(covering marple, marple bridge, mellor and compstall)

Category: ASK JONATHAN

Are you ready for new minimum energy efficiency standards?

There is less than two weeks remaining until new Minimum Energy Efficiency Standards (MEES) come into force across England and Wales, and yet more than 400,000 properties currently fail to meet the energy performance standards, which means that many buy-to-let landlords need to take action now if they wish to avoid legal headaches in the near future.

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What landlords need to think about for 2018

It looks as though 2018 will be a mixed year for landlords. Some will start to feel the pinch of the legislation that’s recently come into force, such as the loss of mortgage interest relief, while a number of tenants may give notice, due to incentives to buy. At the same time, there are likely to be some good deals around for landlords looking to expand their portfolios. For the rest, who may not have the means to buy in the next 12 months, it’s a good opportunity to take stock of their portfolio and make small improvements where needed to help translate rental income into better profits.

Do your due diligence before acquiring new properties

Landlords with four or more properties who are planning to expand their portfolios in 2018 need to make sure they understand the new portfolio lending criteria that came into effect on 1st October. With the additional information that lenders now require for the mortgage application, all landlords should be prepared to monitor the value, income, expenditure and level of borrowing associated with each investment property.

Landlords who took out the high loan-to-value mortgage deals that were available in the past might find that although they want to buy, they can’t because they’re too highly leveraged. In that case, 2018 could be a year of reinvesting rental profits into paying off mortgage loans in order to reduce the LTV of the portfolio and aim for LTVs of 75%. For more information please contact Gail at Alexander Chase on gailnorris@alexander-chase.co.uk

Check the market for bargains

Those landlords who are able to buy next year are likely to face less competition from other investors than in the past, as many will be holding back in light of the ongoing profit squeeze. In addition, the continuing pressure on affordability for homeowners means that well-capitalised landlords should be able to take advantage of some good deals in cheaper parts of the country, particularly from vendors who are under some time pressure to sell.

A ready-made income stream

Given that around a fifth of landlords plan to sell some or all of their properties in the next few years, according to a recent CML survey, there are also likely to be some ‘ready-made’ rental deals on the market. There are some real benefits to this kind of purchase:

  • If a landlord is keen to offload their investment, especially if they’ve held it for several years and have little or no mortgage borrowing, they may be prepared to do a deal for a quick purchase
  • The property should be in ready-to-rent condition, meaning little or no additional capital input is required.
  • It could come with a sitting tenant, meaning income from the moment the purchase completes.

However, make sure you have a lettings legal specialist handle the purchase so tenancy contracts are thoroughly checked and understood.

Review your portfolio with an IFA

Although there is likely to be a slowdown in the supply of new rental properties coming to the market, due to the increased financial and mortgage regulation burden on landlords, landlords may struggle to increase rents during 2018 because wages are still rising at a slower rate than inflation.

On top of that, Capital Economics expects the typical mortgage rate to rise above three per cent by the end of 2019, off the back of successive Bank of England base rate increases. That means landlords who are not on fixed rate deals will need to keep an eye on their profits, especially if their local market is unable to support an increase in rents.

As such, if you have not carried out a financial portfolio review recently, it might be wise to consult with an independent financial adviser and/or property tax specialist early in the new year and, of course make sure you speak to your mortgage broker. They can consider your property investments and should be able to make recommendations on how you can maximise your profits.

Make sure you have the right managing agent

The raft of government-driven legislative changes that we have seen over the last decade is showing no sign of letting up, so it’s vital that landlords understand and keep track of new and upcoming legal changes through 2018. Three key things that will soon affect all letting agents are the obligation to take out Client Money Protection insurance, the upcoming ban on letting fees for tenants and regulation of agents, which is coming into force in Scotland after 31st January and therefore likely to follow for England in the near future.

The simplest way for landlords to make sure their property is legally let and both they and their tenants are properly looked after and protected, is to engage a managing agent that is a member of ARLA Propertymark or RICS. That guarantees rental monies and gives you peace of mind that your let will always comply with the latest legislation and be professionally managed.

The property market today is very different to that of a 15-20 years ago, when the steep growth in capital values meant it was easy to make money from property. But far from being a bad thing, the aftermath of the credit crunch has resulted in the development of a more regulated market, increasingly professional landlords and a more responsible industry – and that has led to safer, better homes for tenants. And as long as investors continue to buy and let with caution and care, the signs are that both the property market and investment returns will continue on their current steady growth path.

Legislation for 2018: round up

Thankfully, the Autumn Budget didn’t have any nasty surprises for landlords this time, but 2018 is going to be the year when previous legislation and pledges made in February’s Housing White Paper really start to take effect. There are also a number of consultations in the pipeline, which landlords have the opportunity to get involved with, via the government’s website.

