Buy to let Our guide to Buy to Let investments
Buying property to let out has become popular in recent years. However, as an investment it does carry its own specific risks. The values of properties can be affected by a host of local and national economic factors. Before agreeing any investment strategy you should consider taking advice from an Independent Financial Advisor and before embarking upon a property investment you should consider taking advice from a tax advisor and a surveyor. Below are set out a few points which you will need to bear in mind-
What happens if interest rates rise?
You will need to consider with your advisers how you will stand if the interest you pay on any loans rises and is not matched by an increase in the level of rent that is charged. Also you will need to consider that properties are rarely let out all the time, and you will have to take into account periods when the flat is unoccupied as well as cases where the tenant does not pay and you have to take remedial action to regain possession.
It is likely that your lender will insist that any letting is under the Assured Shorthold Tenancy regime. You will need a Tenancy Agreement and a document setting out what fittings are included which we call an inventory. There are a number of statutory regulations affecting Landlords, from the need to provide rent receipts and place deposits within approved handling schemes, to inspection of gas fires, to ensuring compliance with local and national rules in respect of Houses in Multiple Occupation (HMOs). We can help guide you through all these issues offering practical advice to help ensure that you have all the protection that you need.
Your mortgage offer is likely to be specifically tailored for the purchase of the property for letting and it is likely to be a requirement that your lender insists that the terms of the letting agreement meet certain criteria.
A normal Buildings Insurance Policy will not provide adequate cover. You should obtain a Landlord's Policy with cover for loss of rent and income, legal liability to tenants and others and empty property protection. If the property is itself leasehold, the buildings insurance may be communal and you should ensure that it provides adequate protection to you. You may want to have a deposit against damage to the property and its fittings and against the Tenant running off leaving arrears of rent.
You must notify HM Revenue and Customs concerning the income that you receive from the property and will need to complete additional pages for your self assessment return. Any gain that you make in the capital value of the property may be subject to Capital Gains Tax and of course an interest in another property may have consequences for the value of any estate you leave on death and hence liability for Inheritance Tax. You also need to consider whether to claim VAT on the rent you charge. We would strongly recommend that you appoint accountants to advise you upon the taxation consequences of the transaction, the future letting of the property and the management of your estate generally.
Energy Performance Certificates
Since the 1st October 2008 all new prospective tenants must be shown an Energy Performance Certificate (EPC). The EPC must be issued by an accredited assessor and will be valid for 10 years. You should be aware that failure to provide the EPC will result in a fine of £200 and this can be applied an unlimited number of times if you have more than one rented property. If you need any further advice on this issue or would like to discuss how to obtain an EPC please do not hesitate to contact us.