Buy-to-let landlords face a whole raft of new rules, making it a confusing time to be in the business of property investment. We look at some of the changes.
Letting fees were banned in England on 1st June 2019 and deposits are now capped at five weeks’ rent for properties costing less than £50,000 per year. Fees are still chargeable on contract changes and termination when instigated by the tenant and for issues with utilities companies, communications services and council tax or when the tenant is at fault, for instance, the replacement of lost house keys. Tenant referencing and property inventories are no longer chargeable to the tenant so landlords will need to bear any costs.
Mortgage Interest Tax Relief can offset your mortgage interest payments and some of your costs against your income. Reductions to the rate are being phased in until April 2020, when higher and additional rates of tax relief on mortgage interest will be restricted to 20% for all landlords. Relief from April 2019-20 was set at 25% of mortgage tax relief – down from 50% the previous tax year.
HMO rules changed in October 2018 affecting properties classed as a House in Multiple Occupation. The new rules dictate that any property whether a flat, house or anything else, with five or more people from more than one household using shared facilities requires an HMO licence.
Additional licencing has been introduced in addition to the mandatory HMO licence by over 60 local authorities in England. The additional or selective licencing schemes mean there are further stipulations for landlords, who may be required to operate under a particular rule of conduct or prove themselves to be a ‘fit and proper person’. The cost of these additional licences can be as much as £600.
Minimum Energy Efficiency Standards (MEES) were introduced last year, forcing newly rented homes to meet an Energy Performance Certificate (EPC) rating of E or above. From 2020 the rule will apply to all existing tenancies. Landlords are liable for up to £3,500 of the costs involved in improving a property’s energy efficiency.
Rogue Landlord Database was launched by the government in 2018, although so far it hasn’t proved particularly effective. However, the government has said the database will be filled with information from the new year – and tenants will be able to access any information as well as central and local government officials.
Minimum space requirements dictate the minimum size of sleeping accommodation in rental property, dependent on the age and number of occupants of the bedroom.
Right to Rent requires landlords to confirm that their tenants have the right to reside in the UK, although a legal challenge was launched by the Joint Council for the Welfare of Immigrants last year.
Longer tenancy agreements of a minimum three year term with a six month break clause were mooted in recent times but the plan now appears to have been scrapped.
Tenancy Deposit Schemes are mandatory and you must invest your tenant’s deposit in a suitable scheme within 30 days of the start of the tenancy if you rent your home on an assured shorthold tenancy.
Financing your buy-to-let property
If you’re not buying with cash, buying your Buy-to-Let property with finance is going to be expensive so you will need to be sure of your market. The current 3% Stamp Duty Land Tax is likely to stay and if you’re buying with finance you will pay higher fees and a higher interest rate. You will also need to show your lender that the rent you will receive will cover between 120%-145% of the mortgage payments. There are fewer short-term fixed deals than long-term, but other incentives are coming onto the market, including cashback.
Membership of an approved Client Money Protection Scheme (CMP) has been mandatory for letting agents since April 2019. The scheme protects tenants from letting agents who cease trading but may not cover the full value of the rent, which may be capped. The Residential Landlords Association has advised landlords with a large number of properties to consider using more than one letting agent.
How to be a successful landlord
41% of landlords are considering leaving the property market, but it needn’t all doom and gloom. Key to being a successful landlord is finding the right tenant. Read our article How to be a successful landlord.
Ask a Chartered Surveyor to provide you with a building survey when you buy a new investment property. You will receive a full report overlooking the condition and structural elements of your buy-to-let property which will help you safeguard your investment.