Buy to Let: What are the Risks?

You may know somebody who is a landlord/landlady and seems to do very nicely. They are apparently enjoying a substantial extra income, and can look forward to a nice fat profit when they sell their properties. You think “I’d like some of that, too.” So you start looking for a buy to let mortgage.

A buy to let mortgage is fairly easy to obtain nowadays. But it’s only the beginning. The providers won’t warn you about the risks and pitfalls along the way. However these are things you need to guard against if you want to enjoy, and profit from, your experience as a landlord.

• Not all tenants are careful with the property or with the contents. If you are letting furnished or part-furnished, you must have good contents insurance in place. Letting to students is, fairly or unfairly, perceived as the highest risk by insurance companies.
• You must have good fire protection in place. If it is a multi-occupancy letting this will be required by law, by the insurers, and possibly under the terms of your buy-to-let mortgage also. But it is good practice to ensure safety of tenants in any case. Install fire extinguishers, fire escapes, fire doors, smoke alarms and carbon monoxide detectors. Have the property checked by the fire service and make regular checks yourself to ensure they are all in place and working.
• If your tenants leave and you can’t immediately replace them, how will you continue to pay your buy to let mortgage? It’s a good idea to have a mortgage protection policy or “rent guarantee” insurance in place.
• Even if your tenants don’t leave, they may be less than reliable about paying the rent. Or they may lose their employment and find themselves unable to pay. In many cases they won’t tell you in case you evict them. You may find yourself with a legal battle on your hands so it may be advisable to have an insurance policy for legal expenses.
• You also need to have legal liability insurance, to deal with such possibilities as tenants injuring themselves on your property, and suing you. Have regular checks done for such things as loose wires, uneven floorboards, slippery floors etc. But it’s almost impossible to anticipate any possible incident that might arise.
• Apart from the rent, tenants sometimes fail to pay utility bills such as gas, electricity or telephone, even if it’s clearly written into the contract that they are responsible. In some cases you may not discover this till the tenant has left and you find they have been cut off. Having the utilities reinstated can mean considerable expense. The best precaution to take is to have all these accounts put into the tenants’ name at the beginning of the tenancy. That way it is easier to get the facility reinstated after the tenant has left, and the utility company will chase them rather than you for the payment of the outstanding bill.

Nobody is saying that all these things will definitely, or even probably, happen. But they sometimes do, and you will feel much better if you have taken precautions. If you have gone to the expense of taking out a buy to let mortgage, you want to do everything possible to ensure your experience is a happy and positive one.

Sean Horton is a Director of a buy to let mortgage broker who offer specialist advice for buy to let mortgages