The private rented sector (prs) is that part of the country’s housing that is privately owned, and is let for residential purposes on short lets (leases are normally for fixed terms of less than seven years, and are typically for just six months or a year, but on a renewable basis)

Can I borrow money to invest in residential property?

Many lenders offer special mortgages to purchase property to let. The loan will usually take account of the projected rental income that will be generated. Typical loan to value ratio is 80%. The NLA (see below) can sometimes arrange preferential terms for members with certain leading lenders

What sort of property should I buy?

There are a number of different markets, for example luxury flats and houses, standard family accommodation, small flats and houses for young working couples and singles, bedsits, student accommodation, etc. You should let to the type of tenant you will be most comfortable in dealing with. In general, the lower end of the market shows a better rental return on capital, but may show less capital growth, and have higher management costs. The upper end of the market may appear to show a lesser rental income on the investment, but is likely to see more capital growth, and lower management costs. The safest and most trouble free lets tend to be one- or two-bedroom purpose-built flats, in a convenient location

Where should I buy a property?

Location is vitally important. Take into account the requirements of your potential tenants, not what you would like personally. Consider easy access to shops, public transport and, for students, their college and the social environment. Very cheap property may be in areas where people do not want to live. If you are planning to manage the property yourself, it needs to be near where you live. If you are using an agent, the property could be some way from where you live

Is it best to let furnished or unfurnished?

Most smaller properties are let furnished, but there is a significant demand for unfurnished flats and houses. Best to get advice locally before spending a lot of money on furniture. The cost of making good the wear and tear on furnishings is a tax allowable expense

Will l end up with a sitting tenant?

All new lettings in England and Wales come under the Housing Act 1988, which created assured shorthold tenancy agreements. These allow the landlord to recover possession at the end of the tenancy (whether the property is furnished or unfurnished), unless there is an express agreement to the contrary. This may not apply if you buy a property that is already let under an existing long term tenancy agreement

Is it a good idea to let to Housing Benefit claimants?

There can be extra risks associated with the payment of rent by housing benefit claimants. If the tenant is classed as ‘vulnerable’ by the local authority, the rent is paid directly to the landlord, otherwise the benefit is paid directly to the tenant by cheque. Management of this type of letting requires the landlord to keep in close touch with the council in order to avoid problems

What is the tax situation?

At present, income from let property is treated as investment income. Certain expenses, such as management and maintenance costs, can be offset against income for tax purposes. The interest on any loan associated with the property is also normally allowable. Capital gains tax, less allowances, can be payable on the sale of the property, when annual exemptions, inflation indexation and taper relief are taken into account

What kind of financial return can I expect?

Returns across the country vary. Gross rental returns have fallen from 10% to around 5% over the last ten years, as rents have not kept up with the rise in house prices. If an agent is employed, this will cost about 10% of the gross rent, maintenance costs will vary widely, but with older houses a further 15% or more could be absorbed. Finance costs will also be extra. In the long term, the total return or yield will include the gain in capital value of the property which is realisable on sale. Total yields can be as high as 25% per year. For most people, property should be regarded as a medium to long term investment, perhaps alongside other short term investments

What is the government attitude?

The Government says that the private rented sector is valued by them as an essential part of the national housing requirement. They also state their belief that most landlords are good and responsible. However this has not prevented them from creating the Housing Act 2004 which intervenes in the housing market and lays extra burdensome duties on landlords. On balance it seems unlikely we will go back to the days of rigid rent control and indefinite security of tenure

Are there any special laws I need to be aware of?

Most new lettings in England and Wales are very straight-forward, and come under the Housing Act 1988 (as amended). Special regulations cover the safety of the gas and the electrical installations, and appliances supplied. The landlord must also ensure that furniture and furnishings comply with regulatory standards for fire safety. You will be assisted by the fact that all furniture sold new or secondhand through normal retail outlets must now comply

What else is the landlord responsible for?

The landlord is normally responsible for maintaining the standard of the property, interior fixtures and fittings and for the structure and exterior of the property. You must, normally, also ensure that all hot and cold water supplies, and the drains, are properly maintained. The landlord must allow the tenant peaceful and quiet enjoyment (i.e. possession) of the property

What about the tenant’s responsibilities?

Aside from the rent, the tenant is usually responsible for all utility bills associated with the property, including Council Tax. The tenant must also observe the terms of the tenancy agreement, and look after the property in a "tenant-like manner"— that includes doing the little jobs about the place that might reasonably be expected of a tenant

What happens if the tenant does not pay the rent, or is in breach of other terms in the tenancy agreement?

The landlord may not, normally, immediately repossess the property because of non-payment of rent, or other breaches of the tenancy agreement. Proper legal procedures must be followed. The landlord in England and Wales may seek possession because of the tenant’s breach, or monies owed may be recovered by an action under the Small Claims procedure. These actions will probably take some months

How does the landlord normally recover possession of the property?

Usually by simple mutual agreement with the tenant. More formally by serving at least two months’ notice on the tenant that possession is required. No reason need be given. Strict rules must be followed to ensure the Notice Requiring Possession is served in the right way. Many tenancies are ended at the request of the tenant

What happens if the tenant does not move out on the date requested?

