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Credit Crunch

You are in: Suffolk > Credit Crunch > Beating the crunch?

St George's Street, Ipswich

St George's Street, Ipswich

Beating the crunch?

As the 'credit crunch' bites, many homeowners are looking to rent out their houses or just a spare room. Lettings agents in Ipswich say they're having a really good summer. So will you get enough rent to help you cover your mortgage?

With mortgage rates and costs rising many more homeowners are turning to letting their properties. To take one example, Pennington in Ipswich says it's had a record summer in 2008 and is letting around 50-60 properties a month.

That's around 10-15 more than the same time in 2007.

So, if you're feeling the financial pinch, now may be the time to consider renting out your house or letting out that spare room. We've been looking at whether the numbers add up.

Legal advice

The temptation may be there to rent out a room without declaring it to the taxman or to the building society you have your mortgage with, but the advice is that, apart from being illegal, it could also return to haunt you if you end up with a tenant who stops paying the rent.

Solicitors will provide you with the basic advice for around £100-£150. Laurie Norman is a Conveyancing Executive at Suffolk solicitors Gotelee & Goldsmith: "It might seem expensive, but it can be an awful lot more expensive if you hit a problem.

Assured shorthold tenancy agreement

"Check the tenant thoroughly and that's the key. Get as much information as possible. You have to have an Assured Shorthold Tenancy Agreement."

The legal advice is that if you don't have a contract then there's no proof that a tenant's been there at all. They say throwing the tenant's stuff out and changing the locks isn't a legal option.

Even if you do have a legal contract, if the tenant stops paying the rent it could take up to three months to evict them through the courts - which negates the whole point of renting in the first place.

"There are some people out there who play the system, don't pay the rent and keep moving on every few months. They know the landlord feels it usually isn't worth the aggravation of getting formal eviction," said Laurie.

"If you're dealing with one of them it can be a pretty painful experience.

"And if you rent out some or part of your property without telling your mortgage lender that you're now buying-to-let, then their ultimate sanction is repossession."

Avoiding the nightmare lodger

There are two options - find a tenant yourself and carry out the checks using credit check companies, get a contract signed and hope it works out or using a lettings agency.

If the worst comes to the worst lettings agencies can point you in the direction of insurance companies to make sure the rent is covered even if the tenant stops paying. It would cost you around £200-£250 for this insurance policy.

Boomtime for letters

Rents have been fairly stable in Suffolk for around four years, so although the cost of your mortgage may be going up, you can't expect rents to go up at a similar rate.

Robert Ulph has been dealing with lettings for Pennington for 17 years: "The market is very buoyant at the moment. There are lots of people who can't sell, but are moving on and they're deciding to rent out their old house.

Robert Ulph at Pennington lettings agency

Robert Ulph

"When people have bought in the past couple of years, I'm having difficulties getting the figures to match. For those with 100% mortgages, they're actual rates are a lot higher than what we can achieve through rental.

"Some people are putting that aside because they need to move for whatever reason and they're accepting they may lose a certain amount each month."

Pennington say the rentable value of properties as of August 2008 is:

2-bed terrace: £500 pcm
3-bed semi†† :† £650 pcm
2-bed flat††††† : £550 pcm

From that you need to subtract the letting agent's 12% cut for finding a tenant, collecting the rent and managing the property. There's also a £150 initial fee.

For a deal that only includes collecting the rent, it's a 10% cut. For simply finding and vetting a tenant and leaving the landlord to collect the rent they charge one month's rent.

If you're moving some distance away or even abroad, then using a lettings agent's full service is probably the only option, unless it's a friend you feel you can trust 100%.

Is your property in good nick?

Pennington says presentation will reflect the rent you can charge. Plus points include new carpets and fitted kitchens and bathrooms. However, having a garden adds no value because it means the tenant would have to look after it - not something they're always prepared to do. You may need to throw in a gardener!

Making sure your property is up to scratch

There are lots of regulations regarding renting out of houses. Gas, electrics and furnishings all have to be up to approved safety standards.

If you don't make sure of this you could face a complaint from the tenant which is then investigated by the local authority. In Ipswich, the Borough Council has an Enforcement Policy which aims to make sure houses comply with standards.

Ann Street, Ipswich

Ann Street, Ipswich

If they don't, it could end up in the courts. Visit the Services section of the Ipswich Borough Council website for more details. Other district councils will have similar policies.

From October 2008, you will also need to provide an Energy Performance Certificate (EPC) to show how efficient the power-use in your house is. These are already part of the Housing Information Packs which are needed to sell a house.

It'll show the energy-efficiency and carbon emissions ratings graphs for the various white goods in your house such as washing machines.

Elizabeth Borg from the Association of Residential Lettings Agents (ARLA) appeared on BBC Radio Suffolk's James Hazell show: "Before you commit to renting a property the certificates will show you what bills are likely to be. It'll give tenants a clearer understanding and a choice to make in how big their bills should be.

The landlord will have to pay for the EPC and it costs £70-£100. It has to be given free to the prospective tenant.

Elizabeth Borg said it's not just another expense for a landlord: "It's an advantage because there are some grants and changes in tax regulations which make it beneficial for landlords to carry out some work which would make the rating higher and therefore more attractive to tenants."

This could mean you need to look at loft insulation, cavity-wall insulation, low-energy lighting and thermostatic radiator valves. Try visiting the Warmfront website as a starting point.

Ipswich waterfront and the University Effect

Robert Ulph at Pennington said: "A high percentage of flats at Ipswich waterfront have been buy-to-let, with a lot being bought by London landlords who're hoping there's big money to be made."

In 2007, waterfront flat owners were charging around £650 a month - that's now been cut to around £550.

"But these people aren't on short term. They're not buying a property and selling straight away," said Robert.

"Although they're not getting their value at the moment, they see in the future that rents will increase as will prices. It would be a 10-15 year investment."

The University Campus Suffolk isn't having a major knock-on effect on the rest of the housing market just yet. UCS has its own approved landlords and is building new halls of residence. Robert Ulph isn't dealing in the student market:

UCS at sunrise

University Campus Suffolk

"It's not a market we've been looking at at Pennington's but it is a market that is slowing taking off.

"They will require more private landlords to look at student accommodation. The problem here is with houses of multiple occupancy [HMOs - several tenants with individual tenancy agreements].

"There are laws relating to sprinkler systems and fire doors for properties of over five tenants, so it can be quite expensive for a landlord. Local authorities can insist on these standards for HMOs with just three tenants."

Currently, it seems to be a buyers market with a lot of houses available for rent. In Ipswich, Pennington says all areas are desirable, but properties in the Woodbridge Road/east Ipswich areas usually command the best rents.

Robert Ulph said: "Tenants have a good choice, so landlords may have to take reductions in rent. But we usually say to most people to put it on the market for £25-50 more and expect to come down by that amount.

"As an agent we're working for the landlord and trying to get as big a rent as possible.

"We have good contacts with companies like BT who have a lot of workers here for six months to a year and they're looking for short-term rents.

"However, the tenancy agreement tends to be in the tenants name rather than the companies name."

Can you beat the crunch?

It would seem to depend on when you bought your house, which is obviously reflected in the size of the mortgage repayments you need to cover.

There are a lot of fees - solicitors, lettings agent's charge and cut, insurance against defaulting tenants, gas and electric checks - and rents aren't rising at the moment.

You'll have to work out the figures for you own house and "do the math", but Laurie Norman's message is simple:

"Use a solicitor - it can steer you round an awful lot of problems."

last updated: 05/02/2009 at 10:13
created: 21/08/2008

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