April is when two key pieces of legislation will impact landlords. Firstly, it will become illegal to create or renew a tenancy agreement for a property that has an F or G rating on the Energy Performance Certificate. So, if you know your property isn’t up to standard, you have just three months to upgrade and install energy efficiency measures (unless the property is exempt). You should then arrange for an up-to-date EPC assessment to confirm that your rating meets requirements. If your property is found not to be rated E or above, the council can issue a civil penalty of up to £4,000.

The second thing to remember is that the second phase of the withdrawal of higher-rate interest relief comes into effect. From the tax year 2018/19, buy to let investors will only be able to deduct 50% of their finance costs at the higher rate; the remaining 50% must be claimed at the basic rate of 20%. If you haven’t already done some forward projections to 2020, when the 20% rate will apply to the full mortgage interest costs, now is the time to do so.

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STAMP DUTY ABOLISHED IMMEDIATELY for first time buyers!

If you haven’t already heard, first time buyers will NOT pay stamp duty up to £300,000 with immediate affect. We are still waiting on clarification if this applies to people who have already exchanged. This could save some first time buyers up to £5,000, which will certainly help people moving onto the property ladder.

As this will now bring more first time buyers out of the wood work it will increase demand at the lower end of the market place. The ripple effect of this will see demand for people to move up the property ladder, so larger family homes will also see the benefit.

This is great news to our local market and the UK property market as a whole, which is much needed due to the constant negative news stories surrounding the property market recently and Brexit causing uncertainty.

The other good news is funding for new builds will be supplemented by £44bn which should fuel a very positive housing market in 2018 and going forward.

If you would like any advice on how this may effect you directly please do not hesitate to contact me personally.

 

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Keeping money aside for expenses

Renting a property is as simple as purchasing the property and letting it out, you need to ensure the property in maintained and that you money set aside to cover these expenses. Although lenders will typically require the rental income of your investment property to be at least 125% of your mortgage payment amount, this doesn’t always mean that the property will generate positive cash flow or give sufficient net profit to cover all the expenses of maintaining the rented property over the typical 15 to 20-year ownership.

As well as regular and one-off maintenance expenses, allowances need to be made for times when there may be no rental income. Tenants may stop paying their rent and the property is sometimes empty between tenancies, and you still need to be able to cover the mortgage and other costs during this time.

It is therefore vital that you budget properly to ensure that the investment is worthwhile and not going to cost you money month-on-month, before you commit to buying a property to let.

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which landlords insurances are available?

Landlord insurance is similar to your normal home insurance but is designed to cover rental properties. Your standard home insurance will not be adequate for covering buy to let properties also.

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i have just purchased my first btl property and would like to know what reference checks you conduct on tenants?

We employ the services of an external referencing agency to ensure thorough checks are carried out on every applicant. These include, full credit checks, employment references, affordability checks and previous accommodation reference. We are also required under the immigration Act to check each applicant has the Right to Rent in the UK. As an agency it is important for us that we find you the right tenant for your property.

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i am looking at renting out a property, should i rent it with or without furniture?

The question of renting a property furnished or unfurnished does depend on the location and type of property. For example, if your particular property is more suited to a family, they may already have their own furniture which they would prefer to use. However, young professionals renting flats may prefer the property to be furnished. One of the most important things to note is that any furniture supplied must comply with safety regulations and if it was to break you would have an obligation to provide a replacement for the tenant.

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i have been living abroad for some time and would like to rent out my property in the uk. what do i need to know about tax?

As an overseas landlord, your letting agent would be required to deduct tax from your rental income before sending it to you unless they have permission from HMRC to pay the rent to you in full. This tax would then be paid to HMRC quarterly and at the end of the tax year you would be provided with a certificate in order to complete a self-assessment tax return and prove how much tax you have paid. If you would prefer the rent to be paid in full so you could complete a tax return and pay any money owed directly, HMRC will provide your letting agent with an approval number once you have registered with them which they need to pay the rent to you in full.

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why do i need an inventory? it’s just walls and carpets, there is no furniture in the property.

An inventory is a list of all items in the property, the walls, flooring, fixtures & fittings are just as important as any furniture as these can still be damaged by the tenant. Once a tenancy has come to an end we conduct an inspection based on the original inventory to establish whether the tenant has caused any damage above fair wear and tear in order to recover any costs to rectify the issues from their deposit.

If you have a question big or small email marplelettings@julianwadden.co.uk with the Subject Ask Jonathan, looking forward to hearing from you.

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