Buy-to-let

Vast majority of BTL landlords remain committed

An overwhelming majority of buy-to-let landlords are optimistic about their future in the private rental sector with 84% looking to maintain or expand their portfolio over the next 12 months, fresh research shows.  Just 16% of landlords are looking to reduce the number of properties they have over the next 12 months, according to the latest report published by The Mortgage Lender.

The report, ‘The Mortgage Lender, Buy-to-let: The Landlord Experience’, reveals that the most common number of properties for landlords is between two and four – 45% – while 11% of property investors are now using a limited company structure for their investments.

The report also shows that around half of all landlords agree that tax changes have led to a reduction in the number of private landlords, but just 1% think that has led to a rise in the quality of rental properties. Meanwhile, just 15% of landlords are seeking out specialist tax advice about their rental properties, while only four in 10 – 42% – are using a specialist buy-to-let mortgage broker when organising their borrowing.

Peter Beaumont, The Mortgage Lender’s deputy chief executive, commented:

“Our special report provides an in-depth guide to the buy-to-let market, including landlord obligations and yields around the country.” 

The report also reveals that property maintenance, care of property and tenant behaviour are the top three concerns keeping landlords awake at night.  Beaumont added: “Our panel of landlords have shared their worries and opinions with us and we’ve included landlord case studies to demonstrate the depth of borrower circumstances we are dealing with on a regular basis.”

Barclays introduces fresh rate cuts

Barclays has introduced a new set of rate reductions to its buy-to-let and residential ranges. In total, there have been 19 changes, with cuts of up to 0.13%.

In Barclay’s BTL section for purchase and remortgage, the 60% loan-to-value (LTV) two-year fix with £1,795 product fee has had its rate cut from 1.42% to 1.37%. 

Barclays recently launched a new five-year fixed rate buy-to-let product at 75% LTV. The purchase only deal is available at 2.19% and is subject to a £1,295 product fee. Last month, the lender cut its 75% LTV two-year fixed rate deal from 1.68% to 1.65%. This deal is subject to a £1,795 fee and a maximum loan value of £1m.

Craig Calder, director of mortgages at Barclays, said: “The new reductions we have announced will ensure we continue to offer a highly competitive fixed rate range that provides certainty of payments.”

Leeds BS launches 10-year fixed rate mortgage range

Leeds Building Society has this morning launched a new range of 10-year fixed rate buy-to-let products. There is a product available at 2.49% up to 60% loan-to-value (LTV) and 3.29% deal up to 70% LTV. Both products are subject to a £999 product arrangement fee and come with free standard valuation and fees assisted legal services.

Matt Bartle, director of products at Leeds Building Society, commented:

“Our new ten-year buy-to-let products provide additional choice for landlords, and follow our recent rate reductions and the introduction of new cashback incentives in our range.

“Longer term fixes provide landlords with the opportunity to budget for their mortgage costs over a decade, as well as saving any fees associated with remortaging during the period.

“In the current rate environment, fixing for a longer term offers landlords some security at a time of economic uncertainty.”

Are you entitled to a stamp duty rebate

Primas Law is urging landlords and property developers to seek legal advice about potential stamp duty rebates on ‘uninhabitable’ second properties after a landmark tribunal case. A recent ground-breaking case, between P N Bewley Ltd and HMRC, held that properties that are not immediately habitable at the time of completion do not constitute as a “dwelling” for the purpose of the Finance Act 2003.

This finding could have major implications for the UK housing market, according to Primas Law, as the decision meant that P N Bewley was not liable to pay the additional 3% stamp duty surcharge applicable to second homes. It could mean that those who have paid stamp duty on similar uninhabitable properties – including potentially thousands of landlords and developers – may have paid an inappropriate level of tax and could seek to reclaim them.
Consequently, Primas Law is being instructed to act for a large and growing number of landlords and developers seeking to recover stamp duty paid for properties that, potentially, should not have attracted the additional tax.

Daniel Thomas, Head of Litigation at Primas Law, said: “To provide more context to this particular case, the property that P N Bewley purchased was a bungalow and a plot of land in Western-super-Mare.

“The company’s intention was to demolish the bungalow and build a new dwelling on the land with planning permission already being granted. The bungalow was essentially a derelict building that had been unoccupied for around three years.