If the proper notice has been given, the landlord in England and Wales may apply to the County Court for an order for possession. The court will not normally order the tenant to vacate the property on a date which is sooner than six months after the tenant moved in. The court processes may take some months. The landlord cannot personally evict a tenant; if necessary an application must be made to the court bailiffs to evict a recalcitrant tenant

Do I need special insurance?

Yes. Your insurers will charge more for a let property than for an owner occupied property and will provide specialized insurance terms including for example cover for loss of rent in the event of fire. If you are an owner occupier planning to let your own home, your policy may be invalidated if you let without informing your insurers. For qualifying tenancies, insurance may also be taken out for non-payment of rent and for legal costs. The NLA (see below) has a special scheme for members

Whom should I inform that l am letting a property?

- Your insurers
- Your lender (mortgage company)
- The local authority finance department (Council Tax)
- The service suppliers (gas, water, electricity, telephone, cable)
If the property is a house in multiple occupation (HMO), it enters a special category which is covered by the Housing Act 2004. Larger HMOs have to be licensed by the local authority

What is an HMO?

This is a very complex area and you should consult your local council for authoritative advice. As an indication, there are four categories of building containing accommodation for two or more households, which are classified as HMOs. The term household is itself complex, but the simplest indication of a single household is a group of tenants in a familial relationship or alternatively two joint unrelated tenants. For example self contained flats are not HMOs unless they contain people who are more than two households. But a building, not comprising self contained flats, is an HMO if occupied by people who are not in one household and share common facilities. A common example of this is a student shared house

What fire precautions are mandatory?

Aside from local requirements relating to licensable HMOs, there are no special rules for let property as opposed to owner occupied property (apart from the regulations on furniture and furnishings). It is sensible, as a minimum, to provide smoke detectors in halls and landings, and a fire blanket in the kitchen. These must be regularly checked

How do I find a tenant?

You can advertise your property in different media, such as newspapers, shop notice boards, internet sites or employ the services of an agent. Quite often you can do this successfully without going through an agency and thus save the agency finders fee

How do I check out the status of the tenant?

You should ask the tenant for employer references and undertake a credit check. In the case of student tenants, a parental indemnity will cover against rental default. You may also ask for a reference from a previous landlord, but if the tenant is a bad one, the landlord may wish to be rid of him and not give full facts

What rental agreement shall I need?

Most property lets to private persons are governed by a shorthold tenancy agreement. This can be prepared for you by your solicitor, or a standard agreement obtained from Oyez stationery. Alternatively the NLA has a standard agreement which you can obtain. Agreements can be customised to your needs, such as including non-smoking conditions, provided that the wording is incorporated in a legally acceptable way and that the terms do not breach the Office of Fair Trading rules

Do I need an agent

An agent may be used just to find a tenant and let the property, or as an extended arrangement the agent may manage the let property as well. For your first letting experience it is probably a good idea to use an agent. For larger properties, tenants tend only to contact agents. Some landlords invariably use an agent and this frees them from the worries and constraints of managing the property themselves. If not using an agent, you will have to devote the necessary time to the management of the property, and cope with the stress of dealing with tenancy problems. For further advice on using an agent, see the relevant NLA Information Sheet

What about a lawyer?

If you are using a lawyer, choose one who is active in landlord/tenant residential law and litigation. For further advice on this, see the relevant NLA Information Sheet

I hear some horror stories about tenants, are they true?

95% of tenants are respectable people, who will pay the rent and look after your property. Inevitably there are occasional bad ones — you must take care in choosing your tenant. Like many investments, there are some risks in letting property. Taking voids into account as well, it is sensible to plan on only getting about 85% of the maximum potential rent in any one year

This is beginning to sound a bit complicated. Where do I get more help?

The National Landlords’ Association (NLA), Tel: 0207 840 8900 (national rate)

What is the NLA?

The National Landlords’ Association has a nationwide membership of landlords who, for the most part, just have one letting, or a small handful of lettings. It is a non-profit organisation, founded in 1973

How small is Small?

Large landlords are usually public landlords, like local authorities, or the Ministry of Defence, that have thousands of lettings. You can have over a hundred lettings, and the government will still refer to you as a small landlord

What does the NLA do?

The NLA is similar to a trade association or trade union. It acts in two spheres of activity. Firstly, it makes representations to government and local authorities on matters that affect the private rented sector; it is also active in ensuring the landlord is fairly represented in the media. Your joining the NLA will give added strength to these representations, that help protect your investment. Secondly, it offers direct membership benefits and services

What are the benefits and services offered by the NLA?

- Bi-monthly journal
- Telephone advice line
- Information sheets on special topics
- Standard tenancy documentation
- Advantageous property insurance
- Special loan arrangements for property investment
- Meetings, and various other minor membership ‘offers’

Does all this apply to Scotland and to Northern Ireland?

There are some important differences in the legislation for Scotland and for Northern Ireland, compared to England and Wales. The NLA has members in Scotland and in Northern Ireland, and can give further advice

(Prepared by the National Landlords Association (formerly Small Landlords Association) - Jan 2002)

National Landlords Association (Wessex) represents the interests of landlords in Bath, Bristol, Swindon and surrounding districts