It’s a turbulent time for landlords in the UK with tax changes, new regulations on fees and licensing as well as the uncertainty of Brexit all affecting the buy to let market. If you’re a landlord feeling overwhelmed by what is happening in the sector, we’ve summarised the key issues you need to know about in 2020 and beyond.
There is however, an alternative solution for buyers who find themselves in this situation. An existing property can be rented out to tenants with a Let to Buy mortgage. With a Let to Buy mortgage, you remortgage your existing property to release cash that can be used as a deposit on the new property.
Monthly mortgage repayments of your existing property are covered by the rental income which allows your salary and other income sources to be used to cover the repayments of the new mortgage.
In theory, Let to Buy can be an ideal solution when you are unable to sell your existing property but still want to make a new purchase and it can be an ideal solution in reality as long as the figures add up.
1. Buy-to-let mortgage trends
An important one to start off with during these uncertain economic times. Here’s an overview of the buy to let mortgage market.
- Some lenders are cutting their interest cover ratio which is the rate lenders want the rental income to cover mortgage payments. This is opening up more mortgages to landlords.
- Cashback offers are returning to the market. Due to base rate rises making mortgage rates less attractive, lenders are again offering cashback on buy-to-let mortgages.
- There is a move towards longer-term fixed mortgages, with competitive 10-year fixed deals entering the market.
As uncertainty continues with regards Brexit, it is still unknown how this will affect the property market in general and for landlords, it could mean a tough time if you are heavily reliant on finance.
3. Cuts to mortgage interest tax relief
Cuts made to mortgage interest tax relief continue to be phased in until April 2020. So for the tax year 2019/2020, landlords can now claim just 25% of their mortgage tax relief compared with 50% for the previous tax year. This will result in reduced rental yields for landlords going forward.
4. HMO licensing rule change
Due to changes brought into effect in October 2018, more landlords now need to get a House in Multiple Occupation (HMO) licence. Any large house or flat of 5 or more people require a licence. Previously it was only applicable to properties at least 3 storeys high with shared facilities. With the ‘3 storey’ rule removed, the requirement for an HMO licence has widened significantly.
5. Letting fees ban
From 1 June 2019, letting agents in England can no longer charge fees to tenants and deposits will be capped at 5 weeks’ rent. The changes are being introduced to regulate agents but there will also be an impact on landlords who will be responsible for paying charges previously passed onto tenants such as referencing and inventory administration.
6. Rogue landlord database
In 2018, the government launched a rogue landlord database which is due to be populated in 2019. It is planned that the database will be available to tenants to use in order to investigate potential landlords. Definitely something landlords should be aware of!
7. Minimum space requirements
New regulations introduced in October 2018, means there is now a minimum size of allowed sleeping accommodation in a rented property.
8. Stamp duty surcharges
The 3% buy-to-let stamp duty surcharge continues and for investors in Scotland, the Scottish government has announced plans to increase the Land and Building Transaction Tax (LBTT) surcharge to 4%.
9. Three-year tenancies
In July 2018, the government announced its intention to bring in minimum three-year contracts (with a six-month break clause for tenants). Although, this has not yet be launched, it is something landlords should be aware of in 2019.
10. Energy efficiency minimum
Minimum energy efficiency standards (MEES) were launched last year which means that rented homes (new or renewed) now have to meet an energy performance certificate (EPC) rating of E or above. These rules will also apply to existing tenancies from 2020 so it is worth making improvements during 2019 even with long term tenants in place.
In 2019, Landlords have a lot to consider and they should seek advice if thinking of remortgaging or buying a new buy to let property. For a free mortgage comparison and advice with buy to let mortgages speak with a knowledgeable advisor now!