Buy To Let A 2 E

Becoming a Landlord

APR
APR stands for Annual Percentage Rate. A lender is always required to quote the APR when advertising a loan or borrowing rate. The lender will usually quote the headline rate and the APR next to it. The headline rate states the rate of interest you pay per month or per year on the mortgage, while the APR is based on the total amount that will be paid over the entire period of the loan. It also takes into account any charges that the borrower has to pay during the loan period.

AST
This is where the tenancy is for a fixed term of at least six months at the end of which the Buy-to-Let investor is entitled to possession. You will be required to give two months' written notice during the tenancy in order to terminate the agreement at the end of its full term. Should the tenant fail to vacate at the end of the term, an Assured Shorthold Tenancy gives the Buy-to-Let investor recourse to the Accelerated Possession Procedure. Assured Shorthold Tenancies have become the most common form of tenancy agreement. Tenants may be offered a full 'Assured Tenancy', which gives very significant and potentially long-term security of tenure to a tenant. It means Buy-to-Let investors can only seek repossession on specific grounds (which include non-payment of rent). Assured Tenancies have become rare.

Authorities
Rents offered by Local Authority or Housing Association tend to be slightly below market value, but leases are longer and the rental income is guaranteed even if the property is unoccupied.

Base Rate
The UK's core interest rate, set by the Bank of England. The lender's Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.

Bonding Scheme
An agreement by members of a profession or trade to establish a central compensation fund which consumers can draw on in cases of fraud or insolvency.

Buildings Insurance
Insurance cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.

Your letting property is a major investment so protect it as you would your own home against the standard household risks such as fire, storm, flood, burst pipes, malicious damage, impact, subsidence and theft. You need to insure your building for the full replacement cost - not only that of rebuilding, but also the cost of clearing the site if the property had to be demolished, plus all professional fees. Be mindful that rebuilding value is not necessarily the same as the market value of your property or the price you paid for it. For example, older properties in lower priced areas may cost more to rebuild than their market value. Some insurance companies will provide you with a quote based on information you provide, such as property type, style and area as well as improvements undertaken to the property. But you may want to obtain a professional insurance valuation from a qualified surveyor.

Building Regs
You must be able to prove from 1 January 2005 that all fixed electrical installation work, involving the wiring and appliances fixed to the building fabric, such as sockets, switches, consumer units and ceiling fittings, has been carried out and certified by a competent electrician. It is a legal requirement for electricians, kitchen, bathroom and gas installers and all other trades carrying out electrical installation work, including alterations and additions to existing installations, to comply with the new Building Regulation - 'Part P'. This legislation is designed to protect consumers from 'cowboy' contractors by requiring electrical work in homes in England and Wales to comply with British Standard safety requirements, which have previously not been mandatory. These legal responsibilities are being enforced by Local Authorities.

Buy To Let
The practice of buying a house or flat for investment purposes. Income is provided by the tenants' rent, and capital growth (if any) by the property's increasing resale value.

Buy To Let Tips
Choose locations where rental demand is likely to be strong, such as areas with good transport links and amenities Get to know local letting agents because they can be a great source of information on potential tenants and average rents in that area.

Stick to your budget and have your finances ready so you can move quickly in a competitive market. Remember to think through the practicalities of managing your chosen property - this may be more problematic if your main residence is some way away.

Chose the right property and then prepare it to a standard to match your target tenant. Don't be afraid to charge a well salaried tenant a premium rent for a high quality finish. High quality will also tend to minimise rental voids.

Obtain professional tax advice before you purchase your Buy to Let property so you can minimise your tax liability at the purchase, management and 'exit' stages of ownership. Both Capital Gains Tax and Inheritance Tax are best planned for at the outset.

Choose the right mortgage for your circumstances - and take into account more than just rate (i.e. interest only or repayment).

Establish whether you want single or joint ownership - it's messy to change this later on Run your letting business through a separate bank account.

Keep a tight rein over your costs so you maximise profitability. For example, undertaking repairs and maintenance yourself will keep costs to a minimum.

Be aware of your legal responsibilities regarding safety to your Buy-to-Let property, both externally and internally.

Declare your rental income to the Inland Revenue - this is a legal requirement.

Make provision for tax payments and keep records of ongoing, allowable expenses for tax purposes, such as mortgage interest, water rates, council tax, repairs and maintenance and wear and tear.

Claim for tax breaks allowable against Capital Gains Tax when you sell the property, such as for inflation, living-in and Taper Relief.

