by Mark Johnston
The necessary step, in most cases, in affording a new home is selling the old one. However for a variety of reasons some people decided to rent out their homes instead. For many home owners renting out a home is simply not a viable option; they need to sell in order to raise the capital necessary to buy their next home and also owning two homes requires deep cash reserves.
Although in some instances, people know that they will only be leaving for a year or two and some would be sellers simply can not sell at a price deemed acceptable but need to move due to work, so they choose to hang on till the market picks up. Becoming a landlord can also offer some handsome tax perks.
In these cases renting can be an option and with rental yields at an all time high it can sound like an appealing prospect.
There are things to consider however before going down this road, such as there may be periods in which home owners have no tenant or the tenant may skip one or two months rent and the mortgage still needs to be covered.
Home owners should also consider how comfortable they are with tenants living in what was once their home, there is the risk of a tenant damaging the property or causing problems that could lead to an expensive eviction process, which could cost several thousand pounds or more and can last up to 18 month.
Mortgage lenders and insurance companies also need to be contacted before making a decision to rent out a property.
A spokesperson for the council of mortgage lenders states that “if borrowers want to make any changes to their mortgages, because they want to rent out their property short term for example, they need to contact their lender to discuss the request as their contract is unlikely to cover this”.
One mortgage provider that does allow its mortgage customers to rent out their property is Lloyds TSB, but there are conditions that apply. Nationwide building society is also another lender that may allow renting as they say they can be ‘flexible to peoples needs as long as they are informed of the changes’.
Insurance companies also need to be consulted as standard residential buildings insurance will typically exclude renting out your home, therefore if you do not let your insurer know and the property burns down say, you could find them refusing to pay out. However as far as insurance goes it should be a relatively straight forward process and should not affect the premium, although most policies will not cover damage or accidental damage caused by the tenants during their stay.
Ronnie Ludwig, partner at accountancy firm Saffery Champness says “potential renters should be sure to declare any rental income to the Inland Revenue.
Home owners may be able to get tax breaks which could offset income tax on rent, also if the revenue suspects that a home owner is not declaring additional income generated from rent, they may launch an enquiry, which could lead to substantial interest and penalty charges.
In short renting out your property is not for the faint hearted!
Story link - Help For Renting Out Your Property
Related stories to : Help For Renting Out Your Property