Things buy-to-let property investors need to know in 2019
The key rules for buy-to-let property investors, from letting fees to licensing changes
It’s a confusing time for buy-to-let property investors, with new regulations on fees and licensing joining the raft of tax changes introduced over the past few years. Add to that uncertainty over Brexit and the potential for further base rate rises, and you’d be forgiven for feeling overwhelmed by the amount of flux in the buy-to-let sector. To explain what’s happening and set the changes in context, we’ve listed the 16 most important things buy-to-let property investors need to know in 2019.
1. Letting fees ban
A ban on letting agents charging fees to tenants will almost certainly come into force at some point this year.
The new rules will involve deposits being capped at five weeks’ rent (or six for tenancies that cost more than £50,000 a year), and agents and landlords will be banned from charging fees for anything other than the following:
- contract changes or termination when requested by the tenant
- utilities, communications services and council tax
- issues for which the tenant is at fault, such as the replacement of lost keys.
While the changes are designed to crack down on agents, they’ll also have an impact on buy-to-let property investors, who will face the burden of paying for tenant referencing and inventories – costs that they currently pass on to tenants.
The regulations will only apply in England. Letting fees are already banned in Scotland, and the Welsh government is considering a similar bill.
2. Mortgage interest tax relief
Buy-to-let property investors will continue to feel the effect of cuts to mortgage interest tax relief, which will continue to be phased in until April 2020.
The 2019-20 tax year begins in April, meaning landlords will only be able to claim 25% of their mortgage tax relief when filing their taxes (down from 50% for the 2018-19 tax year).
3. HMO licensing extensions
Changes brought in last October mean thousands of buy-to-let property investors letting shared properties in England will now fall under House in Multiple Occupation (HMO) licensing rules.
Previously, a property was only classified as an HMO (and thus needed a permit) if it was rented to five or more people from more than one household, was at least three storeys high, and had shared facilities.
In October, the three-storey rule was removed, so any large flat or house share of five or more people now requires an HMO licence.
4. Local licensing schemes
As well as mandatory HMO licensing, more than 60 councils in England operate ‘additional’ or ‘selective’ licensing schemes.
Additional licensing is when councils add extra stipulations to the mandatory HMO rules, for example if they feel they don’t go far enough or if the area is having particular issues.
Selective licensing, however, can apply to all buy-to-let property investors in an area. These schemes often require landlords to adhere to a code of conduct or pass a ‘fit and proper person’ test. Licences can cost as much as £600, and those who break the rules face big fines.
5. Rogue landlord database
The government’s rogue landlord database was launched in 2018, though it’s fair to say it hasn’t yet got off the ground.
Research by the Guardian in October found that more than six months after its launch, the database remained empty.
Under the current rules, the database can only be accessed by central and local government officials, though that’s set to change in 2019.
In October, a government spokesman said the database will start to be populated in the new year, and that the information will be openly available to tenants.
6. Minimum space requirements
Regulations governing the minimum size of bedrooms came into force in October.
The new rules relate to the minimum size of ‘sleeping accommodation’ in a rented home. The regulations depend on how many people will occupy the bedroom, and are as follows:
- One person (under 10-years old) – minimum of 4.64 square metres
- One person (over 10-years old) – minimum of 6.51 square metres
- Two people (over 10-years old) – minimum of 10.22 square metres.
Buy-to-let property investors who break the rules can be given up to 18 months to rectify the problem, and those who fail to do so will be fined.
7. Buy-to-let mortgage trends
During such uncertain economic times, it’s important for landlords to be up speed with the buy-to-let mortgage market.
Buy-to-let property investors usually need to prove the rent they’ll receive will cover at least 140-145% of their mortgage payments (known as the interest cover ratio), but some lenders are now cutting this to as little as 125-130%.
Elsewhere, buy-to-let property investors are increasingly looking to longer-term fixes, with five-year deals dropping to the lowest cost on record a few months ago, and more competitive 10-year fixes now coming on to the market.
