Buy To Let F2J

Becoming a Landlord

Factors
The many factors that need to be considered range from ensuring tenants can live in a safe environment through to having the right tenancy agreement and taking out appropriate insurance.

Fixed Rate
A mortgage which fixes your interest rate at a specified level, typically for the first few years of the loan.

Flexible Mortgage
A mortgage which allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to reborrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.

Furnished v Unfurnished
You must be clear about what main household items are included, or are not included, in your property to let before finalising the tenancy agreement. Generally, property offered as fully furnished would include all the main fixtures, furnishings and fittings, the various appliances, plus the standard crockery, cutlery and other kitchenware a reasonable tenant would normally use on a day-to-day basis. This compares with unfurnished properties, which would normally only include basics like carpets, curtains and light fittings.

Furniture
Ensure any upholstered furniture and furnishings are flame resistant and meet fire regulations. The safety regulations encompass three-piece suites, sofas, armchairs, beds, headboards, mattresses, divans, bed bases and children’s furniture as well as smaller items like scatter cushions, pillows and stretch, loose and fitted furniture covers. Post 1990s furniture and furnishings are likely to be compliant. Your proof of compliance will be the manufacturer’s permanent label stating that the item is fire resistant. Pre 1990s furniture and furnishings must be brought up to the new safety standards by being treated with a flame retardant substance, or replaced. Furnishings not included in the regulations include curtains, carpets and bedclothes (including duvets and mattress covers), or furniture that dates prior to 1950 when toxic substances were not used in furniture manufacture.

General
Carry out an annual inspection (Risk Assessment) of the entire premises and surrounding grounds to look for obvious hazards. Your Risk Assessment check will help ensure the safety of tenants, visitors and the general public. Your list could include fittings and appliances for loose or dangerous parts; upper floor windows for safety bars/catches; fire doors (when fitted) for their seals and closers; smoke alarms and fire equipment (if provided); stairs and stairways, handrails and carpets for the possibility of causing trips and falls; roofs, chimneys, gutters and down spouts for falling objects; paths, driveways, stairways and fire escape surfaces for trips and falls; and gardens, walls, gates and fences, outhouses, garages and any tools provided.

Government
The Government believes licensing will ensure that relevant landlords are fit and proper persons or, if they are not, that they employ agents who are. It will also ensure that the standards of tenancy management and property management employed by a landlord or agent are adequate.

Gross
Before tax.

Growth
A growth strategy is one which seeks to maximise the capital value of your investment without the requirement to generate any minimum level of income. Any income may be reinvested.

Higher Lending Charge
This is an insurance premium that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout doesn't cover their costs they may seek further money from you. With many mortgages you can add the Higher Lender Charge to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.

HMO
Buy-to-Let investors of Houses in Multiple Occupation (HMOs) are required to meet a number of additional requirements in the management of their properties. HMOs are defined in England and Wales as a building, or part of a building, which is occupied by more than one household and in which more than one household share an amenity. Typically, HMOs are properties consisting of bedsits, flats or private rooms with common parts such as hallways, storerooms, toilets, bathrooms and kitchens. The additional management requirements reflect the fact that tenants in HMOs are statistically proven to be at greater risk of death or injury than tenants in other types of residential accommodation. The requirements, which are legally enforceable, cover standards of fire safety and general management and upkeep of common parts and services. HMO property requirements include; layouts and facilities must meet minimum standards, property must be maintained in a safe and habitable condition, occupancy must be maintained at acceptable levels, stairways, passageways and fire escapes must be clean and free from obstructions, fire extinguishers and fire alarms must be tested and maintained regularly.

Home and Contents Insurance
A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.

Housing Act
The Housing Act 1988 deregulated new lettings and all new tenancies (with certain exceptions) from January 1989 became Assured or Assured Shorthold. This meant the market rent could be freely negotiated by the landlords and tenants and reviewed regularly. Tenants had to be given written notice to say that the tenancy was an Assured Shorthold otherwise the tenancy was by default Assured. However, from March 1997 the rules changed and all new tenancies became Assured Shorthold, unless the agreement specifically stated that they were not.

Illustration
In the context of mortgages, a lender's estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.

Impaired Credit
Impaired credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders' standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.

Income
An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).

Independent Financial Advice
The Financial Services Act introduced the concept of "polarisation" - people advising on, or selling, regulated financial products (investments, pensions etc) had to sell either one company's products, or provide advice about the range of products in the market.

Independent Mortgage Advisers
Someone who can advise you on mortgage that is right for you, taking your circumstances and the full range of products available into account.

Interest
The premium which a borrower must pay a lender in return for use of the lender's money.

Interest-only Mortgage
With a mortgage like this, your monthly repayments cover only the interest element of the loan. You will normally need a repayment vehicle, such as an ISA, endowment or a personal pension, to repay the capital.

Instructions
Make available the manufacturer's operating instruction manuals for all gas and electric appliances so tenants can use the equipment safely. Products supplied in the course of 'the business' of letting a property must be safe. Tenants must be supplied with information and warnings about the use of products supplied, whilst landlords must make themselves aware of the risks associated with the use of their products.

Insurance
You must make sure that your lender and insurer are aware that your mortgaged property is for let. This may seem obvious but it is extremely important, otherwise insurance claims may be invalidated and rejected out of hand. It is always best to provide full information about the type of tenants, such as students, because this may affect the insurance cover.

Inventory
At the start of each tenancy you should arrange an Inventory, which should consist of a full list of the fixtures and fittings in your property along with their estimated or known value. You should also include a Schedule of Condition, which should describe the condition of these fixtures and fittings and the property as a whole. A proper Inventory/Schedule of Condition provides a written benchmark for both parties which should be amended, updated and recreated at the start and finish of the tenancy. It will provide evidence of missing items, breakages, damages, deterioration to décor and cleaning liable to be covered out of the tenant's deposit or by your insurance. It is much easier to make a claim when there is a good Inventory and Schedule of Condition. You may wish to include photographic evidence too. You are responsible for those items listed in the Inventory that require replacement due to normal 'wear and tear'. Your insurance should be adequate to cover the replacement value of the contents in total.

ISA Mortgage
A mortgage loan funded by contributions to an Individual Savings Account. ISAs provide tax-free growth, generated mainly by stockmarket investment. The ISA aims to repay the loan's capital at the end of its term, but the interest element must be paid separately as you go along. It's important to remember that past performance is not necessarily a guide to future performance.