Even though the government seems to have been subjecting buy-to-let property investors to a non-stop barrage of financial attacks, the fact still remains that the laws of supply and demand still favour property investors. At this point in time, however, it is no longer possible for investors simply to blunder into property blind and wait for a rising tide to do its work. Now property investors really have to be careful to buy the right properties, in the right locations at the right prices and to be completely sure that their numbers add up. With this in mind, here is a quick guide to the key points of buy-to-let finance.
Mortgage Tax Relief is coming to an end
This fiscal year is the last year in which Mortgage Tax Relief will exist at all and only in a very reduced form. The announcement that Mortgage Tax Relief was to be abolished was widely reported in the financial press, as was the fact that the change meant that some landlords might be better off switching to a limited company structure. This is a complex topic and might be worth discussing with a financial professional. The more simple point to remember is that you will need to factor this change into your financial calculations, especially since you are no longer permitted to charge “add-on” fees to your tenants.
A ban on “add-on” fees
Picking up on the previous point, as of June this year it will cease to be permitted to charge tenants any extra fees over and above their rent. This is entirely separate to the ban on letting agents charging fees to tenants. In principle, this should not actually make any difference to a landlord’s finances because it will simply mean that instead of fees being charged at the time the service is rendered (or shortly thereafter), they will be factored into the level of rent charged, however this does put the onus on the landlord to have a totally clear view of everything which they will need to charge to the tenant rather than only thinking about it when the job needs to be done and billed.
The removal of the “wear-and-tear” allowance
This is another change which really is probably more about administration than finance, the old 10% “wear-and-tear” allowance is no more and now landlords have to itemise each deductible item. In short, if you have never been in the habit of holding onto receipts for maintenance and upgrades to property, then you need to start developing it.
Stamp duty tips against investors and towards first-time buyers
The 3% surcharge on second or subsequent properties, has been a fact of life for some time now, however, the decision to relieve first-time buyers of the need to pay stamp duty is rather more recent. In principle, improving affordability for first-time buyers as compared to other buyers (especially investors) could make it more difficult for investors to secure quality property, but, then again, the fact that buy-to-let landlords will simply pass on their expenses to their tenants may counterbalance this.
The issue of affordability
Anyone interested in starting a buy-to-let portfolio (or expanding an existing one), should be aware that mortgage lenders are now obligated to undertake affordability checks on “portfolio landlords” currently defined as a landlord with four or more distinct mortgaged Buy to Let UK rental properties (or seven or more for remortgage applications without capital raising). This definition could, of course, be updated and/or the requirement for affordability checks extended to all landlords seeking mortgages.
Regulatory issues
As a final point, letting residential property is now a highly regulated activity and regulations can and do change so landlords must keep appraised of them otherwise they risk financial penalties, even if their only offence was an administrative error with no real-world impact.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate some forms of buy to let mortgages.