct the cost of replacing like with like. The original cost of installation means either: n t he cost of installing the assets for the first time in a new property, or n t he cost of replacing worn out assets in an old property that has been bought to let, or n which you are converting to let. The cost of replacing plant and machinery supplied with the property can be claimed as an expense where neither the 10 per cent wear and tear allowance nor plant and machinery capital allowances are claimed. This is called the ‘renewals basis.’ It is like the wear and tear allowance for furnished letting in that: n t he renewals basis covers the same kind of assets; that is, free-standing movable plant and machinery assets like furniture, carpets, curtains, cookers, fridges, and n a s a separate matter, revenue relief may also be due for replacing fixtures in the same way as in the wear and tear case. T he renewals allowance is also available for unfurnished property. Whatever basis is chosen must be followed consistently. It isn’t possible to chop and change between the wear and tear allowance and the renewals allowance from year to year.

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Overseas

properties

Buying off plan

Buying property from a developer, especially when it has yet to be built, is quite different from buying in the second-hand or resale market. One advantage is that the buying process can be much simpler; the developer will usually hold your hand throughout, prepare documents in English, including the contracts, arrange a mortgage and even let you pay the balance in sterling, so that all you need to do is sign on the dotted line. The dangers are many, however. For a start there is the risk that the building will be delayed or not finished at all. In other cases, the development may be illegal, if all the necessary consents weren’t obtained. More commonly, buyers don’t get exactly what they were expecting, or are dissatisfied with the quality of the build. There’s no way to guarantee avoiding all these pitfalls, but the one simple thing buyers can do is to avoid placing too much trust with the developer, and to resist being seduced by the

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marketing gloss. Don’t take it for granted that features included in the brochure with all its slick computer-generated images will be included in your purchase price unless they are explicitly mentioned in the contract. Read the small print, insist on having a copy of the detailed specification and find out if there are bank guarantees or stage payment insurance in place to ensure that if the building is not completed you will get your money back. Get a lawyer to read all the documentation.

You should also think about how you are going to monitor progress during the construction period. Will the developer (or their agent) undertake to provide regular photographic updates? The best way to gain assurance about a new-built project is to look at the developer’s track record and their reputation. Ask for references from previous buyers you can talk to.

Did you know? £24bn Total amount spent by Britain’s buying property abroad in 2007, according to the Association of International Property Professionals £99,200 Average price of a foreign property purchased by a British buyer last year 25.4 per cent Proportion of British-bought foreign properties last year that were in the most popular country, Spain 21 per cent Increase in completed overseas purchases by British buyers from 2006 to 2007 (Statistical source: Association of International Property Professionals)

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Buy-to-let

Pre landlord checklist

You should consider the following points before deciding to enter the buy-to-let sector.

Making your investment n Are you investing to generate an income or hoping to see your capital grow and are your expectations realistic? n Do you have sufficient capital of your own to invest in a property? n Are you prepared to tie-up your capital for a considerable period? n Will you have sufficient savings and other forms of capital after you have made this property investment? n Have you taken specialist tax advice about the implications of buying and selling a buy-to-let property, and the tax treatment of all income and expenditure from renting?

n A re you aware that your property could decrease, as well as increase, in value? n Are you aware of all the safety regulations applying to rented property? n Have you considered the likely costs of dealing with tenants who do not pay their rent or damage your property, including the costs of evicting a tenant in court? n Have you considered using the services of an agent to let and manage your property on a dayto-day basis or will you be doing this yourself? n If you are using a letting agent, have you assessed how much they will charge you for their services? n Will the net rental yield i.e. the rent remaining after you have paid your running costs, be sufficient to meet your monthly mortgage payment?

Selecting your mortgage n H ave you considered what type of mortgage to buy your property with? n Would you welcome assistance from a mortgage consultant? n H ave you considered the impact of any future rises in interest rates? n C ould you meet the monthly mortgage payment from your own resources, if the rent was not paid or the property was empty? If you are unsure about any of your answers to the questions in this checklist, you should seriously consider taking appropriate professional advice. In particular, you may need to take specialist legal and tax advice from suitably qualified professionals.

