First Timer – Let to Buy

by Readers Question

19:35 PM, 10th June 2013
About 6 years ago

First Timer – Let to Buy

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First Timer – Let to Buy

First Timer - Let to BuyI bought a one bed flat in North London a few years ago to live in with my partner. Recently we purchased our first flat together and have moved into it. I was able to secure the new mortgage partly based on the projected income from the old property – I believe this is known as “Let to Buy” and is becoming quite commonplace.

To avoid becoming a dreaded “accidental landlord” I’ve done a fair bit of research in the run up to moving out to ensure I know what I’m doing.

However, I’m still concerned that I may have overlooked something.

  • Could experienced readers just take a moment to check out my thoughts:
  • I have obtained consent to let from mortgage lender (for £100 fee).
  • We have cleaned the property and touched up paint etc. and it is ready to go.
  • I’ve had the boiler inspected, serviced and gas safety certificate issued.
  • I’ve spoken to the Inland revenue about tax implications (found out that the wear and tear allowance is only applicable to fully furnished properties as of April 2013).
  • I’m pretty much set to choose a letting agents and begin.

My questions (sorry for the long run up):

  1. Picking a letting agent: The flat is in great condition and I have a homecare agreement with British Gas which covers the boiler, the central heating, the plumbing and the electrics. The flat was built 5 years ago and is in great condition. Should I bother paying a management fee?
  2. Should I bother with a traditional letting agent at all: online letting agents seem to be far more reasonably priced?
  3. What are reasonable charges for finding a tenant, referencing etc. as there seems to be a large variability?
  4. I have been advised to sell my property 3 years after moving out to avoid CGT, but from my understanding there is also relief equal to the lower of: The maximum amount of Letting Relief due is the lower of:
  5. £40,000 the amount of Private Residence Relief due the amount of gain you’ve made on the let part of the property
  6. What are people’s strategies for tax planning; is it worth hiring an accountant just for one property (rent likely to be around £15k/annum)?

Any advice regarding one or all of the above questions would be appreciated, as would any other additional advice for a first timer!

Thanks!

JC



Comments

Mark Crampton Smith

18:01 PM, 11th June 2013
About 6 years ago

Oh and you might well want to take a copy of the head lease with you, or at least the restrictions, and if they do not ask for a copy to include as individually negotiated clauses within the tenancy agreement, you might raise an eyebrow? You could also ask them how they handle utility transfers between tenancies. I could think of loads more questions....... Perhaps this should be a seperate article Mark......
"The top fifty killer questions to ask a letting agent before choosing"

Mark Alexander

18:03 PM, 11th June 2013
About 6 years ago

@Mark Crampton Smith - I would be delighted it you would write the article. Please see >>> http://www.property118.com/suggest-an-article-or-discussion-sharing-best-practice/

PS - awesome member profile 🙂

Londoner 43

1:39 AM, 12th June 2013
About 5 years ago

JC, I rent out just one flat (in Islington, N1), which was new when I bought it in 2005. I used a letting agent to find tenants to start with, but have always managed the property myself. It is not difficult, but you have to have enough time and be fairly organised. In fact, since 2005, the first time I used a letting agent again was last September, when I had left it rather late to start advertising for a private let . (My tenants had to move abroad and exercised the break clause in their tenancy agreement at a short notice.) September is supposed to be a very good time for finding tenants in London (and had been in the past) but this time it proved more difficult. For the first time, several prospective tenants wanted to rent the flat unfurnished - so this is something you may also want to check with any letting agents you contact. (I was not prepared to empty my flat and put everything into storage.)

I would suggest that you invite at least 2 agents to come and view your flat and give you a rental valuation as well as full information as to what service they provide for (a) finding a tenant and (b) finding a tenant and managing the flat, and make your decision afterwards. My first tenants left after 6 months, again exercising the break clause to move back to Scotland, and I also discovered that one of them actually was unemployed at the time she became my tenant as the letting agent had taken up a reference from her previous employer in Scotland and had not actually checked if she was employed in London.

