Buy To Let K2R

Becoming a Landlord

Landlords Liability
This provides all-important cover should a third party bring a legal claim against you for death or personal injury, for which you could be deemed responsible as the property owner. Tenants and their guests, meter readers, postmen and council employees could lodge a claim against you for a myriad of potential risks from falling tiles and loose masonry through to defective cookers and unpinned carpets. If you are doubtful about whether this cover is necessary just think of the many organisations that regularly appear on TV offering claimants 'no win, no fee'. Clearly, it's big business. Check how much cover you have - the limit needs to be at least £2m but many insurers now offer limits of £5m or more.

Legal
To protect yourself against a lengthy and expensive court case, you may wish to consider taking out legal expenses insurance. This would cover solicitors' and/or barristers' fees as well as court and bailiffs’ costs. Whilst this sort of action may be the very last thing you would want to have to think about, it is a sobering thought that the relatively small annual premium (probably costing no more than an hour of a solicitor's time) could provide you with many thousands of pounds worth of legal expenses cover.

Letting Agent
A property agent who can help landlords locate suitable properties for purchase, and who finds tenants to occupy those properties and can manages the rental process which follows.

Loan To Value
This is the amount you want to borrow divided by the purchase price. In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan.

Local Authorities
Although Local Authorities vary in the level of control they exercise over the management of HMOs, it is important you talk to your local Environmental Health and Fire Officers to make sure you are fully compliant. The Government is planning to introduce a greater level of control over HMOs to improve conditions and levels of safety. The new measures are contained in the Housing Bill, which is currently progressing through Parliament. To avoid excessive regulation, the Government intends that licensing will only be applied in limited circumstances specifically: Mandatory Licensing for HMOs with three or more storeys and five or more persons Additional Licensing for other types of HMOs, in particular areas designated by Local Authorities. Selective Licensing of private rented properties in designated areas, which are suffering from low housing demand and/or anti-social behaviour.

Local Search
See Search.

London Inter-Bank Offered Rate (LIBOR)
The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either "1" or "3" months LIBOR is what is normally used in setting mortgage rates.

Money Markets
The wholesale markets in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money in these markets, particularly for funding fixed rate mortgages.

Mortgage Adviser
A firm/ individual with permission for advising on regulated mortgage contracts.

Net
After tax has been deducted.

Non-Status Loan
This is where your income is not disclosed and/or you have some adverse credit.

Overpayment
A mortgage repayment bigger than the one needed to meet the loan's minimum requirements. Mortgages that allow these without penalty are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money.

Payment Holiday
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.

Penalties
The penalties for breaching the rules under criminal law include fines or imprisonment - or both. The punishment under civil law could be very hard-hitting too, particularly with so many 'claim' companies encouraging individuals to pursue damages on a 'no win, no fee' basis. In addition, breaking the rules may invalidate your insurance cover.

In the event of a complaint from a tenant, you will need to prove 'due diligence', or in other words, prove that you took all reasonable steps to avoid falling foul of the safety rules and regulations. To benefit from this defence you must have evidence to support your case. Therefore, you need to be more focused than ever to ensure you act in the correct way every time.

Pension Mortgage
A mortgage whose capital repayment is funded by contributions to a personal pension. The generous tax breaks given to pension saving boost contributions by making them gross instead of net of tax. There is an option available to take a lump sum, of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan's capital at the end of the term. The past performance is not necessarily a guide to future performance.

Premium
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

Procurement Fee
The total amount paid by the mortgage lender to a mortgage adviser/ intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.

Property to rent
Buying a property to rent out may sound fairly straightforward, but there is a great deal that Buy-to-Let investors need to do if the management of the property is to be as problem free as possible and the full potential of the investment is to be realised.

Protected Rights
Prior to January 1989 most lettings by private landlords would have been classified as regulated. Regulated tenants have full security of tenure and the Buy-to-Let investor cannot regain full possession except by a court order. Either the Buy-to-Let investor or the tenant (or both together) may apply to the Rent Officer for registration of a fair rent. A fair rent is currently normally fixed for two years after which a revised rent may be re-registered. Registered tenancies were the most common form of tenancy at the end of the 1980s but have since declined in number and are now one of the smaller categories.

Protection
You may wish to review your insurance needs periodically and allow for the total cost in your income/expenditure calculations. Insurance is not a statutory requirement. However, you should regard it as essential and, at the very least, insure your building and contents. Normal residential household policies are not generally suitable, so you will need to arrange cover that is geared specifically for the lettings marketplace. There are many different types of insurance policies for landlords available from brokers or direct from insurance companies, covering almost every conceivable letting eventuality. These range from buildings and contents through to rental guarantee, emergency repair services and legal protection. They may be offered separately or as a package of covers and particular care is needed in the case of properties which insurers regard as a higher risk, for instance HMO's. Finally, make sure your tenants understand that they are responsible for insuring their own possessions.

Regulations
A great many of the rules and regulations that apply to Buy-to-Let investors exist to ensure the safety of tenants. Some of the safety rules are contained within specific legislation and statutory codes, such as The Gas Regulations. Others are enshrined in Common Law and various Codes of Practice.

Remortgaging
The process of switching your mortgage loan from one lender to another without moving house.

Rent
This will provide rental income in the event of a major catastrophe, such as a fire or flood, where the building is rendered uninhabitable (see Buildings cover). Loss of rent protection is normally calculated as a percentage of the rent achieved and should cover the cost of re-housing your tenant in certain circumstances.

Rental guarantee
Rental guarantee covers non-payment of rent for a fixed period, typically 6 or 12 months, regardless of your tenants' personal circumstances, ability or willingness to pay the rent. Even the best tenants may have difficulty in paying rent from time to time, through no fault of their own, such as illness or sudden redundancy. This could be worth considering if you only own one or two, heavily mortgaged rental properties because this insurance, which may only cost you 3-5% of rental, will ensure continuation of mortgage payments if the tenant defaults on their payments. Landlords with several properties may be more likely to withstand one tenant defaulting. This cover may include legal expenses protection (see below) so you will receive both your rent and the legal fees to obtain possession. Where this is the case it is not uncommon for the rent guarantee to include a void period following eviction of the tenant.

Repairs
Have the property maintained in good order by ensuring both external and internal repairs to the property structure and its utility services are undertaken. Your responsibility for repairs includes drains, gutters and roofing; water heating appliances and installations for the supply of water, gas, electricity and sanitation; and sinks, baths, taps, bidets and showers. Make sure tenants have your phone number so they can contact you about repairs. You need to give tenants advance warning (at least 24 hours notice) about when repairs will be carried out and these need to be arranged at a time convenient to your tenant. Your tenant is obliged to provide you with reasonable access to carry out the repair. Decorating is your responsibility, unless you have given permission to the tenant to carry out the work.

Repayment Mortgage
A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest usually over a term of 25 years (less if preferred).

Repayment vehiclebr> The means by which a mortgage loan's capital is repaid. Examples include endowment policies, ISAs, and personal pensions.