Confused by the plethora of legal jargon in the mortgage industry or want to know what a legal term or practice means? Each month our panel of experts answer questions sent in by readers.
senior partner at Goldsmith Williams
Q: What advice should I offer to clients that are interested in buy-to-let property and what are the specific legal considerations?
A: Here are a few essential pointers for clients looking to invest in this sector:
Registered and/or bonded letting agents in the local market to the property are invaluable resources in terms of advising on what represents a good investment and the potential rental income.
Letting agents will take on the day-to-day management responsibilities of being a landlord and could help to increase the return on an investment and reduce the chances of tenant-related disasters.
Buy-to-let is a medium to long-term investment. There is no guarantee the property will be let out continuously and financial calculations should include costs for ongoing maintenance and repair.
Investment property is subject to capital gains tax and rental income is subject to income tax. Paying an accountant for this advice at an early stage can save considerable money in the long term.
It is imperative that the client understands the legal responsibilities involved in the buy-to-let process. The contractual agreement entered into by the landlord and the tenant means each party is bound to fulfil its obligations. Breach of terms could lead to litigation and even imprisonment.
The legal contract with the tenant is determined by the Assured Shorthold Tenancy agreement. This allows the landlord to recover possession of the property at the end of the fixed term or after the first six months if the contract is short term.
The tenant’s obligations include paying for repairs that are due to their own fault and for outgoings such as utilities. They must also use the property for solely residential purposes and provide access to the landlord for regular inspections.
If a client has arranged a mortgage with a new lender, they must obtain the consent of the new lender to let the property.
Generally speaking, the landlord is responsible for repairs to the exterior of the house and safety issues including gas safety, whereas the tenant is responsible for the interior.
Since April this year, landlords are required to protect their tenants’ deposits using a government-authorised scheme.
The landlord has an obligation to insure the property covering, for example, buildings and contents insurance, rental guarantee and emergency assistance.
partner at Salans
Q:Does it make a difference using a remote conveyancer rather than a local one?
A: The world of conveyancing has moved on exponentially over recent years and although the fundamental job is the same, the intelligent use of technology and economies of scale, process and procedures have tended to move the job away from the high street to specialist firms. Although technology has played a part in this there has also been a tranche of experience upon which brokers are now basing their decisions.
What I think is fundamental is that remote working does not mean remote responsibility. Of course, if you use a local solicitor you can wander into their office to have a meeting or a chat but in reality there are few times when this needs to happen.
Remote, larger firms tend to win business as they offer a superior specialism and dedication to that of smaller firms and they have greater back-up in terms of personnel should resources be stretched. Bulk conveyancers tend to have single-case handlers but there is the reassurance that should the person you’re dealing with be ill or on holiday then the case will be progressed by one of their many colleagues.
Q: What changes do you expect with Gordon Brown as prime minister?
A: There’s no doubt the housing market will be one of the areas that comes under scrutiny over the coming months. However, as the former chancellor, there is perhaps no-one better placed to appreciate the vital and pivotal role the housing market plays in the wider UK economy. Brown may be cautious in effecting change that will impact on the market but he has demonstrated he is not afraid to make changes. What is likely is an increasing support for more green measures relating to housing both in terms of tax concessions and incentives for each house to reduce its ‘carbon footprint’.
With regard to home information packs there is no clear indication of any intentions to change the scope or introduction of HIPs at this early stage in his leadership although it has been reported in the past that his opinion of HIPs has not always been positive.
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