In these uncertain times, I would definitely recommend that you use a referencing agency to check the references (unless you decide to use a letting agent) and take a rent guarantee insurance policy. Also, it is important to check that the Landlord insurance for the contents, etc. actually covers everything that needs to be covered. Of course, use a professional inventory company to prepare a full inventory of the condition and contents of the flat, and check-in and check-out the tenant. (The company I use is based in Islington, but they have inventory clerks in different parts of London. I can give you their contact details if you decide to go it alone.) If you join one of the landlord associations (there is NLA and RLA), you will receive templates of some useful documents, including a tenancy agreement. They also provide a lot of useful information, and even legal advice to their members. I have always protected the deposits with My Deposits, which is an insurance based scheme (you keep the deposit in your bank account) - it is very straightforward to protect the deposit with them.

I have to warn you that some professional tenants are quite demanding and expect you to get things sorted out immediately, if something goes wrong. (I have had one such tenant, who broke down the door of the washer/drier because he could not be bothered to wait the 2 minutes he was supposed to wait before opening the door after the wash cycle had finished. Then he was very annoyed that it took some time to have it repaired, as a new door had to be ordered and it required 2 visits from the service engineer to get it all sorted.) And of course the landlord has to go and give access as tenants do not want to take time off from work. If you and your boyfriend have busy, demanding jobs, you would need some back-up for these eventualities. Apart from the central heating maintenance cover, I have D & G insurance policies on the most vulnerable kitchen white goods, as I travel abroad regularly and a friend acts as a back-up (for a fee) when I am away . As it happened, shortly after the manufacturer's guarantee on the fridge/freezer had run out, it had to be replaced as the tenants accidentally damaged it and it could not be repaired.

I have never used an accountant and think I have managed my tax returns pretty well - there is actually quite a lot of guidance on the HMRC website. I have been doing my tax returns online for the last 15 years, as I am a self-employed consultant.

Good luck! Satu

APOLOGIES for any typos- it is 01.30 at night and I don't think this website has a spell-checking facility. I am too cross-eyed to find my mistakes!

Joe Bloggs

15:52 PM, 12th June 2013
About 5 years ago

hi jc
you sound like a sensible person so if you have the time and are local you dont want an agent. so easy to do it yourself especially with online agents to find you tenants you can vet rather than relying on agents who only look after their self interest. also on insurance surely you pay for buildings via the service charge. i dont bother with contents insurance as the deposit will cover some of the risk.

Pete Judd

10:07 AM, 13th June 2013
About 5 years ago

Just on a practical note you say you have Gas safety cert but do you have electrical safety certificate. You say the flat is 5 years old and electrical safety certificates should be renewed every 5 years. I assume you also have an EPC?

16:40 PM, 26th July 2013
About 5 years ago

Hi Everyone,

Just thought I would check back in and let you know how I got on.

I checked out some local letting agents who came to the property and valued it but also looked into online letting agents.
In the end I couldn't justify the (in my opinion) extortionate % based fees of the high street agents and I decided to use lettingsupermarket.com on their silver package (£30/month).
The property was advertised on major portals and had a fair amount of interest and a few viewings but things weren't progressing as quickly as I had hoped. I decided to drop the rent by £10/week and had far more interest. Soon after I did this I had a viewing and an offer (for slightly under what I was asking) and accepted. They passed referencing and moved in.
In the end I achieved £20/week less than my initial asking price (which was always optimistic). Perhaps I would not have had to drop it so low if I had used a traditional agent but then again I am only paying £30/month in management fees opposed to the lowest offer I received from high street agents of 12% + VAT (roughly £45/week).

Overall I am happy with the service provided and have found everything fairly stress free (especially sorting out the documentation). I have also met the tenants who seem lovely and were very accommodating.

