Renting out your bachelor(ette) pad

Deciding to move in together is nerve-wracking and exciting, but can be made easier – from a financial perspective, at least – by renting out your old place to cover the mortgage (and perhaps give you a bit of extra income).

Here’s a layman’s guide to what’s involved:

First things first

Start by checking if it’s worth your while.

You’ve probably already browsed the property websites to get a feel for what it will rent at, but speak to an estate agent all the same. They can tell you how long it takes an average property to rent, and can also tell you how buoyant the market is in general.

If rents or sale prices are falling, you may want to cut and run, and pocket the cash.

Once you’ve decided to rent

You have some legal obligations as a landlord. Make sure you:

  • Place any deposit you take into a Government-approved scheme.
  • Fit smoke alarms and carbon monoxide alarms.
  • Get an Energy Performance Certificate.
  • Have any gas or electrical work completed by a certified professional (e.g. Gas Safe).
  • Register as a landlord (if you’re in Scotland, Wales or Northern Ireland).
  • Check any potential tenant’s right to live in the UK (if you’re in England).
  • Arrange a tenancy agreement. You can find plenty of templates online.
  • Provide a ‘How to Rent’ guide to any tenants renting in England.

And that’s just for starters. Our First-time Landlord Checklist goes into more detail.

Updating the decor

There’s no accounting for taste, so any property developer will tell you that a neutral colour scheme could help you rent your place out faster. A quick lick of paint may not increase your rental yields, but may make it easier for a potential tenant to picture themselves (and their furniture) in there.

That said, you might need to do nothing if you’re renting the property fully furnished and everything is beautifully co-ordinated.

If you’re near to a university, the student market can be extreme lucrative. But you might want to consider swapping out your much-loved furniture for inexpensive equivalents, and installing easy-to-clean hard flooring.

Updating your mortgage

You need to notify your existing mortgage provider that you’re no longer going to be occupying the property yourself. Most won’t object to your change in circumstances, but you should anticipate a change in your interest rate. If the increase seems excessive, consider shopping around – any savings could outweigh the cost or hassle of switching.

Be aware that your mortgage provider isn’t obliged to grant their consent to the property being rented out. If this happens but you’re determined to rent it, you’ll need to switch to a dedicated buy-to-let mortgage.

Together Buy-to-Let mortgages are designed with both these situations in mind. We look at your individual circumstances, not just your credit score – so even if you’ve recently been through the mortgage application process on your new home with your partner, we could help. Find out more about our Buy-to-Let mortgages here.

Managing the property

You have two options: self-managed, or lettings agent-managed. Either way, you’ll need to budget for the cost of repairs, maintenance, and emergencies. The difference is how involved you’ll be with the tenant.

If you engage with a lettings agent, they’ll be responsible for collecting rent and will be the point of contact for any problems. In emergencies, they’ll do the legwork for you and simply send you a bill for the costs. Otherwise, you’ll need to make calls to (for instance) arrange a plumber, or chase late rent, yourself.

Naturally, lettings agents charge for the pleasure – so remember to factor this into account when setting the rent. Their fees are typically a percentage of the rent, so may represent good value if your property is at the cheaper end of the market.

Paying tax on rental income

When you take in a lodger or housemate, you don’t have to declare the income for tax purposes unless you earn over £7,500 a year from it. But renting out a property in its entirety – even if you’ve just moved out and your old lodger has stayed on solo – is different.

You’ll likely need to complete a Self-Assessment tax return, and pay tax on your new extra income – even if you’re out of pocket after paying the mortgage, management fees and maintenance. You’ll probably want to take this into account when setting the rent.

The good news is that the first £1,000 per year is tax-free, and you can reclaim some of your costs to reduce your tax burden.

For instance, you can reclaim:

  • Lettings agents’ fees
  • The cost of buildings and/or contents insurance
  • Mortgage interest charges
  • The cost of maintenance and repairs
  • The cost of replacement sofas, beds, white goods, and some other domestic items.

You can find out more from the Government’s online guide to tax on rental properties. And remember, a good accountant could help if you’re confused.