Investing in buy-to-let property is still a great way to secure a regular income. However, the game has been gradually changing with new restrictions and regulations affecting the bottom line for many UK real estate investors.
If nothing else, this is a reminder that being a landlord comes with considerable responsibility.
As well as maintaining existing requirements that mean your property is in a liveable condition and meets health, safety and environmental standards, you’ll have to factor in the ban on tenant fees, the caps on deposits and the potential three-year tenancy terms. Let’s take a closer look at how these might affect your investments.
Tenant fees ban
Soon, landlords will not be able to charge their tenants for anything other than rent and deposit when they sign up to a new short hold tenancy agreement. Although this was anticipated to come into force in 2018, it has been revealed the ban will be implemented this year.
This change means most additional fees, such as any charges for carrying out an inventory check or tenant referencing, will be the responsibility of the landlord to pay.
Charges that will still apply to tenants are fees for the late payment of rent as well as the replacement of lost keys.
Some believe this will force rents to increase across the board to account for the change, allowing landlords to recoup these kinds of costs while they’re managing rental properties.
Tenants’ deposit cap
The government has announced that deposits on a rented home will be limited to five weeks’ rent instead of six, a move that is part of the Tenant Fees Bill along with the tenant fees ban. That cap does, however, increase to six weeks’ rent if the annual rent is £50,000 or more.
Until now, deposits haven’t been capped and have been typically used to address the problem of tenants who fail to pay the last month’s rent and leave a property damaged. In these situations, landlords will now be responsible for covering any additional cost of damage.
Although The National Landlords Association (NLA) described the rule change as “a reckless move could force more landlords out of the market” and NLA chief executive officer Richard Lambert said: “A six-week cap is the lowest landlords find acceptable.” the cap will come into effect this year with the specific date yet to be announced.
New three-year tenancies
The government has consulted on introducing a three-year tenancy term, with a six-month break clause. This would follow a similar model that has already been introduced in Scotland.
It’s a move that could prove popular among tenants seeking long-term security from their rental property.
Government data reveals that people stay in their rented homes for an average of nearly four years – and yet 81 per cent of rental contracts are assured shorthold tenancies with a minimum fixed term of six to 12 months.
However, initial reports suggest the government’s appetite to go ahead with the measures is shrinking due to fears that it’ll scare off property investors.
No more mortgage interest tax relief
Under new rules being phased in over the next few years, landlords will eventually lose mortgage tax relief on their buy-to-let property costs.
Until 2017, landlords could deduct their mortgage interest payments from their rental income, reducing how much of the income would be taxed. The new changes, however, will remove this benefit in exchange for a tax credit calculated at 20 per cent of your mortgage interest.
In the 2018/19 tax year, you can set 50 per cent of your interest against your rental income. However, this reduces to 25 per cent in 2019/20 and will disappear completely from April 2020.
Ultimately the overall impact for most landlords with mortgages will be an increase in the amount of tax paid.
New energy efficiency requirements
Finally, rental properties must now have a minimum EPC rating of E. Coming into effect in April last year, these new regulations will apply to new lets and renewals of tenancies. Also, from 1 April 2020, it will extend to all tenancies, including sitting tenants.
For landlords who rent out a property that has less than an E-rating, it has now become unlawful to do so and you could face penalties. Those who breach the rule will likely face an initial warning, but fines and even legal actions could apply if you fail to improve the rating of your property.
So there we have it, whether you are thinking of investing or are already a landlord, there are a few more things you’ll need to keep in mind as you operate your business in 2019.