In the Buy to Let world the talk at present is around Energy Performance Certificates, (EPCs) with the rules having changed on EPC ratings from April 1st 2018. It is now against the law in England and Wales for landlords to grant a new tenancy to either new or existing tenants if their property doesn’t have an Energy Performance Certificate rating of ‘E’ or above.
As a result, some lenders have already said that they won’t lend on properties that fall below an ‘E’ rating unless they have a valid exemption.
EPC Changes April 2018 and other regulations
If a privately rented property falls below the minimum EPC rating, landlords need to carry out ‘relevant energy efficiency improvements’ to bring it up to an ‘E’ or above. They may be able to obtain Green Deal finance to do this or the property may qualify for an exemption so it is worth all landlords looking into this.
This is yet another change that Landlords have to get used to as the sheer volume of rules, regulations and tax changes really start to hit home.
Section 24, dubbed “the biggest threat landlords have ever faced”, ushered in a new era of tax changes phased in from 6th April 2017, which will come to a head in 2020. This potentially pushes landlords into a higher tax bracket, paying more tax and potentially losing access to certain benefits.
In summary, this package included the following:
- Landlords of furnished let’s could claim a wear and tear allowance of 10% of their rental income. With effect from April 2016, this relief was restricted to expenditure actually incurred.
- Mortgage interest costs could be deducted from rental profits which effectively gives the landlord tax relief at their highest marginal rate of tax. From April 2017, this relief was reduced over 4 years to the basic rate of income tax (which is currently 20%).
- From April 2016 SDLT increased by 3% for landlords (and second home buyers)
Landlords and Buy to Let Mortgages
On top of this mortgage lenders have had to adapt their rental coverage stress tests and deal with Portfolio landlords, (defined by the Prudential Rental Authority as those with 4 or more mortgaged properties), in a very different way. They have to stress test their whole portfolio, see a business plan, cash flow statement and, most importantly, see that tax is being paid correctly.
As a result, many landlords looking at buying new properties are more inclined to purchase these in Limited Company names now rather than personal names and it is imperative that anyone looking at an investment property gets independent tax advice before they do anything.
Even this is not the end; from October 1st new Government rules will mean that many Buy-To-Let Investors will be forced to become licenced HMO landlords.
Currently, a licence is only required for properties with three or more storeys that are occupied by five (or more) people from at least two households. From 1 October this will be extended to all properties that are occupied by five or more people from two or more households – regardless of the size of the property.
However, even with all of this, professional landlords are sensing an opportunity. Prices have eased and as long as they structure and gear their portfolio correctly with the right tax advice, savvy landlords can still do good business.
As for mortgages, well they are at the lowest level Buy to Let mortgages have ever been. Two-year fixes from 1.37% (4.43% APRC) anyone?
Whilst the rates are enticing however, the increasing complexity of the Buy To Let mortgage market means that many brokers are walking away from portfolio landlords, meaning it is more important than ever to look for a broker who understands the current market and the numerous foibles of each individual lender. Managing a portfolio is a serious blend of science and art these days, but for those with the patience and an expert alongside them, landlords can still look to the future.
Guest blog from Andrew Montlake at Mortgage Broker Coreco.