“The tribunal was provided with photographs of the derelict building and these demonstrated the heating system, radiators, floorboards and pipework had been removed, and that the property – both internally and externally – was in a very poor condition.

“It was also provided with reports from surveyors that concluded asbestos was present in the property and urgently needed removing.”

COMMENT

If you are a developer and are buying property unfit for habitation, then this law could definitely apply, but you may need to use a solicitor who is up to date with property law, as most who simply deal with run of the mill conveyancing may not be aware of this law, or not familiar with the process of appeal, meaning that you could potentially pay out many thousands that you need not pay.

Government attacking Landlords

Earlier this month the Tenant Fee Ban was introduced, after much fanfare from the Government. However, it is not the only piece of regulation and policy change set to affect the landlord market this year. It joins what can only be described as a slew of restrictive government policies – including tax changes, tougher HMO requirements and the recent announcement / threat to ban ‘no fault’ evictions– which many would agree amount to an unfair and sustained attack on the landlord market.

It is clear the government seems to have forgotten landlords are often just ordinary, hardworking people and savvy investors,who have saved to buy an additional property as a nest egg or source of income. A report from the Institute of Economic Affairs (IEA) recently criticised the government’s approach, concluding landlords are unfairly being discriminated against and scapegoated for the rental housing crisis.

By squeezing profit margins and pushing landlords to exit the market, there is a very real danger that the recent government policies will start to undermine the UK rental sector altogether. The fact of the matter is, the rental market is growing, and landlords fulfil an incredibly important role in providing essential property stock. Instead of increasing red tape and making it harder for landlords to turn a profit, the government should be supporting and encouraging the sector.

Appropriate planning is now incredibly important to ensure you avoid any financial, practical or legal ramifications of new and upcoming legislation. So, as a landlord, what should you be doing to navigate this new regulatory landscape and make sure your assets are protected?

As most will know, the Tenant Fee Ban means the only payments that can now be levied at tenants by landlords or agents are rent, dilapidation deposits and default fees, with the deposit limit reduced from 6 weeks to 5.However, the biggest danger for landlords is the removal of an agent’s ability to charge for tasks like reference checks. Nightmare tenants can wipe out profit through property damage or failure to pay rent. It is therefore vital to commit to paying for reference checks and a rent guarantee to ensure all parties are fully protected. Alternatively, make sure you are using a reputable agent who will continue to carry out these tasks properly, potentially by using deposit replacement schemes that include these as standard.

Another significant change has been to HMO licenses, traditionally required in any property where five or more people live over three floors but are not part of the same family. Non-compliance can result in unlimited fines, a criminal record and a ban from acting as a landlord in the future. What many don’t realise is that HMO rules can be different for each borough, and numerous councils are getting much stricter about enforcement (encouraged by the fact they now profit from any fines!). For example, in Camden, London, HMOs are now required for any property with three unrelated persons, and also within properties on a single floor. Tenants are also being invited to report non-compliance, encouraged by the fact that landlords can be forced to repay all rent to tenants for the length of their contract. In just one of the London boroughs, there have been 1,200 prosecutions of landlords and agents for HMO breaches in the last five years, so ensuring you are HMO compliant by checking your borough’s specific rules is an absolute must.

On 20th March this year, the Homes Act 2018, or ‘Fitness for Human Habitation Act’, also came into effect. While not entirely new, rather a clarification and bringing into line of previous legislation, it is harsher in a number of ways. There are now 29 hazards that landlords are responsible for monitoring – including damp, mould, cold, asbestos, heat, and radiation to name a few. Tenants can take landlords to court and sue if it is found they have failed to maintain standards in one of these areas. The problem here is that it can be incredibly difficult, as an independent landlord, to both have the necessary knowledge on these matters and make sure you are compliant. This is where a knowledgeable and reliable agent or adviser is key.

Finally, the government have also announced that they intend to end ‘no fault evictions’, by removing the Section 21 notice. Although their proposals presently lack any real detail, this will make it even harder for landlords to get rid of disruptive tenants. Their current suggestion that Section 8 notices should be used instead, by which grounds such as failure to pay rent must be provided for eviction, are little comfort thanks to a backlogged court system thatwith three-to four-month delay in hearings can make this an incredibly lengthy and costly option. Given the lack of detail, there might still be opportunity to adjust this law, and so lobbying MP’s and Parliament members on this could provide some relief.

