Property expert Kate Faulkner discusses how 2018 is shaping up to be a significant year for the buy to let market and you, as landlords are going to be affected in some way, shape or form.
Whether you are an existing landlord or a buy to let newbie, 2018 will be a busy year and one of your main tasks will be keeping up with the wealth of legal and tax changes coming your way. If you have a busy job or a packed personal life with special occasions coming up, such as weddings or new babies in the family, it’s time to diarise some crucial property dates, to make sure you don’t end up in trouble.
It’s important that you keep a focus on what you need to do and by when to ensure your property continues to be let legally and safely and also that you understand the impact of upcoming changes. Although some might not affect you initially, they could have major implications down the line, when you come to buy and sell or do your accounts.
If you have chosen the fully-managed option from Belvoir, then congratulations, you won’t need to worry about most of the changes! However, if you currently manage your properties yourself, this is the time to think about getting some additional help and support.
Even if you have opted for your properties to be fully managed, it’s still worth being aware of what’s going to happen in 2018 – if nothing else, at least you’ll know you’re getting value for money from Belvoir’s expertise! If you are with another agent, though, your first job is to find out if they’re going to survive the next 12 months – because some won’t.
The below mostly applies to England and Wales, but because each country in the UK has their own PRS policies, check with your local agent what applies in your area.
Will your agent survive 2018?
I am lucky enough to have worked alongside the Belvoir team for over 10 years and we have both worked hard together to make sure we deliver exceptional education and information to new and existing landlords.
One of the frustrations for both of us is that agents currently don’t have to:
1. Insure the money they collect on behalf of tenants
2. Undergo any education on the 400+ rules and regulations of letting property
3. Understand why and how buy to let investment succeeds – or fails.
These are three essential boxes to tick if you are a new or existing landlord – by either educating and protecting yourself or working with a buy to let professional agent.
Belvoir, and agents who are members of agent trade bodies such as ARLA Propertymark and RICS, have to have Client Money Protection (CMP) so that if they go bust or someone runs off with rental cash, it’s insured, protecting both you and the tenant. If the agent you currently use doesn’t yet have CMP, shortly they will need it by law and will have to satisfy insurance companies they can meet their requirements. And for many, if they’re not planning ahead for the loss of tenant letting fees in the future, there’s a risk they could go bust, potentially taking your cash with them.
Belvoir also invests heavily in legal training and have an extremely useful expert Q&A helpline should a query be raised that their agent hasn’t tackled before. And when it comes to understanding buy to let, I’ve trained much of their network myself over the last 10 years, to help them analyse property from an investment perspective and understand what’s likely to succeed and fail in their area.
Investing in expert letting education will be a must when agent regulation comes in. Although this is yet to be decided for England, agents in Scotland will be regulated from 31st January 2018; in Wales, agents - along with landlords - already have to pass exams to enable them to legally manage property.
1. So if you have an agent that doesn’t tick these three boxes, now is the time to shift to one that does.
Can you legally let your property from April 2018?
By April 2018, your property will require an EPC rating of E or higher in order for it to be let legally. Unless you’re lucky enough to be exempt (for example, if the property is Grade 2 Listed) if any of your properties are rated F and G on the EPC, they cannot be let on a new tenancy from 1st April. For existing tenancies, the law applies from 1st April 2020.
So, if you need to improve your property’s energy efficiency rating, you will have to work quickly. It’s not typically difficult or expensive, often simply requiring things like loft, wall and possibly floor insulation, coupled with the use of energy-efficient light bulbs. The biggest expense will be if you need to invest in a new boiler, however, given that this should come with guarantees and warranties and is likely to be maintenance free for some years, you should look at it as a worthwhile investment that also helps protect and possibly improve the value of the property.
For more information, visit: https://www.gov.uk/government/publications/the-private-rented-property-minimum-standard-landlord-guidance-documents
Will you get a nasty tax bill next year?
With the introduction of the phasing out of higher-rate tax relief on mortgage interest payments kicking in for this 2017/18 tax year, the tax returns being put in next year will be the first where landlords start to feel the pinch of the legislation. Have you already worked out what the loss of 25% of the higher-rate relief will mean for your tax bill? Most importantly, have you planned ahead to 2020/21 when 100% of the higher-rate relief is withdrawn and you can only claim at the basic rate of 20%? Will your investment actually still generate a profit?
If you don’t know the answer to this question, pop into your local Belvoir office and they can explain the implications and guide you towards experts that will help you understand the impact on your profitability and potentially find ways to mitigate any lost income.
Government changing the way we let, buy, sell and lease property
Although we are unlikely to see any legislation take effect in 2018, it is likely that changes to the way you buy and sell property and also the way leasehold agreements are structured and applied could be announced – and these could be significant.
Currently, the Government is keen to secure feedback for this, as well as other property matters such as smoke and carbon monoxide alarms, so it’s important for you to keep up to date with the results of these consultations and calls for evidence. If you don’t, you might wish you had bought or sold something different or made certain investment moves before any changes come into place. If you would like to have your say, you can find details of all consultations on the GOV.UK website: https://www.gov.uk/government/publications?publication_filter_option=consultations
Are you aware of the new ‘portfolio lending’ criteria now in force?
If you already have four or more properties and are planning to expand your portfolio in 2018, it’s important that you understand the new criteria lenders have been applying to buy-to-let mortgage applications since 1stOctober. They now consider your portfolio as a whole and it must not exceed 75% LTV. So if you managed to get some high LTV deals in the past, you could find that although you want to buy more, you can’t because you’re too highly leveraged.
In that case, you might have to look at reinvesting rental profits into paying down mortgage loans in 2018, to get your average LTV below 75%. Lenders will also ask you for much more detailed information about existing mortgaged buy to let properties in your application, so you’ve got to make sure you’re monitoring the value, income, expenditure and level of borrowing for each investment. And be prepared for the application-to- offer process to take longer than in the past, which could mean you’re not able to move as quickly on deals as you’re used to.
And there are numerous other things on the cards for buy to let, including having to be a ‘fit and proper’ person to let an HMO; naming and shaming rogue landlords; possible incentives for landlords to let on longer-term tenancies and even the requirement for all landlords to be a member of a redress scheme. And it’s likely that we will start to see the real impact of the new £30,000 civil penalties that Local Authorities can now impose on landlords, without having to go through lengthy court procedures.
So, it’s up to you: outsource all this responsibility to a qualified agent, or do it yourself and run the risk of missing something that could result in you being named and shamed, fined or making a poor investment decision simply because you were unaware of recent or future legal changes. At the very least it’s important if managing a property in England to join a landlord association and in Wales you need to be qualified to manage, while in Scotland you have to be a ‘fit and proper’ person, so if you aren’t sure you are acting legally, do talk to your local Belvoir branch.