New lending rules, introduced on 30th September, have left landlords with fewer options to fund their property investments. The last couple of years have seen several changes to the landlord world, with changes to tax relief, stamp duty and the introduction of many other regulations. The recently introduced rules now mean that portfolio landlords will face much tougher checks when looking for their next investment, seeing their entire portfolio being reviewed during the process.
The information needed by the lender will vary on an individual basis, but it will almost always include rental income, existing monthly repayments, forecasts for cash flow and many other aspects of the investment. This does mean that portfolio landlords will have to endure much more paperwork to see through their investment, but there is also that added risk that they might not be accepted for the mortgage at all. If this is to be the case, they may remain on much higher mortgage rates than is necessary, unable to remortgage to a better rate. Some lenders will now focus on landlords with fewer than four properties, and some have now withdrawn from the market altogether.
With the introduction of stricter rules and a more considered approach to lending, property owners are set to face bigger penalties if they are found to be breaching any of the new regulations. Included in this are unlimited fines for if properties aren’t licensed as they should be, as would be the case for multiple occupation properties. As well as this, penalties of up to £3000 can be implemented if landlords are found to be letting their property to tenants that aren’t legally allowed to live in the UK. With new ‘right to rent’ regulations, landlords are more responsible for running checks on their prospective tenants.
As of April 2018, there will also be new rules introduced based around energy efficiency. These rules will require landlords to ensure that the energy rating of all of their properties in England and Wales is at least an ‘E’, where ‘A’ is the most efficient and ‘G’ the least. If landlords are found not to be complying with these new regulations, they could face fines of up to £5000.
Less Financial Benefits
As of April this year, buy to let landlords have no longer been able to take the full cost of their mortgage interest away from their rental income when considering their tax payments. Instead, landlords have only been able to offset 75% of mortgage interest, and that figure will decrease year on year until 2020 when the figure will be just 20%. This means that for a higher rate taxpayer, their monthly returns will almost be wiped out should the interest represent more than 75% of the rental income. As well as this, landlords are now required to pay a stamp duty surcharge of 3 percentage points on their purchases.
New Rules for Letting Agents
New rules introduced for letting agents are also likely to impact buy to let property landlords. With the planned introduction of the Draft Tenants’ Fees Bill, agents won’t be able to charge potential tenants for acquiring references, signing contracts, protecting deposits or making credit checks. As this is the case, landlords are likely to be effected by receiving higher fees from letting agents than they would have previously.