From reduced tax breaks to tougher regulations, in this episode we take a look at the changes that will impact landlords in the year ahead.
Landlords have endured a difficult time in recent years with a raft of tax changes and new regulations coming into force.
Unfortunately, this trend looks set to continue in 2019, although there are some positive developments.
We take a look at the changes that landlords need to be aware of.
- Client money protection
In a development that is seen as being good news for landlords, all property agents in England will have to belong to an approved Client Money Protection Scheme from April 1 this year.
The schemes aim to protect both landlords’ and tenants’ money, such as rent or deposits, if a letting agent goes into administration.
They should also help to prevent money from being stolen or misused. Letting agents face stiff fines of up to £30,000 if they fail to sign up to one of the schemes.
- Mortgage interest tax relief cuts
The level of mortgage interest tax relief that landlords can claim will be reduced further from April 6, with the amount investors can deduct from their rental income falling from 50% of their buy-to-let financing costs to just 25%.
The relief will end completely in April next year, when it will be replaced by a 20% tax credit for mortgage interest. The move will not only leave landlords facing high tax bills, but could also push some basic rate taxpayers into the higher rate band.
- Ban on tenant fees
The Tenant Fees Bill is currently making its way through the House of Lords and is expected to become law in England this spring, depending on Parliamentary time.
The bill means letting agents will not only no longer be able to charge tenants fees to cover the cost of doing credit checks or preparing rental agreements, but the amount tenants can be charged to repair minor damage to properties will also be limited, while security deposits will be capped at five weeks’ rent.
The move is expected to save tenants between £200 and £300, but there are concerns letting agents will simply pass on the costs to landlords.
- Homes fit for habitation
The Homes (Fitness for Human Habitation) Bill is now law, meaning all landlords in England have to make sure their properties are fit for human habitation throughout the course of a tenancy.
If landlords fail to comply with standards set out under the Housing Health and Safety Rating System, their tenants can take legal action against them.
While the bill means higher costs for landlords who need to get their properties up to scratch, it has been widely welcomed by trade bodies in the sector for giving renters greater protection against rogue operators.
- Energy efficiency upgrades
Around 200,000 landlords will have to upgrade the energy efficiency of their property this year. Landlords were previously exempt from meeting the minimum energy efficiency requirements if measures to improve a property would cost more than £2,500.
But the threshold has now been increased to £3,500, meaning fewer landlords will be exempt. The upgrades are expected to cost landlords an average of £3,500 each.
- Longer tenancies
The Government has gone quiet on its proposal for longer tenancies, but rules allowing people to opt for a three-year minimum agreement could still be brought in this year.
The Government wants to see minimum three-year terms to give people who rent their homes more stability, although both landlords and tenants would have a six-month break clause.
More than three-quarters of tenancy agreements are currently for periods of six or 12 months. While the move could be seen as good news, as it gives landlords more certainty, there are fears that it will drive small-scale buy-to-let investors out of the market.
- New housing court
The Government is expected to unveil more details about its new Housing Court during the year. Under proposals previously announced, it would be a specialist court that provided a single route for dispute resolution and redress between landlords and tenants.
The move should make it simpler for landlords to navigate the legal system relating to tenancy disputes, while it could also make it easier for them to evict problem tenants. The Government is currently undertaking a call for evidence on the issue.
- Land and Building Transaction Tax hike
People buying a second property in Scotland face a tax hike after the Scottish Government announced plans to increase the surcharge they pay on Land and Buildings Transaction Tax from 3% to 4%. The rate rise came into force on the 25th of January.
- Rogue landlord database
Although launched in 2018, it is only from the start of this year that the Government’s Rogue Landlord Database is expected to start receiving entries.
The database will include the details of landlords who are convicted of letting substandard properties or flouting their legal obligations.
After previously saying the information would only be available to local authorities, the Government has since decided the public will also be able to access it.
- Competitive mortgage rates
While landlords have been subjected to tougher affordability checks in recent years, there is some good news on the mortgage front, with the cost of buy-to-let deals coming down.
The average cost of a five-year fixed rate mortgage for landlords fell to a record low in the final quarter of last year, according to financial information group Moneyfacts.
The group attributed the fall, which came despite a hike to the Bank of England base rate in August, to the high levels of competition in this sector of the mortgage market.
So that concludes this episode of Ask the Estate Agent Podcast. You can contact us anytime using the links below:
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