Over the last few years, a number of regulatory changes have been introduced that have affected the profit that can be made from renting out buy-to-let properties. In addition, landlords are facing new regulatory demands.
New tax rules
Buy-to-let landlords will have their income tax relief on mortgage interest restricted to 20% by 2020, and that’s on top of higher Stamp Duty (and equivalent taxes in Scotland and Wales) and the recent rise in interest rates.
Buy-to-let mortgage advances fell by more than 10% in 2017, as the new tax rules came into effect. Over the period, the value of loans was down 12.3%, with the number of mortgages granted for this type of property falling by 10.4%. Many landlords are said to be considering their options; some are thinking of selling up, and others are remortgaging rather than taking out loans for new property purchases.
Some intent on staying in the market, are considering running their properties through a company, as the tax treatment is more favourable; 18% of private rentals in England are now owned by limited companies.
More licences required
Over 70 local authorities have already introduced licensing for private landlords, with more considering this option. To be licensed, landlords need to meet tenant safety regulations and, in some cases, sign up to a charter. All private landlords in Scotland are required to register with their local authority and be on the Scottish Landlord Register. In Wales they must register with Rent Smart Wales.
The new criteria for Houses in Multiple Occupation (HMOs) will mean that 177,000 properties will need to be licensed. Property occupied by five or more people from two or more households will be considered an HMO, and must meet fire, gas and safety requirements.
A ban on letting fees
In 2019, the proposed ban on residential letting fees for tenants is expected to come into force (Scotland introduced a ban in 2012). This means that common charges associated with reference checking or application processing will be outlawed, and agents may pass these costs on to landlords. The government also plans to introduce compulsory three-year contracts for residential lets in England.
Opportunities still exist
Despite the changes, it is still possible to make a success of buy-to-let. It pays to do your homework and consider the balance between rental yields and capital growth. Location is as important as ever, so too is knowing your market and positioning your property accordingly.