Could renting solve your housing crisis?

Keen to move but trapped by the credit crunch? Letting out your house might just get you back on the property ladder. Helen Monks explains the dos and don'ts of becoming a landlord
Click to follow
The Independent Online

It could be the perfect solution to the gridlocked market for some would-be home movers: renting out their current home in order to move on. Given the current economic uncertainty, picking now as your moment to become an amateur landlord might look like madness, but for some homeowners it's looking like a perfectly sane tactic.

Rents are rising and if you bought more than four or five years ago, the rent you could fetch on your place could more than cover your mortgage repayments. Meanwhile property prices are falling, so selling now could mean taking a hit on the capital appreciation you might have felt was in the bank a year ago.

The twin pressures of high rents and low sales have not gone unnoticed by canny homeowners unhappy at the idea of selling their home in a buyer's market. The latest Royal Institution of Chartered Surveyors' (Rics) lettings survey shows the number of new instructions received by letting agents increased at the fastest pace in the survey's 10-year history, while estate agents report growing numbers of own-home landlords.

Ed Phillips, lettings director at estate agents Foxtons, says: "Some homeowners are finding it very difficult to accept they won't get what they might have sold at last year and are turning to renting out their place for six to 12 months to see what happens." If you choose to do the same, whether you decide to rent or buy the property you will live in, you will want to maximise the return of your original property.



How do you create a rental goldmine?

Phillips says: "Understand your market by talking to local estate agents. If you have a three-bedroom home that is well-decorated and in a good area for schools, then you could be in the corporate let or family market. If your three-bedroom home is a little grubby, then it's for younger sharers. It's important to know who you are targeting.

"Never go ahead and spend money buying furniture for tenants, but if someone walks through the door and wants to rent the place if you furnish it, be prepared for that trip to Ikea." Also, be flexible in other ways – if you only have a washing machine, but a tenant who wants the place for a year demands a washer-dryer, think about spending the £300 to secure them. Of course, even if you get a great tenant paying a solid rate, renting out your property and taking on two mortgages in the current climate might not be plain sailing.

Firstly, you will probably need to convert your existing standard residential mortgage into a buy-to-let mortgage. "If you only plan to rent out your place temporaily, then your lender might not demand you convert to a buy-to-let mortgage, but if it is more permanent you will. If you let the property and don't tell them, you'll be in breach of the terms of your mortgage," warns David Hollingworth of London & Country Mortgages.

Hollingworth also says that if you do convert your mortgage, you'll probably need at least 25 per cent equity in your property with lenders trying to make lending to landlords less risky by demanding higher desposits.

Those wanting to buy a new property while renting out their old one should also bear in mind that without the equity they might have had from the sale of their old place, they could struggle to secure a mortgage unless they have a deposit saved up of at least 10 per cent, with 100 per cent or even 95 per cent residential mortgages long withdrawn.



What are the risks?

Taking on two mortgages always needs serious consideration, but with so much uncertainty today, loading your finances in this way demands more than just a pause for thought. This is especially true if you consider those tenants falling over themselves for your home now could be in shorter supply in a few months.

Rics warns that if there is an ever-increasing supply as more homeowners start renting out their original properties, tenants will have more choice and rents could fall. And don't forget that any profits from renting are taxable and that there is more to do than simply ensuring the place is neutrally decorated throughout before your home will be rental-ready.

According to Claire Egerton, residential property partner at national law firm Lewis Hymanson Small, "landlords new to the game must recognise their legal responsibilities. For example, all gas appliances must be properly maintained and an annual safety check should be carried out by a Corgi-approved contractor." Any furniture you leave needs to be up to current fire regulations and you will also need to check any electrical appliances for safety. Add to the cost of getting your home up to scratch the possibility of damage to your property by tenants and it becomes clear this isn't a way to make a quick buck.

What's the first step?

Go to the Association of Residential Letting Agents website www.arla.co.uk to find free and detailed information on your rights and responsibilities as a landlord.

Tenants need full tenancy agreements and deposits put into a specially-approved tenancy deposit scheme.

A letting agent can make life a lot easier for you. You can opt for a simple tenant find service, which might cost either the first month's rent or a percentage of the rent for the term of the tenancy, 11 per cent if you go through Foxtons.

If you go for a full management service, it might cost you around 17 per cent of the monthly rent, but means the agent will be the first port of call when things go wrong and they can sort out contractors quickly should the heating fail, taps leak and the like. If you decide to go with a letting agent, check they have similar properties to your own on their books to increase the chances of finding the right tenants quickly.

Look for letting agents who are members of the National Association of Estate Agents (www.naea.co.uk) which operates a code of practice for lettings agents.

Alternatively, you could do it yourself and advertise your property on sites such as www.gumtree.co.uk or www.moveflat.co.uk and deal with tenants yourself.

Right movers: Renters' tales

* Mark Lay, 36, owns a three bedroom 1930s home in Ipswich. When he decided to move back in with wife Ann, also 36, after a period of separation which saw them buy their own properties, the couple thought about selling his home: "But then we realised it's in a very sought-after area and when we spoke to local estate agents, they said they would have no trouble finding tenants," says Mark.

Mark advises that to find the best tenants, meet them in their current home: "It's a great way of seeing how they would treat your home. When we met our tenants in their previous house it was clear in less than a minute they would look after our place." Mark and Ann live in the home she bought during their separation which is larger and has a substantial wooded garden.

The couple are expecting their first child in two weeks and Mark says the only reason he would sell his old home now is to buy two other investment properties.

* Sam Confrey, 29, is typical of homeowners currently biding their time. He was disappointed by the value of his home in the current market and was unwilling to sell when he recently relocated from Hove to Bristol: "I looked into selling, but the valuations weren't of interest to me," he says. He is currently renting out his one bedroom flat in Hove while renting a room himself in a shared place in Bristol.

Sam put the property on the rental market at a high rate and reduced it until tenants bit, one way he recommends to maximize the potential returns. Now Sam is among those landlords keeping a eye on the market: "I'm going to wait and see what happens. I think these things are cyclical and in a couple of years prices will come round again."

Comments