Shorter-term fixes (such as two-year deals) have been getting more expensive, however, with lenders instead looking to lure landlords with the following…
8. The return of cashback
With base rate rises making mortgage rates less attractive, lenders are increasingly offering cashback on buy-to-let mortgages.
Research by Moneyfacts in November found that 444 buy-to-let deals came with cashback, up from just 291 a year earlier.
If you’re thinking of refinancing your portfolio, it can help to get advice from a whole-of-market mortgage broker.
9. Client money protection
From April, all letting agents in England will need to be members of an approved Client Money Protection (CMP) scheme.
These schemes protect the rent a tenant pays to the letting agent, for example if the agent goes out of business.
While this might sound like good news for landlords, the Residential Landlords Association has wanted that CMP schemes won’t cover the full value of rent and that operators will be able to cap the amount of money they pay out in the event of a claim.
With this in mind, the RLA says landlords with large portfolios should consider spreading their properties across a number of agents.
10. Stamp duty surcharges
The 3% buy-to-let stamp duty surcharge appears to be here to stay – and, for investors in Scotland, it’s getting worse.
That’s because the Scottish government has announced plans to increase the Land and Building Transaction Tax (LBTT) surcharge to 4%, with this rise likely to come into force on 25 January.
11. Three-year tenancies
Remember when three-year tenancies were the talk of the town? Us too, but right now they seem a long way off.
In July, the government stated its intention to bring in minimum three-year contracts with a six-month break clause for tenants, but these reforms seem to have been kicked into the long grass – with rumours last October that they will be scrapped entirely.
Mayor of London Sadiq Khan said in November that ‘ministers already appear to be wavering’ over three-year tenancies, but this could still be one to watch in 2019.
12. Energy efficiency
Minimum energy efficiency standards (MEES) were launched in April last year, meaning that newly rented homes and those with renewed tenancies have to meet an energy performance certificate (EPC) rating of E or above.
But from 2020, these rules will also apply to existing tenancies – so if you have a long-term tenant you may want to spend some of 2019 making improvements to your property’s energy efficiency so it’s ready in time.
Initially, it seemed that landlords who couldn’t secure government funding to make changes could claim an exemption, but in November the government clarified that landlords would be liable for costs of up to £3,500.
13. Leasehold reforms
The government’s attempts to stop unfair leasehold practices – such as spiralling ground rent clauses and high ‘permission fees’ – will step up a gear in 2019.
This is likely to involve the banning of new houses being sold as leasehold, and the possibility of caps on service charges, permission fees and ground rents, though it remains to be seen what will happen regarding existing leasehold properties.
The uncertainty in this area means landlords should pay particular attention to the tenure of properties if they plan to expand portfolios in 2019.
14. Eviction rules
In December, MPs debated section 21 eviction rules after campaigners claimed that the current laws can result in homelessness.
Currently, landlords can give a section 21 notice of possession to tenants to inform them they wish to take back possession of a property at the end of a fixed term or at the time of an agreed break clause.
While there’s no guarantee section 21 rules will be overhauled, this is something to keep an eye on in 2019.
15. Right to Rent
The government’s Right to Rent initiative has provoked lots of debate since being launched in 2016, and that’s unlikely to change this year.
Right to Rent requires landlords to check whether tenants have the right to live in the UK, with the threat of criminal sanctions for those who fail to adhere.
Last year, the Joint Council for the Welfare of Immigrants was granted permission by the high court to proceed with a legal challenge against Right to Rent.
We’d love to tell you that the uncertainty around the UK’s withdrawal from the European Union won’t affect you, but in truth nobody knows for sure what will happen.
When we spoke to Chris Norris of the National Landlord’s Association (NLA) in October, he predicted that ‘landlords with established, well-capitalised portfolios will fare reasonably well, but those heavily reliant on finance may find uncertain conditions more troubling’.
Get professional advice on remortgaging your buy-to-let portfolio
Whether you’re expanding or refinancing your portfolio, the buy-to-let landscape in 2019 is complex and it’s well worth taking professional advice on your mortgage options.