Letting tenants into your home can be a good way to create an extra income instead of selling your property. Before you open up the doors there are important checks and measures to make sure your house and tenants are protected. You’ll need to follow strict rules when you become a landlord and have the right insurance set up. Here we look at everything you need to know if you’re thinking about renting out your home.
People rent out houses for all kinds of reasons. For example, you could be:
Struggling to sell - In this situation, you might be asking yourself ‘should I rent my house rather than sell it?’ Renting it out can be a handy alternative to selling as you’ll at least have rental payments coming in, helpful if you have a mortgage to pay.
Keen to live elsewhere for a while - Renting out your house could give you the opportunity to do this temporarily. Perhaps you’d like to move in with your partner to see how things go, head off travelling, or even work abroad. If you’d like to keep your home while you enjoy these experiences, renting it out means you don’t have to sell and can earn rental income while you’re away.
Moving house - Perhaps you’re moving but you’d like to keep your old property and find some tenants to move in. Becoming a landlord can be time-consuming, but it’s also a great way to make an extra income.
But, before you decide whether renting out your house is right for you, you might like to read our guide on how to rent out your house.
If you’re thinking of renting out your house, start by having a look at the sorts of properties being let in the area. Try to find rental homes that are similar to yours, and check how much rent they’re asking for. You can also check the historical rental prices, to give you an idea of how prices are changing and how much they might have gone up, or down.
That way you’ll get a rough idea of how much to price your rental property at. The Zoopla website is a good place to start as it’s easy to use and puts a wealth of information right at your fingertips.
Sometimes, renting out your house can involve using a letting agent. If you’d like to do this, check out the options in your area. Look at the service they offer and how much they charge.
If any of your friends or family are landlords, you could ask for recommendations, too. This could save you a lot of time and effort in sorting out any potential problems and if you need to chase payments. So if you’re after a ‘hands-off’ approach, it could be a good route for you.
It's worth doing the maths to make sure it's worth it financially before you commit to renting out your house. You’ll need to weigh up the costs vs. the income you stand to make.
Any rental income you receive could be taxed at your usual rate. This is 20% if you’re a basic rate taxpayer, or 40% if you’re a higher-rate taxpayer. So when you ask yourself, ‘should I rent my property?’, it’s crucial to take tax deductions into account. Then factor in letting agent fees and insurance, and see how much you’re left with. This net figure would need to cover the mortgage payments on your property, at the very least, to make renting worthwhile.
You might also have to pay Class 2 National Insurance if renting out property counts as a business for you. This depends on several factors including how much you earn from it, how many properties you rent out, and whether being a landlord is your main job.
Ideally, the profit should also leave you with some surplus for a backup fund in case you need to do any maintenance and repairs on the property.
Your backup fund could also cover paying the mortgage between tenants in case the house was empty for a period. You’ll have to continue making your mortgage repayments, even when you’re not receiving any rental income. Make sure you can afford these no matter what.
These should be key considerations when you’re asking yourself ‘should I rent my house?’.
You’ll need to decide whether you’re happy to rent out your house as an HMO or not.
Your home will be considered an HMO if you let it out to three or more tenants who aren’t members of the same family. They’ll also need to share a toilet, bathroom or kitchen facilities for it to class as an HMO.
You could stand to make more in rental income, and any gaps between tenants won’t mean your house is left empty. Plus, there’s great demand for affordable housing.
However, with an HMO there are more legislation and planning requirements, and it can be harder to get a mortgage for one too. Plus, some letting agents won’t manage them, and it can be harder to sell a home once it’s been converted into an HMO.
If you have more than five tenants in your HMO, you’ll need a special licence from the council. They’ll then wish to carry out a Housing Health and Safety Rating System risk assessment within five years of your licence application. This could mean you have to rectify anything deemed a risk.
Yes. When you decide to rent out your house, it’s important to talk to your mortgage lender and tell them what you’d like to do.
Failing to tell your mortgage lender could mean you’re breaking the terms of your mortgage contract by renting out your house. You need to ask your lender for permission before you go ahead.
You’ll usually have to get something called a consent for lease from your lender. Once you’ve got this, you can get started with renting out your house.
It's very important that your buildings and contents insurer knows if you’re planning on renting out your house. Your insurance policies will usually need to be amended.
You’ll also have to arrange a special landlord insurance policy. This can protect your property, your tenants and your investment as a whole.
Some landlord insurance policies can even pay out if your tenants miss their rental payments. If you’re a landlord renting out your house, and you rely on your rental income to pay the mortgage, non-payment could be a huge problem. Having the right landlord insurance in place could protect you in a financially challenging situation.
There are certain things you’re expected to do as a landlord. It’s important to learn about how to rent out your house before you go ahead.
