Buy to Let Basics
Here you will find 'Charlie's Opinion' on the first steps to setting up in the PRS (Private rental sector). Please be aware these steps are from a 'mortgage' perspective and should not be considered a definiative guide to starting a buy to let property business. Your plans will differ if you are purchasing in Cash.
"First consider if you wish to structure your buy to let ownership within a Ltd Company, personal names or another structure depending on your tax status and long-term plans. Balanced Financial Services Ltd is not licenced/authorised to give tax advice and we recommend that you seek the guidance of an appropriately qualified tax adviser with experience in buy to let to help you decide how to structure your investment portfolio. If you are unable to find a suitably qualified adviser, speak to us and we can point you in the right direction.
Be careful that your mortgage options are considered alongside your company structure. Some ways of structuring a company for example, can lead to reducing lender availability from more than 50 lenders to less than 5, so before any final decision is made on the structure of your portfolio, speak to a suitably experienced buy to let mortgage broker to ensure that your structure will not limit your mortgage options. The most common structures are: Personal ownership & Ltd company ownership."
Consider your property & tenant type targets.
Many first-time landlords want to get straight into searching for properties and learn as they go. We suggest that you give some thought to how you want to get started. Think about what types of tenants you want to let to: Families in 1 home / Professionals / Students / House sharers etc. Lenders will want to understand what types of tenants you wish to let your investment properties to. Consider what different needs and support each tenant type will require, and what different types of properties each tenant category will be looking for.
Consider your different tenant type needs. For example, we are often told that student lets require much more hands on management from the landlord/letting agent as the wear and tear on the property can be higher, and the needs of the students can be more demanding. Sharers can disagree on the property cleanliness or other issues and professional sharers may require better broadband speeds for example. The most common type of letting for a first-time landlord is a standard, single property family let.
Once you have decided where you want to start we recommend you contact us to discuss your own individual circumstances so we can determine if you will be eligible for a buy to let mortgage, and what sort of lenders you may have available based on your plans.
Getting a suitable adviser
Finding a suitable advice can be harder than it should be. Of course we think you should speak to us, but if you don’t want to work with us, the main things to consider are:
• Is your adviser suitably qualified?
• Is your adviser experienced in buy to let mortgages?
• Do they have access to a wide range of buy to let lenders?
• Are they able to spend time discussing your plans and expectations with you?
• Are you comfortable with their fee’s?
• Do they understand what you are trying to achieve?
• Do you feel that they have your best interests at heart?
• Do you feel comfortable with working with them?
Once you have found an adviser you are happy to work with, we suggest you arrange a planning meeting/appointment with them. During this initial conversation the adviser should be able to establish if you are likely to be eligible for a buy to let mortgage, get an idea of what your hoping to achieve and guide you on next steps to put your plans into action.
Consider the legal requirements of letting property.
There are many legal aspects to consider when letting a property. As a landlord you will have responsibilities and legal obligations to observe. Below are main points which, where applicable must be in place:
EPC (Energy Performance Certificate) Requirements must be met for the property to be legally lettable. Different property types & locations have different rules. Check our helpful Links page for further guidance.
EICR (Electrical Installation Condition Report) Requirements must also be met to ensure minimum safety standards for tenants. Landlords not adhering to the standards & regular checks could be subject to enforcement action. Check our helpful Links page for further guidance.
Gas Safe Certificates (Where applicable) must be completed annually. Further information can be found on the ‘Gas Safe’ Link in our links page.
Deposit Protection. Where you take a deposit from a tenant, there are rules on the maximum deposit which can be taken and how this must be protected. Failure to adhere to these regulations could result in penalties and difficulty in the event of tenant eviction.
Right to Rent. Right to Rent checks must be completed and you must be able to evidence adherence. We have linked the Governments right to rent checks page on our useful links to help you ensure you are letting within the regulations.
How to Rent. The How to Rent form is a government document which must be provided to all new tenants. This document is updated regularly, and you will find a link to the latest version in our helpful links page.
Paying Tax. Landlord income must be declared to HMRC, even if you feel that your income from letting is below the taxable threshold it must be declared. Taxation of rental income is a complex area and there is a whole page in the HUB dedicated to this subject.
Once you are aware of the above information and you know that you are ready to start investing in Buy to Let. The next set of considerations relate to actually making it happen from a mortgage perspective.
Mortgage lenders vary hugely in their requirements from landlords. Some have minimum incomes, some do not. Some have minimum and maximum ages, and they differ from lender to lender. Some lenders do not lend to Ltd Company Structures, but others do. Many do not lend on Layered Ltd Companies, but others will. The variation between lenders is astounding and a good, knowledgeable broker will help you navigate the available lenders and their requirements.
There is further, more specific information on the other pages in the HUB.