@ Pete Judd :
I have not arranged for an electrical safety certificate to issued as no one else has mentioned this. How vital is this? The building is 5 years old and would therefore this certificate would probably need renewing. Could someone please advise on this (i.e. is it a legal requirement?)?

I have a valid EPC.

@Joe Bloggs:

I did get a quote from one company (via this site) who essentially said the same thing; that my buildings insurance, paid through the service charge, would be sufficient unless I was interested in contents insurance. There is nothing that would cost too much to replace in the flat so I have decided against taking out any further insurance.

Overall I had a very smooth experience and hope that everything continues the way it started.

P.S. @Puzzler:
I had a residential mortgage on the property and applied for consent to let (costing £100). I called this "Let to Buy" because I would have been unable to purchase another property without letting out the first one. By letting the first one I was able to get the lender for the second to disregard mortgage payments on property 1 when calculating my outgoings, but also able to get them to take into account predicted rental income when calculating my affordability!
All of this was while I am earning a tax-free stipend as a graduate student!
If anyone wants details of which lenders I've been dealing with then just ask (not sure if it contravenes forum rules to just post it here?).

16:50 PM, 26th July 2013
About 5 years ago

I forgot to mention that I have mainly been reading about tax issues rather than speaking to a professional. My main reason for this is that I think the cost of paying for an accountant even for just a brief overview might not make financial sense considering the amounts involved.

I have spoken to the Inland Revenue and will record my expenses (keeping all receipts) and will fill in the self-assessment as needs be.

With regards to CGT, as it is just the one property at the moment, the rules seem fairly straight forward and I figure that I can hold on to this property as an investment for at least 7 years before I incur any CGT. Although if prices skyrocket then this might become more of an issue, but as Vanessa pointed out this is a good problem to have!

Cheers,

John

Mark Alexander

17:07 PM, 26th July 2013
About 5 years ago

Reply to the comment left by "JC " at "26/07/2013 - 16:40":

That's fantastic news, thanks for the feedback 🙂

18:31 PM, 26th July 2013
About 5 years ago

Just a small fly in the ointment.
What would happen if during a vacant period the flat became unlettable!
Who would pay the mortgage as you have no tenant there at the time!?
Yes the buildings insurance will pay for refurbishment of the property; so what if you have not been able to maintain the mortgage payments ??
Do you think you could obtain insurance for this circumstance...........well you can't.
The reason why is because you have a block insurance policy.
They do NOT have the facility to have an add on for loss of rent due to loss of amenity.
If it was a house then this is possible; but ONLY because you have a buildings policy with the insurer.
EVERY flat owning LL faces this risk and most don't realise.......................................I DIDN'T!!
You are NOT allowed to have 2 buildings policies on the same flat.
The other issue is if the tenant is flooded out and the flat is being repaired as is rehoused courtesy of the block insurance policy and then the tenant gets fed up and leaves the tenancy early; what would you do then!?
No rent would be coming in and it would takes about 6 months to repair the flat.
Do you have sufficient reserves to cover this situation.
It has happened to all my 4 flats and only credit cards saved me from repossession!!
If you do find an insurance company that will cover this situation would you please advise as I have been looking for 7 years without ANY success!!!

Pete Judd

3:41 AM, 28th July 2013
About 5 years ago

Reply to the comment left by "JC " at "26/07/2013 - 16:40":
Sorry only just seen your question. Electrical safety certificates are a bit of a problem area. I have properties which have to be licensed by the council and it is a requirement of the licence to have a safety certificate before the licence can be issued. I don't believe it is a legal requirement for other properties but should there be an electrical fault you can end up in court with a very large fine or even imprisonment depending on the severity. Tenants can also take you to civil court for damages unless you can prove the wiring was safe when they moved in. It is a balance of risk. An hour or two of work (depending on size of property) every 5 years versus the cost of a large fine. Of course it will cost you more if they find a fault but then you wouldn't want to let an unsafe property.
If there are any appliances supplied with the property then that is a legal requirement to have them PAT tested.
Hope this is of some use to you.

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