A landlord’s responsibilities include:
Keeping your properties safe and making sure there aren’t any health hazards that your tenants could be exposed to. As part of this, you’ll need to make sure any gas and electrical equipment is safely installed and maintained
Taking responsibility for all repairs, maintenance, and refurbishments. If it’s something that needs urgent attention (like a gas leak), you may need to spring into action, unless you have a lettings agent acting on your behalf
Making sure you have an Energy Performance Certificate for your home
Keeping your tenant’s deposit safe in a government-approved Tenancy Deposit Scheme
Making sure your tenant has the right to rent your property (in England)
Carrying out fire safety checks and making sure smoke alarms and carbon monoxide alarms are installed and working
Sharing a ‘how to rent’ checklist with your tenants.
Making sure any upholstered furniture is fireproof if the house is furnished.
If you’re renting out your house through a letting agent, they may take responsibility for some of this for you, although there will be a cost for this
If you’re wondering how to rent out your house in the most effective way, it’s important to think about how you’re going to prepare your home.
You’ll need to decide whether to rent it furnished or unfurnished. Other things to think about before renting out your house include:
Removing anything from the property that’s precious or fragile
Making sure any repairs on fixtures and fittings have been carried out
Checking all appliances are in good working order
Giving the property a mini-makeover to ensure everything is well-presented and up-to-date.
It’s also worth noting that tenants usually prefer a ‘blank canvas’. So, if you’re painting it, stick to neutral colours.
These steps will help make the process of renting out your house smoother. If everything’s in good nick, you should find tenants more quickly.
It might have crossed your mind that ‘I’d like to rent my house but I don’t have time to deal with all that being a landlord brings’. If that’s your situation, you could use a letting agent.
You don't have to use one, it’s your decision to make. But having an agent means there’ll be less work for you to do when it comes to renting out your house, although you’ll need to factor in the costs charged
On your behalf, some of the things a letting agent will do include:
Advertising your property
Showing prospective tenants around
Drawing up a tenancy agreement
Chasing late payments
Dealing directly with the tenant on your behalf when problems occur.
Agents typically charge around 10-15% of the rental income you receive from renting out your house. You may or may not feel this is worth it for the work they do for you.
Ask your letting agent how much they feel you should charge for rent. But remember this decision is down to you. You don’t have to rent it out for any less than you want to but, if your price is high, it could take longer to find tenants. It’s worth getting potential rent prices from two or three agents before you decide on a final price.
You may want to meet potential tenants before deciding whether you’re happy renting out your house to them. Some people prefer to leave it to a letting agent to carry out due diligence checks and others prefer to do it themselves.
If you use an agent, they can perform reference and credit checks on potential tenants to ensure everything is above board. Otherwise, you’ll need to do this yourself.
If you don't want to move out, you could think about renting out a room in your home. This is an alternative to renting out your house as a whole and can bring in a little extra money for you each month.
Under the Government's Rent a Room scheme you can earn up to £7,500 each tax year, tax-free, by renting a furnished room in your family home.
Here are the steps to take to find a lodger:
Vet potential lodgers: Ask for references. These will preferably be from a previous landlord. Then you can verify their identity and check they’ll make a reliable tenant
Protect your home: Draw up an agreement including rent amount, due date, let period, notice period and house rules
Tell your home insurance provider: This may increase your premiums, but will also ensure your policy’s valid, so it’s an important step. It means your policy will pay out for any claims you make.
There’s plenty to think about before renting out your house, but this article covers a lot of what you need to know.
A few extras that you might not have thought about when renting out your house include:
You might like to think about having your house and appliances professionally cleaned before renting it out for the first time. You’ll also need to do this between tenants
It’s a good idea to make copies of keys that your tenants might need – this could include windows, doors and utility meters
If you have instruction manuals for things like the boiler or white goods, try to gather these. Then you can give them to your tenants as part of an information pack. You could photocopy them if you’re worried about losing them
You might find it helpful to get to know the laws around being a landlord. There are currently almost 150 of them and it’s in your interest to understand as many as possible. You should also be sure to stay on top of these as they change and get updated. There’s plenty of legal information on gov.uk
Don’t forget that there are rules around when you can increase the rent charge, based on what type of tenancy you have. If your tenants are on a rolling tenancy, you can increase the rent once a year. But, if it’s a fixed-term tenancy, the amount can only be raised when the fixed term ends.
If you have a dispute with your tenants, it’s best to avoid going to court. A court hearing can be stressful and costly, so you should seek other ways to resolve your dispute initially.
The following process is a sensible route to take. Ideally, the first or second steps will be enough to resolve the issue.
Speak to your tenants
Write a formal letter
Use a mediation service
Go to court.