The buy-to-let property market is ever changing and so keeping ahead of the game and being aware of changes is very important for landlords going into the New Year.
Changes expected within the near future are sure to reshape the current market, and so our useful pointers will really help landlords to be aware of their obligations, as well as optimising their returns.
Deposit Protection
Since 2007, tenancy deposits have been required to be protected by a government approved scheme. This includes protection within insurance schemes, which is where the landlord or an agent holds the money and are issued an insurance certificate, or a custodial scheme is used, where the money is put into the actual scheme. If landlords are found to not provide protection to the deposit, the tenants can take them to court and may be awarded up to three times of the original deposit in damages.
Although there may be an initial registration charge, the scheme will adjudicate any disputes over deduction proposals following the end of the tenancy, at no extra cost. The use of a scheme does not conclude matters, as is widely assumed, and so landlords are still required to serve on the tenants documents at the beginning of their tenancy, keeping a record of having done so. Without this process, the deposit may not be fully protected, therefore leaving the landlord open to court action.
Changes to Mortgage Interest Tax Relief
As of April 2017, landlords have only been able to deduct 75% of their mortgage interest from their income, after previously being able to deduct the full amount. There are set to be more changes in the next financial year as there will be a further drop of this figure to 50%, another drop to 25% in the 2019/20 financial year and a final drop to a basic rate tax reduction in the 2020/21 financial year.
In order to lessen the impact of these changes, landlords could re-mortgage to reduce their interest costs. As mortgage rates have significantly dropped over recent years, it may be the case that deals agreed a number of years ago may not be as good as what is currently available. The issue with this would be for portfolio landlords, based on the new PRA rules that are outlined below.
Following large property price increases in recent times, particularly in London, another good way to mitigate the changes would be to have a revaluation of your property. This would mean that your lender could recalculate your loan-to-value, thus providing you with better options.
New PRA Rules Effecting Portfolio Landlords
As of September 2017, new rules are set to effect portfolio landlords, which are landlords that have four or more buy-to-let property investments that have a mortgage. It is very important for landlords to pay attention to the new rules as they can have an impact on the whole portfolio.
The new Prudential Regulation Authority rules state that when looking to apply for a buy-to-let mortgage, the lender will need to access the whole property portfolio before they can decide upon what they can offer to the landlord. This means that, should you have a number of properties generating enough income to cover the repayments but one property that isn’t; the lender may refuse the application. Landlords are advised to keep all paperwork organised and ensure that the property portfolio spreadsheet is fully up to date. If one of the properties within the portfolio isn’t working well then it would be wise to sell it, especially when looking to make further investments into buy-to-let mortgage properties.
Required Right to Rent Immigration Checks
In 2016, it was made to be a requirement that all landlords conduct Right to Rent checks to ensure that all tenants had the right to be in the United Kingdom, and therefore had the right to rent the property. The landlord should make checks on all potential tenants, including British people, viewing passports or visas in person to make the relevant checks.
The landlord would be expected to request an updated version of any visas that have expired during the tenancy, and should contact the Home Office with any concerns that they have. If the relevant checks aren’t made and the tenants live in the property, the landlord or agent may be fined or even imprisoned.
New Minimum Energy Standards
In April 2018, there are set to be new standards introduced that will see landlords needing to ensure that their properties meet certain standards. The Minimum Energy Efficiency Standards outline that all properties have a rating of at least an E, and any lower than this would make the property illegal to be rented out. It is very important to ensure that the standards are met, particularly as landlords can face a civil penalty of up to £4000. Landlords are advised to seek an up to date Energy Performance Certificate assessment to ensure that all current properties are within the standards.
Peter Scully
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