Choosing and managing your property n Are you regarding this as a medium to long term project? n Have you consulted a professional, qualified local letting agent before beginning your search for a property? nH ave you thought about the type of household which will want to rent your property? n Have you considered that demand for this type of property may change from year to year? n Have you made independent inquiries to confirm a likely rental figure? n Is the location of the property attractive to tenants? n Most lenders will require you to have an Assured Shorthold Tenancy agreement with your tenants. Are you aware of the legal implications of this? n If you are thinking of buying a leasehold property, what is the length of the lease remaining and is sub-letting allowed? n Have you consulted a solicitor about the legal implications of renting out your property? n Have you investigated the running costs of the property (e.g. ground rent, service charges, repairs, letting and management fees, etc)? n Have you allowed for furnishings and other start-up costs in your calculations? n Have you considered how you will repay your mortgage if you have no tenants paying rent?

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Renting a

property tenants checklist

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Securing your new home

Lets assume that you have finally located the property that you want to rent, what typically happens next? In order to state your intention to rent the property and to get the property off the market you need to put down a holding deposit. The letting agent will then begin the administrative process of requesting references from you and a full deposit.

To ensure that you are a suitable tenant and that you have the ability to pay your rent, the landlord will next require references. They also need to make sure that if you have rented a property in the past, there have been no problems with your tenancy. The letting agent will organise this if instructed, and at this point, they are likely to ask for the administration fee, along with your permission to conduct the relevant searches. At this point you may need to provide the following if requested; references from previous landlords, you may be asked to give the details of where you have lived within the last 3 years; a credit check, this will allow them to see if you have a good history of paying your bills; your bank details, including bank name, account number and sort-code; and details of your employment, your employer, job title, payroll number, salary, previous employer. A guarantor may be required if the information obtained shows any potential risk to the landlord. A guarantor will be contractually liable, both financially and legally, should you fail to pay the rent during your tenancy or in the event of damage to the property.

To secure your new home a deposit will be required amounting to between one and two months’ rent and is held for the duration of the tenancy. New legislation was introduced to the Housing Act 2004 in April 2007 to help protect all parties with regard to the return of deposits. The deposit is a security for the landlord to guard against the cost of replacing or repairing property damaged by the renter. Landlords are required to join a statutory tenancy deposit scheme, if they take deposits and this will mean that your deposit is safeguarded. You will get all or part of your deposit back, if you have kept the rental property in good condition and are entitled to get the deposit back. In addition, the scheme also offers alternative ways of resolving disputes which aim to be faster and cheaper than taking court action.

One of the most important documents in the renting process is the inventory. It can also often be the deciding issue of how much of your deposit you get back at the end of your agreement. The inventory is a list detailing every item contained within the property and the condition of each item listed on the day you move in. You should therefore be extremely thorough and give the inventory your full attention. This may be prepared by either the letting agent or the landlord. You should go round the property with the landlord or agent and agree the state of each item before signing anything. If

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necessary, it makes sense to take photographic evidence to give you extra protection and to avoid any unnecessary disagreement at a later stage. You will be expected to sign the inventory and initial every page, along with the landlord or letting agent. You may also find that regular three monthly inventory checks at the property are conducted by the landlord and letting agents in order to assess any damage that may have occurred. It is important to find out if regular checks will take place and when they are likely to occur. On the day you are scheduled to move out, it usual that there will be a final inventory check.

The tenancy agreement is a contract between you and the landlord. It specifies certain rights to both you and the landlord, such as your right to live in the home for the agreed term and your landlord’s right to receive rent for letting the property. An Assured Shorthold Tenancy agreement (AST) is the most common form of tenancy agreement and sets out the duties of both tenant and landlord. The responsibilities of both parties are likely to be detailed within your tenancy agreement, although some conditions may vary between properties and landlords. Under the agreement the landlord has the right to repossess the property at the end of the agreed term. There is no minimum term specified either, although the renter has the right to remain in the property for at least six months. The landlord is obliged to provide the tenant with two months’ notice if they want to terminate

the agreement. If the fixed term is for three or more years, however, a deed must be drawn up and a solicitor employed to do so. A typical agreement will usually incorporate the following; your name, your landlord’s name and the address of the property which is being let; the date the tenancy will commence; the duration of the tenancy from the start to the agreed finish of the occupation; the amount of rent payable, how often it should be paid, when it should be paid and when it can be legally increased; the agreement should also state what the payments are expected, including Council Tax, utilities, service charges; what services your landlord will provide, such as maintenance of common areas; and on the termination of the tenancy the notice period which you and your landlord need to give each other.