MORE homeowners unable to sell their properties are being forced to rent them out as the supply of buyers dries up. The Royal Institution of Chartered Surveyors this week reported that the buy-to-let market is booming as a result of the housing market slowdown, with buyers unable to access mortgage lending and homeowners turning to buy-to-let because they can't sell.
But numerous pitfalls face frustrated homeowners taking the buy-to-let route without understanding what it involves.
"We're seeing more and more people contacting us for information about renting their homes and at least a third of these calls ar
e coming from people who have had their properties on the market for a number of months but cannot sell them," said Colette Murphy, director of Braemore Property Management in Edinburgh. "But anyone renting out their property should look into every aspect. You're embarking on what's essentially a business, with the risks and benefits that entails."
So, here are some of the main factors to take into consideration:
AGENTSUnless you have a lot of time on your hands, taking on an ARLA (Association of Residential Letting Agents) agent is a smart move, advised Fiona Morrison at Ryden Lettings in Edinbur
"It gets complicated if you do it yourself because of the legislation involved, such as health and safety, treating tenants properly and the various dos and don'ts," she said.
Alasdair Seaton, partner in surveyors DM Hall in Dunfermline, agreed, pointing out that unless you have a lot of time on your hands to handle the issues that crop up with rental property, the typical 10 per cent or so plus VAT charged by agents is a decent investment. Many will add extra fees for finding tenants and undertaking the lease paperwork.
Even if you don't use an agent, it's worth asking a local one about the market in your area, such as rents and the type of clients they typically see.
BEFORE LETTING One of the first things to do is register as a landlord with your local authority. Then there are the small details you need to have covered. Health and safety measures are various, from smoke alarms and fire hazards to gas supply and electrical wiring. These rules can be surprisingly subtle, such as the stipulation that smoke alarms must be mains connected, not battery run, while gas supplies need to be checked every year by Corgi-registered representatives.
Think about the number of people you're renting to. If it's to three or more people not of the same family, you will need a HMO (houses in multiple occupation) licence, which ensures that the property is managed properly and meets certain safety standards.
TENANTSTenants are increasingly discerning and tend to view several properties, said Seaton, so the property has to look good and be in decent condition. When you have potential tenants, you need to decide whether to trust your instinct or check their references, as agents would. Then there's the price. It sounds obvious, but if all the rental flats of the same size in your area cost £450 month, charging £500 is going to make it tricky to let out.
And avoid falling into the trap of assuming the flat will always be occupied, warned Seaton. "Allow for voids as leases are generally by the month and when tenants leave it can be difficult to find a new one to move in straight away, so in that time you're not getting rent."
OBLIGATIONSIt's worth considering a Short Assured Tenancy agreement, under which the property must be let for an initial period of no less than six months, although subsequent lets of the same property to the same tenant can be for a shorter period, on a rolling basis. For more information on Short Assured Tenancy, visit www.scotland.gov.uk/housing.
Regardless of the tenancy agreement, landlords are obliged to keep the building in good conditions, keep utilities equipment up to standard, have a valid gas safety certificate and ensure every appliance, furniture and fitting is fire resistant. Similarly, there are rules binding eviction and notice periods. For example, landlords have to give notice to tenants if they want them to leave, with the notice period set out in the contract.
In addition, insurance for a rented property is different to the conventional buildings and contents cover, so switch to rental property insurance rather than keep both types of cover open.
TAXThere are tax rules to bear in mind too, although many are positive as there are tax breaks on offer for homeowners moving elsewhere and letting out. For instance, rent is treated as income and taxed accordingly, but you can offset costs and mortgage repayments against the taxable rental income.
"Many people will not have filled out a tax return before, but if they become a landlord they need to do this and inform HM Revenue & Customs of it," said Tom O'Connell, a tax planner in Glasgow with French Duncan Chartered Accountants.
Capital gains tax is more complicated, said O'Connell. "If you have lived in the place as your main residence, let it out and then sell it after you haven't lived in it for the last three years or less, it is still treated as your main residence for CGT purposes.
"But if it's been let out for longer than that, different rules come into play."
The full details of these rules can be found on the HM Revenue & Customs website.
What's nextWITH the supply of rental properties rising, many professional landlords fear rents could fall in the coming months. The latest quarterly survey from the Association of Residential Letting Agents (ARLA) found that rents have fallen by 7 per cent for houses and 9 per cent for flats.
And with house prices falling, it's not necessarily the best time to get into buy-to-let. Adviser Hargreaves Lansdown has estimated that up to 10,000 landlords are behind on their mortgage because of a combination of falling house prices and rising mortgage rates.
"It is worrying that 183,000 buy-to-let mortgages were taken out close to the top of the market," said Laith Khalaf, a pensions analyst at Hargreaves Lansdown.
"The real test of affordability is yet to come, in 2009 to 2010, when those who borrowed large sums at cheap rates in 2007 come off their fixed-rate deals."
