As of the 1st February 2016, no tenancy can legally commence until the right to rent has been established. But what exactly is right to rent? Here is a very brief overview.
Before a property is legally rented, all landlords have to confirm that the tenants have the right to rent residential property in the UK. And, under Section 22 of the Immigration Act 2014, landlords should not authorise an adult to occupy a rented property unless the adult is a British Citizen, is a European Economic Area citizen, or Swiss National, or has a Right to Rent in the UK.
Who needs to be checked? Landlords or the lettings agent must check that a tenant or lodger can legally rent the residential property in England. Before the start of a new tenancy, they must make checks for all tenants aged 18 and over, even if:
• they’re not named on the tenancy agreement • there’s no tenancy agreement • the tenancy agreement isn’t in writing
All new tenants must be checked.
If the tenant is only allowed to stay in the UK for a limited time, the check needs to be undertaken in the 28 days before the start of the tenancy.
Some types of accommodation are excluded from these checks. Click here to view these types. There is no need to check tenants in some types of accommodation (e.g. social housing and care homes).
How will tenants be checked? All landlords and lettings agents have to check original documents to make sure a tenant has the right to rent in the UK.
What will happen if a tenant fails to pass the checks?
If a tenant fails to pass the checks, the landlord or letting agent cannot legally allow the tenant to rent the property.
Further checks Landlords and lettings agents must make further checks on their tenants to make sure they can still rent property in the UK, if their permission to stay is time limited.
If tenants fail to pass the further checks, they may be evicted from the properties.
What could happen to landlords if they fail to comply? Landlords can be fined if they rent their property to someone who isn’t allowed to stay in the UK and you / they can’t show that they checked a tenant’s right to rent.
Portfolio landlords – those with four or more mortgaged buy-to-let properties – now face more stringent checks by lenders when buying additional properties.
Since the end of September, new portfolio lending rules issued by city watchdog the Prudential Regulation Authority mean that lenders must look at a landlord’s entire property portfolio when deciding whether to offer them a buy-to-let mortgage on a property.
The rules have been introduced to provide lenders with greater certainty that landlords will definitely be able to afford any additional borrowing they take on.
Different lenders, different approaches
Many lenders have confirmed that they will continue to provide buy-to-let mortgages to portfolio landlords, although they will require much more information about their existing properties before they will accept a new application.
Other lenders, however, put off by the longer underwriting process and an increase in paperwork, have taken the decision to move away from lending to portfolio landlords following the rule changes.
Some have said that although they are not prepared to accept new applications for additional buy-to-let lending from portfolio landlords, they will still consider remortgages, but only if they are on a like-for-like basis.
What portfolio landlords can do to prepare
Landlords with multiple properties who are planning to add to their portfolios can help speed the mortgage application process along by making sure they have all the information lenders will require ready in advance.
Lenders will want to understand any existing mortgages already in place, as well as the amount of rental income each property in the portfolio brings in, along with any expenses, such as maintenance costs. They are also likely to look at your assets, liabilities and cash flow. This is so they carry out an assessment of affordability right across the portfolio, to be certain that you won’t be over-exposing yourself financially by increasing your borrowing.
There are other rules which have recently come into effect which also affect landlords. For example, lenders now need to impose a ‘stress test’ for the first five years of the loan when you apply for a mortgage, so that they can check you’d still be able to afford monthly payments if rates go up. However, they may adopt a more flexible approach if you are applying for a five-year fixed rate buy-to-let mortgage as if rates do increase during this period, your monthly payments won’t be affected.
The Guild has partnered with L&C Mortgages, the UK’s largest fee-free mortgage broker. You will be able to get expert advice at the end of a phone when it suits you. Their expert advisers are on hand 7 days a week and will manage a full search of the mortgage market so you don’t have to. Over 1 million people have come to L&C for fee-free expert mortgage advice, so you know you can trust them to help you too. Call L&C today on 0800 923 1945 or click here to find out more
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