Organise your Will to avoid unnecessary complications on your death.

Capital and interest
In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.

Capped Rate
A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.

Cashback
A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an inducement to enter into a regulated mortgage contract with the mortgage lender.

Completion
The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.

Compulsories
This is shorthand for compulsory insurances. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance - which needn't necessarily be the most cost effective on the market. Our Mortgage Wizards allow you to select out these products if you wish to (although sometimes of course, the mortgages can be so good that it outweighs the potential disadvantage of taking the compulsory insurance).

Contents Insurance
Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.

Full or limited contents cover can be purchased. However, you are only likely to need full contents if you are providing fully furnished property. Limited cover may well be more appropriate if the property is unfurnished or partially furnished. Most landlords will want to ensure they have 'new for old' cover on supplied items such as carpets, curtains, blinds, light fittings and so on. This is even more important where expensive electrical equipment such as TV's, audio equipment and kitchen white goods are being provided by the landlord (fridges, washers, dishwashers etc).

Conveyancing
Normally carried out by a solicitor or licensed conveyancer on the buyer's behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property's value.

Council Tax
A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or Buy To Let accommodation, the tenants are usually responsible for the Council tax.

County Court Judgement (CCJ)
If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.

Cover
In the context of insurance, cover describes the specific risk a given policy protects you against. Life cover protects your family against the financial consequences of your death, buildings cover against damage to your property, and so on.

Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.

Current Account
A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain.

Deeds
The formal written document which lists exactly who owns a property and enables transfer of a property's ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).

Deposit
In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property's total purchase price. Commonly set at around 5% to 10%.

You need to be clear in the tenancy agreement about who has responsibility for the tenancy deposit (or bond). This deposit, which is normally an amount equivalent to between four and six weeks rent, is required as security against the tenant failing to meet their obligations under the tenancy agreement. Typical scenarios where it could be used include making good after tenant damage or lack of cleanliness. Critical issues include who holds the deposit – whether it's the landlord or the agent, whether interest is paid or not, what obligations the deposit covers, how deductions are made and the procedures for refunding the deposit at the end of a successful tenancy.

Deposit-based Savings
A method of saving which pays regular, usually variable interest based on the amount invested (instead of relying, for example, on the unpredictable returns from stock market investment).

Discounted Rate
A mortgage which has an interest rate below the lender's standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.

Distance mortgage mediation contract
If a regulated mortgage contract is taken out exclusively using the internet, telephone, email, or fax then it is classed as a distance contract.

Duty of Care
Ultimately Buy-to-Let investors have a 'duty of care' to make sure that the property and internal services provided are entirely safe for tenants. This is especially important bearing in mind the huge growth in the private rented sector since the beginning of the 1990s. (In the ten years prior to 2002 the number of properties rented privately grew by more than 9% to nearly 2.5m, according to Government statistics). The private rental market now accounts for around 10% of the total housing market.

Early Repayment Charges (ERC's)
A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges that can in some cases persist long after the initial special rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan.

Emergency
Have the property maintained in good order by ensuring both external and internal repairs to the property structure and its utility services are undertaken. Make sure your tenants know that in an emergency they should contact the Transco gas hotline number or the fire emergency service directly, rather than try to contact you first. Show your tenants how to shut off the gas, electricity and water supply and make them aware of where the meters and fuse boxes are located.

You may want to have insurance to cover the cost of parts and labour arising from emergency repairs, especially if you don't live near your tenanted property. Claims may encompass a variety of emergency situations including plumbing, heating, electrical equipment, security of doors and windows, leaking roofs, down pipes and guttering, drains and sewers, electricity supply and lost keys. In many cases, it is possible to supply the tenant with the emergency assistance number.

Employers Liability
Employers' liability provides you with protection for death or injury to anyone you employ at your property, even on a casual basis, such as a handyman, gardener, repairer, painter or decorator. Your Buildings policy is likely to give some degree of protection although this may only be for domestic helpers such as gardeners or cleaners. If you employ a number of staff as part of your residential investment business, then you will almost certainly require a full commercial employer’s liability policy. Limits of £5m or £10m are typical for this type of insurance.

Employment Status
A term used by lenders to describe potential borrowers' working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status.

Endowment Mortgage
A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.

Equities
Another name for ordinary shares.

Exchange of Contracts
The terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.

Execution-only
A service which offers no advice, but merely carries out the customer's orders.