Rental yields are improving and buy-to-let can still prove to be a good investment for many, so you should not necessarily be put off. However, it is vital to remember the onus is now on you to put the necessary precautions in place to protect both your property and rental income.

COMMENT

Increased costs, devastating changes to Tax allowances, ridiculous legislation designed to create many ways for landlords to trip up and be unable to evict tenants. The end of the S21, it is time for Landlords to fight back. I am in favour of AST properties to be removed from the market EN MASS. It is not difficult to cover a long term rent with short term yields and it will finally turn the table on this spitefully draconian attitude towards Landlords.

Buy-to-let landlords in for a Tax shock

It’s now three years since the then Conservative Chancellor George Osborne introduced a series of measures aimed, principally, at cooling the overheating London housing market. The inexorable rise of property prices in the Capital threatened to create a financial bubble of potentially devastating proportions whose impact would ripple across the UK when it inevitably burst.

With the effects of the 2008 crash still being felt, the last thing we needed was another recession and the measures were generally seen as sensible. House prices in London were becoming dangerously out-of-step with the rest of the country and something needed to be done. The boom was fuelled by a massive inward flight of capital, mainly by rich investors from the far and middle east and from Russia.

But, as with most macro-economic measures aimed at achieving a political objective, there are unintended consequences and those are now coming back to bite us. The Chancellor, who promised we were “all in it together” at the height of austerity is now, of course, long gone – reclining in the Editor’s chair of the London Evening Standard and tinkering with operations at the many companies with whom he holds six-figure directorships.

And the people left to pick up the pieces are the thousands of small, buy-to-let landlords and potentially tens of thousands of private tenants whose lives are about to be turned upside down, as a result. The first of the punitive tax measures introduced by Osborne to discourage people from investing in residential propertywas a 3% hike in stamp duty (Land and Buildings transaction Tax in Scotland), which was followed quickly by the introduction of stress tests for buy-to-let mortgages.

At the same time, headline rates of Capital Gains Tax (CGT) paid on profits from asset sales were cut from 18% to 10% for basic rate taxpayers and from 28% to 20% for higher rate taxpayers. But it was a third measure – the phasing-out of mortgage interest tax relief on rental income – that will have the most devastating implications when the first tax demands start to land on doormats at the end of next month.

For the first time, landlords will have to pay tax at the upper rate of 50% on income earned on property rental. In some cases,there will be a doubling or even trebling of previous rates paid. HigherIncome Tax bills, due to be paid the day after they arrive, could spell disaster for thousands of landlords across the UK, placing further stress on local authority housing and making many more people homeless.

Research done by Touchstone Education and other organisations suggests that few landlords are aware of the impending changes, contained in Section 24 of the Finance Bill 2015-16 – also known as The Tenant Tax – and even fewer have made any preparations to deal with them. A survey by Tenant Referencing UK earlier this year found that 70% of landlords were unaware of the changes.

The few landlords who do know about the tax rises have been left with no choice but to evict tenants and sell-up or to increase their rents.

Anecdotal evidence from Touchstone Education’s regular Six Figure Summits – at which we offer property investors advice on how to maximise their income – suggests that thousands of landlords have already exited the buy-to-let market, switching their investments into commercial properties or serviced accommodation.

Those who remain,and are unaware of the changes, will have to pay punishingly high tax bills the day after they file Income Tax returns at the end of January and many don’t know they’re sleepwalking towards bankruptcy.

A landlord who attended one of our Six Figure Summits will have to find an extra £120,000 because of the additional tax burden on his property portfolio. His accountant failed to alert him to the changes,but he learned about them elsewhere and now he’s taking steps to deal with it. We’re working with him to find legitimate ways of reducing his exposure.

It was a shock for him but at least he found out in time – there are thousands of others for whom it will be too late, unless they act now. There areseveral HMRC-approved measures that can mitigate the impact of these punitive measures, including claiming capital allowances for residential properties that have been re-designated asserviced accommodation, also known as furnished holiday lets.

We are working with landlords who have been able to claim hundreds of thousands of pounds in capital allowances against their property portfolios, which means they can earn income and pay little or no tax. The highest individual HMRC-approved claim so far is for over £650,000.

Investing in buy-to-let has been a popular way to make money in the past and owners are now having to find ways to diversify. These draconian tax measures shouldn’t mean the end, there are other ways to earn a decent return on residential properties, you just need to know about them.