Buy To Let – the new normal

Mortgages

There have been many changes in buy to let mortgage criteria over the last 12 – 18 months. This is mainly due to some of the sector becoming regulated by the Financial Conduct Authority (FCA), but particularly as a result of the Prudential Regulatory Authority (PRA) review.

Essentially the PRA changes have meant that there are tighter restrictions around underwriting for buy to let mortgages. These include increased stress tests on rental income and from the 1st October, landlords who own more than four properties will be classed as ‘Portfolio Landlords’ and will be subject to more stringent underwriting checks.

The good news is that there is still an appetite to lend. This generally means that lenders will find innovate ways to cater for demand and some products will also fall outside of FCA regulation and / or PRA rules.

There are other options available that include features such as ‘Top Slicing’ (taking into account personal income as well as rental income), no minimum income requirements and some products available up to 85% loan to value. There has also been a noticeable increase in the number of limited company buy to let mortgages available.

This, coupled with the fact that rates are at historic lows, means that you can still get the competitive nance you need. However, it might seem harder to obtain so professional advice is essential.

Property management

As the industry looks to increase professional standards, there are many legal requirements around being a landlord that need to be considered as well as making sure that potential tenants don’t pose a risk.

Choosing a professionally qualified Letting Agent will help make sure you meet your legal obligations around managing your property and make it easier than doing it yourself.

They will be committed to getting you the right price, finding the right tenant, preparing contracts, inventories, assisting with maintenance as well as providing guidance in helping you to meet your statutory and regulatory obligations.

To summarise, property continues to be a good long term investment, but the regulatory and statutory changes means that it’s easy to make expensive mistakes or miss opportunities. However, if you choose the right professional partners that understand your goals and objectives, they can help you to reduce costs, increase income, minimise risk and maximise returns.

Maximise your buy-to-let profits

Mortgage fees

If a mortgage is to fund a new buy-to-let property, you are likely to pay an arrangement fee to your lender (and possibly a broker fee). These charges are tax deductible in the year you set up the mortgage.

Letting Agent fees

A letting agent can help you to achieve the maximum rent for your property and ensure a quality tenant is in place at all times. The fee they charge is tax deductible so remember to declare it.

Building and contents insurance

You will need specialist building insurance policy for landlords, and it is advisable to have contents insurance. These costs are tax deductible.

Ground rent and service charges

A property owned on a leasehold basis will generally require you to pay ground rent to the freeholder. And if you own a flat within a block, a service charge will usually apply. These costs can be tax deductible, along with money paid for services such as gardening.

Maintenance and repairs

From time to time you are likely to have to spend money on maintaining your property. Repairs could also occur from bad weather or accidental damage. This could lead to potential costly work being necessary. In such cases, any monies spent on keeping your property in good condition are tax deductible. However, be wary that some work may be considered an improvement to your property, and while this is deductible against the eventual sale price, it cannot be offset against rental profits.

For more information on reducing your tax liability or making the most of a rental property, please contact Daniel Pockett on 01252 361562 or dpockett@bridges.co.uk

Attention DIY Landlords

Initially it may seem to be more cost effective and a simple process for a potential landlord to find a tenant, manage it themselves and when a maintenance issue arises, just simply call a tradesman to visit the property. Easy! But what would happen if, after a few months things didn’t go to plan. Who would the DIY landlord turn to, to resolve any issues that go beyond general maintenance?

How would they go about dealing with a tenant should they fall into rent arrears, refuse to leave the property, accuse them of treating them unfairly or failing to adhere to their responsibilities as a landlord? These are all scenarios that any landlord must consider before going down the DIY route. For most, the only option would be to seek professional legal advice, on what could be, a long drawn out and extremely expensive process. This is where using a licensed letting agent is worth every penny.

Getting the best price

How will a DIY landlord know if they are getting the right price in a market that is changing so fast and with limited methods of exposing the property to a wide audience? Our team of Client Managers are market experts in their areas of operation putting them in the perfect position to o er landlords the correct pricing advice.

“We have nearly 1000 properties in our portfolio so there is every chance we have recently let one just like yours!”

Our marketing is everywhere including a strong web presence with bridges.co.uk as well as Rightmove and Zoopla so our landlord’s properties are seen by the maximum amount of potential tenants.

Finding the right tenant

Securing the right tenant at the beginning is crucial for a successful let. A tenant must go through and pass a full referencing process to clarify their position. This will include: a clear credit history, a positive previous landlords reference as well as confirmation of their employment status and affordability. Would a ‘bad’ tenant look to source their next home through a licensed letting agent or a DIY landlord?!

Preparing the contract

The contract you are entering into should be prepared by a qualified legal firm. We advise our landlords on current legislation and ensure that they are fully compliant. We will also register the tenants deposit with the TDS (Tenancy Deposit Scheme) and it will be protected throughout the duration of the tenancy. The deposit will need to be re-registered upon the renewal of the tenancy and that will also be dealt with for our clients. Our Move Co-ordinators will prepare all the legal paper work and confirm any special conditions that have been agreed. How will a DIY landlord navigate this legal mine field?

Importance of inventories

At the beginning of any tenancy we feel that it is a vital part of the letting process to ensure our landlords have an in depth condition report of the property prepared. As this is not a legal obligation many landlords feel this is something they can do themselves to avoid any additional expense. However, failure to have this carried out and prepared by a professional inventory clerk, will leave the DIY landlord exposed legally and give them little chance of negotiating and receiving any reimbursement for damages caused by their tenant. We use an independent inventory firm to strengthen our client’s position.

Maintenance at the property

To ensure the property is always kept to the highest standard it is important that any maintenance issues are dealt with immediately.

“It may sound a simple task to find a plumber, electrician or general handy man in the event something happens.”

However, if the DIY landlord were to get that call from the tenant in the early hours, over a weekend or on a bank holiday, could they locate a professional, qualified and insured contractor to visit the property straight away? Further more, what would their tenant qualify as an emergency and would they take it upon themselves to organise this at their landlord’s expense? Our property managers have a list of professional, qualified and insured contractors at their disposal should things go wrong.

When you instruct Bridges to manage your rental property…

…you are doing so in the knowledge that you have a fully dedicated and experienced management team that are on hand to answer and deal with any situation as it occurs. Our staff will keep you up to date with any change in legislation, deal with any dispute with the tenant should it arise and have a legal team to o er sound advice when needed.

DIY Landlords should also consider:

  • Any fee they pay to an agent is tax deductible
  • The average fully managed tenancy lasts far longer than the average DIY tenancy
  • A good agent will experience far fewer arrears problems on their tenancies
  • Some good tenants, including relocation companies and direct company lets will ONLY deal with licensed agents that are fully managing the property
  • Would a ‘bad’ tenant look to source their next home through a licensed letting agent or a DIY landlord?!