Becoming an accidental landlord

This article is part of
Guide to unexpected property ownership

David Cox, chief executive at Arla Propertymark, says: “The barrage of legislative changes landlords have faced over the past few years, combined with political uncertainty, has meant the BTL market is becoming increasingly unattractive to investors. 

“Landlords are either hiking rents for tenants or choosing to exit the market altogether to avoid facing the increased costs incurred.”

But Lucy Pendleton, director at estate agents James Pendleton, takes a slightly different view.

“Despite the impression there has been an exodus of landlords from the rental market over the past couple of years, their population is still robust, representing one in every five homes,” she explains.

“On the ground we are not seeing landlords abandon the private rental market but shift their focus to smaller rentals, including those known as ‘pocket living’, which might be one-bed studio apartments.

“It is already the case that most flats are privately rented, so this suggests that is unlikely to change any time soon.”

What does this mean for anyone thinking of renting out their inherited property in the immediate future? 

Mr Mitchell acknowledges: “These changes have well and truly put the brakes on the buy-to-let market and have certainly put off amateur landlords. This slowing of supply is likely to raise rents in the medium term, so could be good news for savvy investors.

“But for someone inheriting a property there is no stamp duty to pay, although there might be an inheritance tax bill to pay. 

“Also, you will still have to pay tax on the rental income, which could be significant if you're a higher rate taxpayer.”

However, Mr Hollingworth notes: “Rental income is taxable but if there’s no mortgage then the changes to tax relief will be less of an issue. 

“The gradual shift to basic rate relief will have an impact on higher or additional rate taxpayers that are intending to mortgage the property, so that will need to be factored into calculations.”

He also points out that anyone planning to let to a family member will find their mortgage choices are more limited “as it will be a regulated BTL and most lenders will not offer mortgages on that basis”.

Ongoing maintenance

Becoming an accidental landlord may mean doing up the property before letting it out but also being prepared to oversee any ongoing maintenance.

Mr Mitchell points out: “You can hand over the responsibility to a management agent, but bear in mind they can take up to 10 per cent of the monthly rent.