Landlords: Vetting your tenants amidst new rules
As a landlord, your property is one of your greatest asset and your tenants are temporary custodians of this asset. It’s important that you have peace of mind with the confidence that your tenants looking after your property as well as you would.
New rules
Recent changes in the buy-to-let (BTL) landscape are making tenant referencing even more important than in the past. New right-to-rent rules are one of the most significant. Under the legislation, you—as the landlord—need to have seen your tenant’s actual passport and permanent residency and right to stay documents before handing over the keys. The UK government site has guidance on the following aspects of right-to-rent rules.
Use expert agencies
It has become essential to use third party tenant referencing agencies either yourself or via your letting agent. This is especially important in this time of increasing fraud which can mask illegal residents, criminals, and tenants with poor records.
Fake documents, such as bank statements, utility bills, and employment history are easily available online so it is wise for you to discuss your service agreement with the letting agency or directly with the referencing agency to confirm that they will provide verification of identity, credit history, mortgage statements, a Cifas fraud prevention check, county court judgments, employment references, and a renting track record—important verification that a prospective tenant is worthy of the value of the asset being placed in their care.
It is important to make sure agencies are complying with their tenant referencing obligations and agree to bill you only when your tenant’s first payment of rent has been made, not before.
Guarantors
If you wish to make an agreement with a potential tenant who checks all the boxes but has an insufficient credit history, consider having a guarantor in place to cover in the event of default.
Insurance protection
Some letting agencies provide insurance for protection against rent arrears and also to cover costs of an eviction for references they have passed. Rent guarantee insurance is approximately £100 per year and is tax deductible.
The case for caution
While vetting tenants may seem an intensive and overly-complex aspect of the landlord’s burden, the cost and aggravation—should things go wrong—can be devastating. Talk to your letting agent or referencing agency to ensure your protection is iron clad.
To ensure your further peace of mind, Besmove has the property management experience and resources to deliver the greatest possible return on your rental properties with the following promises:
- We know London’s BTL territory
- Our services can be deducted from your tax bill
- We track your receipts and expenses so you don’t have to
- We offer up-to-date information on the BTL marketplace
- We stage and market your property for maximum return
- We contract only with experienced and trusted tradespeople
Call the property management specialists at Besmove today to learn how you can survive AND PROSPER in today’s property marketplace.
For more information on the topic you can check out the reference articles;
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FT report shines light for BLT investors
In 2015, the UK government launched a campaign of measures giving priority to the interests of first-time buyers over that of buy-to-let (BTL) investors. Since that time, BTL investors have weathered a sea change in the market that has introduced the following constraints:
- Higher costs, greater complexity, and more stringent regulations
- More strict underwriting criteria
- A 3 per cent stamp duty increase
In May 2017, the Financial Times Advisor published a comprehensive special report designed to give the UK’s BTL investors a range of expert opinions—in the areas of law, finance, and brokering—on the full impact of the changes.
Sharing our notes
There is consensus that the tax and legislation changes have implications for buy-to-let investors at all levels of complexity, Besmove has identified the top implications for the houses of multiple occupation (HMO)* investor:
- Tax and interest: Landlords are now restricted from offsetting finance interest against rental income.
- Wear and tear: Since April 6, 2016, landlords no longer claim 10 per cent of the net rent as ‘wear and tear’ allowance for furniture and equipment provided with a furnished residential letting. Now, they can only deduct the actual costs they incur replacing furnishings in that property.
- Price of security: Changes to BTL lenders’ assessments and stress test rates could set deposit thresholds higher.
- Bulk benefit: HMO operators will do better than single occupancy operators because the forecasted and inevitable rise in rents can be shouldered across tenants rather than absorbed by single tenants.
- Limited company option: Multiple property homeowners may mitigate penalties by incorporating properties into a special purpose vehicle (SPV), a form of incorporation (note: this requires careful consultation with mortgage and tax professionals)
- Shifting down: Some experts suggest the changes have unduly affected higher-value properties and suggest investors diversify their property portfolios to a combination of types.
- A little help: Increasing underwriting standards means investors will need to rely more on brokers and other professionals to get them through the process quickly and without complication.
*Link here for a detailed breakdown of HMOs and complex buy-to-let scenarios.
Where from here?
With the buy-to-let environment now having to operate more like a business than a lucrative hobby, investors are compelled to run increasingly lean, efficient operations. Besmove has the property management experience and resources to deliver the greatest possible return on your rental properties with the following promises:
- We know London’s BTL territory
- Our services can be deducted from your tax bill
- We track your receipts and expenses so you don’t have to
- We offer up-to-date information on the BTL marketplace
- We stage and market your property for maximum return
- We contract only experienced and trusted tradespeople
Why landlords should use a dedicated Property Management Company
1. Are you a professional bookkeeper and excellent in record keeping of your rental property details?
Some homeowners are experts in this field; these people will not experience difficulties in this aspect. In the case of other homeowners who are not professional bookkeepers, recruitment of an accountant may be a fantastic choice. A property management company can also take off the stress from you if you are willing to hire their services. Best of all, these services can be tax deductible, so you could get this done without losing your profit margin. In Fact, you may increase your profit margin through increased rent and lower vacancy rates.
2. Can you regularly visit if you live close or far from the rental property?
Living close to the leased property will offer you the chance to visit the place for inspections, maintenance, and collection of levies. Moreover, if you live far from the property, you have to consider the time utilized in traveling and the costs associated with the trip. However, if the space of the property is a large one, you may be tempted to visit often, and that could be catastrophic. It is essential to have a schedule for monthly visitation to check the property.
3. Do you have trusted traders you can call on the phone for help when you cannot do it on your own?
The process of finding reputable and trustworthy contractors may be tough and time-consuming. You are likely to engage the services of employees who are not committed to your vision; these people will cheat you and perform ridiculous tasks and offer you a wrong quote. You need to understand that you cannot shy away from the issue of repairs and maintenance in property management. Engaging the services of a reliable property management company will ensure the task in your property is carried out at a fast pace without compromising quality.
4. Would be OK to receive a call from a tenant complaining about a fault in her bathroom at 2 AM?
This question is complicated, and it is crucial to provide adequate honest answers in this regard. As a homeowner, you are responsible and answerable to calls from your tenants, and you must understand that your holiday, special moments, vacation and other times in your life must not prevent you from taking care of the urgent needs of your tenants when there is any need. It is essential to note that you will not get called to fix one or the other more often, but if there is a call for you to set it, be fast about the process.
5. As a homeowner, are you willing to confront tenants who have not fulfilled their financial obligations and refuse to pay?
You must ensure tenants pay as soon as possible by making use of gentle reminders of their indebtedness. If the application of friendly reminder does not work, you may have to employ legal means. A property management company will help you implement the principles laid out in the agreement with the tenant.