Preparing to let

Whether you are purchasing your first buy-to-let investment or expanding an existing portfolio, there are many aspects to consider to ensure you maximise the potential return on your investment. You may wish to seek guidance from a letting agent on choosing the location of your investment, deciding on the right market to target, fully understanding UK legislation and how to protect your investment.

Arranging a second mortgage for a rental property is often more expensive than a typical residential mortgage. These mortgages are called buy-to-let mortgages.

Buy-to-let mortgage products require different criteria than a typical residential home mortgage. If the property you intend to let is a second property and you are not buying it outright, you will require a buy-to-let mortgage.

Lenders usually charge higher administration fees and the interest is also generally higher. Buy-to-let mortgages also typically require a larger deposit, often around 40%.

For more information on buy-to-let mortgages, see our guide or talk to a mortgage and protection consultant.

We do not charge for advice. We do charge a fee for the arrangement and processing of your mortgage; our typical fee is £399 and becomes payable only once you have the keys to your property.

If you are looking to buy a second home to live in, and plan to let the one you move out of, a residential mortgage will be required for your new home, and your previous home’s mortgage will need to be changed to a buy-to-let mortgage, unless you are buying the properties outright.

Talk to a KFH mortgage and protection consultant or your bank manager for more information.

The property market moves at a fast pace and there are generally intermittent periods where prices rise or fall. When you buy a property and it appreciates in value, the profit is referred to as the capital growth. If the money received in rent is greater than the cost of owning and managing the property, a profit can also be made through rental income. Rental income is subject to income tax, and any profit from capital growth made on the sale of a second property may be subject to capital gains tax.

More information can be found in our guide to understanding rental yield and capital growth.

The ratio of property value to rental value is inconsistent and the highest valued properties do not necessarily command the highest rental yields, so you should speak to a property investment expert to get suitable recommendations based on whether you hope to get a high rental income, a high capital growth, or a balance of both.

For more information on rental valuations, see our guide to valuing your property.

Anyone purchasing an additional residential property such as a buy to let or second home will be charged a 3% surcharge on each of the stamp duty threshold bands. To find out more and see how much stamp duty you might have to pay, use our stamp duty calculator.  

Letting and managing a residential investment property requires knowledge, time and maintenance in order to maximise its full market potential and ultimately attract a healthy return. If you are intending to manage your own property and tenants, you may need to consider the proximity of your rental property. This is important, as you will need to make yourself easily available to your tenants and be able to quickly and efficiently deal with any necessary maintenance and upkeep that may be required to your property. However, if you engage a letting agent to manage your property it will not be essential for you to live nearby - your managing agent will take care of the maintenance works, rent collect, carry out twice yearly property inspections and handle all the administration surrounding the property and tenancy.

Different properties appeal to different tenants, so if you are buying to let, you may want to begin a search for a property with your ideal tenant in mind. Whether the property is furnished or not will help determine the rental value and if furnished, the quality of furniture and fittings should reflect the expectations of the target tenant.

Once the property is ready for occupancy and the rental value has been determined, it is ready to be marketed to a suitable audience, and any prospective tenants should be vetted. This is another area where a letting agent will be able to help.

More information can be found in our guide to finding the right tenants.

Once a suitable tenant has been found, your letting agent will draw up a tenancy agreement denoting the amount and frequency of the rent, the deposit details, length of tenancy, inventory, as well as the landlord and tenant obligations. The tenancy agreement will also need to include the required length of notice for either party to terminate the contract, key contact details and details of the utility suppliers.

Deposits for assured shorthold tenancies are restricted to no more than the value of five weeks' rent if the annual rent for the tenancy is less than £50,000 and no more than six weeks' rent if the annual rent is over £50,000. Deposits for tenancies which do not come under the Housing Act 1988 are not restricted, but are commonly the equivalent of six weeks' rent. Deposits for assured shorthold tenancies need to be protected by one of the government approved Deposit Protection Schemes within 30 days of receipt. For more information, see our guide to taking the deposit and moving tenants in.

General home and contents insurance will not be sufficient.

This will be required before the property can be marketed. EPCs need to be carried out by an accredited assessor and each certificate lasts for ten years. If the property is to be let under an assured shorthold tenancy then the energy efficiency rating for the property must be between A-E, unless an exemption applies and the property is listed on the PRS Exemption Register. Many lenders will not loan money for a property with an energy efficiency rating of F or G.

Putting aside some of the collected rent for contingencies can help cover the costs of any unforeseen repairs, which are a landlord’s responsibility to resolve or for vacant periods in the property.

If the rental property is a leasehold property, you should seek the permission of the freeholder before letting. You should also inform HMRC of your new revenue stream.

Becoming accredited by the National Residential Landlord Association (NRLA) offers a number of products and services designed to help private landlords. If your letting agent belongs to ARLA Propertymark this will give prospective tenants peace of mind when choosing your property over other potential properties.

If the property is mortgaged, you will need to inform your lender. The lender may increase the interest rate payable if the loan is not buy-to-let

It is always recommended that an inventory listing is prepared by a professional, independent inventory clerk as well as a check in at the start of the tenancy and a check out at the end of the tenancy. Without these documents it may not be possible to claim against the deposit for loss or damage to or within the property.

A gas safety check must be carried out by a qualified and registered engineer every 12 months to ensure you are compliant with safety regulations. A copy of a valid safety record must be supplied to each new tenant before the tenancy term begins and within 28 days of any annual test taking place during the tenancy.

You have an obligation to ensure all the electrical installation and equipment supplied to the property are safe and will not cause harm to the tenant. The best way to do this is to have an Electrical Installation Condition Report (EICR) carried out by a qualified electrician for the installation and also a Portable Appliance Test (PAT) for the appliances. If your tenancy forms a House in Multiple Occupation (HMO) then it is a legal requirement that you have a satisfactory EICR in place, whether or not the HMO requires a license.

If you used to live in the property you are planning to let, you should arrange for mail to be redirected to your new address through the Post Office.