NOTE: All Personal Details Have Been Removed or Disguised

Case 1: Buy to Let Repossession Misery (Buy to Let Mortgage Arrears & Repossession)

The property under evaluation was originally inherited from the owner’s parents. In order to help fund their new house the owners mortgaged the property as a buy-to-let mortgage to a different party. Under these terms, they (the owners) could keep the house in the family despite it being unfit to them at that time.

So, for the previous 6 years they had been renting out their property without any problems. Usually, it was done on short term (6 months) until this last family who were keen for a longer term solution. Initially, the solution worked perfectly for both parties.

About 6 months ago however, one of the property owners became unemployed. This lack of income meant that the particular owner had to use the rent from their buy to let to pay their property mortgage, instead of the mortgage on the buy to let. Unfortunately, this owner was not able to find a job to replace the one lost. Thus, the arrears on their buy to let built up. The owners informed the tenants about the situation and the property’s likelihood to be repossessed. As you can imagine, they were very upset.

At this point, the tenants contacted us seeking help. Usually, we only contract property owners since in the long run; it is them who have to make all the decisions. However, under such a situation, we opted to help as much as possible to find a solution.

Even so, such a case became tricky one for us. Not only did we have the property owner to consider, but also the family that had lived in the house happily for 18 months.

That same day, we organized a talk with the actual property owners. They too were equally upset by the whole situation. So, we discussed with them what we considered, and then we proceeded to seek their opinions. Despite the property owners’ own financial problems, they were very caring towards their tenants and they feared that the family if evicted could become homeless. This greatly stressed them.

At that point, we decided on a sell-and-rent-back scheme with both the owner and the actual tenants who were living in the property then. Surprisingly, this turned out to be the king of good ideas. The property owner sold us their buy to let and we paid them the cash in less than 7 days. This helped them to pay off all the debts which had added up during the owner’s unemployment. In addition, the tenants got to carry on paying rent just as before (at the same rate). We also put them on to a long term contract which they very much preferred.

 

In the end, they sold their buy to let for their desired cash. Therefore, everyone got what they wanted. More importantly, there were no repossession hearings, and thus no black marks against anyone’s name. Everyone smiled his/her way. It was yet another good result for Barry Home Buyers.

Although rental property is something that some people choose to do as an investment, it’s often the case that many people find themselves becoming ‘accidental landlords’ through inheriting a property, moving in together and having a ‘spare’ home or simply being unable to sell your home and deciding that letting it out could be a better option.

Renting out your property may sound like a simple task, however it’s not always as easy as you might think there are lots of different factors to consider that will determine your experience as a landlord.  Before you become a fully fledged landlord, make sure you are aware of all the implications, both legal and financial so you know what you are getting yourself in to.

The Right Mortgage

If the property you are planning to let is currently mortgaged, you’ll need to inform your mortgage lender that you won’t be living there any longer.  If you currently have a residential mortgage, it may mean having to switch to a buy-to-let mortgage which is likely to have different rates or terms etc.

Finding a Tenant

If you want to make any kind of profit from your rental property, then you’ll want to make sure that your rental income covers any mortgage payments on the property, as well as any other costs such as maintenance, however you’ll need to make sure you set your prices comparatively to other rental properties in the area that are of a similar size/standard.

If you have a reliable, long-term tenant who always pays their rent on time, being a landlord may not seem all that difficult, however it’s not always easy to find these tenants in the first place.

Make sure that you carry out security checks and ask for references before you let them into your property you need to know that any prospective tenant is trustworthy and will pay the rent.

Legal Responsibilities

You have a number of legal obligations as a landlord so make sure you are aware of your responsibilities before letting your property.  These include:

• Drawing up a legal tenancy agreement
• Registering with a Tenancy Deposit Scheme
• Providing current safety certificates for gas and electrical appliances within your property
• Ensuring that any furniture complies Fire Safety standards
• Providing an Energy Performance Certificate

Protecting your Assets

Other than doing all the essential security checks at the start of the tenancy, the best way of protecting yourself is to take out a Landlord Insurance policy.  This should cover you in the event of any damage to your property, and may also cover any loss of income caused by the tenant.  In today’s financial climate it’s well worth considering.

Financial Implications

As a landlord you’ll need to understand the tax implications that rental income brings with it.

Firstly, it will have an impact on the amount of Income Tax that you pay.

Income from your rental properties will be added to any other income that you earn during the year, for example, from your main employment and you will need to declare this on a self-assessment tax return each year.

Similarly to any other form of self-employment, you are able to claim a certain amount of expenses to offset against your income which will help to reduce your overall tax bill.  This includes things such a
s interest payments on a Buy-to-Let mortgages, letting agent fees and any maintenance costs that are incurred.

Secondly, you have Capital Gains Tax to consider.  When you sell a property that isn’t your main home i.e. your second home or a rental property, you may be required to pay Capital Gains Tax on any profit you make from the sale.