Welcome to this fact filled post, specifically for landlords. Residential lettings are going through a myriad of changes brought about by new legislation making the process of renting out property more complicated than it has ever been. The legislation is designed to improve standards which must be welcomed as a positive thing. Earning an income from buy to let involves more than simply sitting back and watching the rent roll in. Changes in private rented sector regulation, tenancy disputes, maintenance issues, tax calculations and more combine to make being a landlord more challenging than it can sometimes look from the outside.
A full and professional approach is needed to ensure that properties and tenancies are compliant with legislation. Without the correct tenancy documentation in place, it is unlikely to successfully get through a court eviction process if a tenancy turns bad. Without a fully compliant property, landlords and agents can be issued with a banning order preventing them from operating in the future.
Local councils, including London Borough of Havering, are making their licensing conditions tougher. One of the first borough to introduce landlord licensing was Newham where the council were dealing with a high proportion of poor quality rental properties. Poor conditions and overcrowding were commonplace. Barking and Dagenham followed suit not long after Newham and now Havering are doing the same in some locations as a test before rolling out the regulations borough wide.
Here is a recent press release from Havering Council.
Prior to 1st October 2018 any property used as an HMO (House of Multiple Occupation) that was over three stories required a Mandatory HMO licence as set out in the Housing Act 2004. From 1st October this year, that three-storey criteria has been removed. Now all HMOs housing five or more occupants, from at least two unrelated households require a Mandatory Licence, irrespective of the number of floors.
Havering Council have also introduced an Additional Licensing requirement in certain areas. Have a look at the map on this link.
They have also changed the HMO definition to include three or more unrelated people. This has a massive impact on many private rented properties in today’s market where many tenants share homes. At Accord we manage some properties which are shared by two couples. This is a very affordable, and acceptable, way for people to live. When the couples are not legally married, they are considered as unrelated for the purpose of the licence requirements, even if they have been together for many years and have children. I cannot help but think that these people will end up being disadvantaged by these new rules. The new rules will also give landlord and agents the extra responsibility to obtain proof from applicants to confirm their marital status or relationships to family.
The licensing process is complicated and costly. An Additional Licence costs £865 (or £900 if landlord/agent is not accredited). This licence is valid for five years and requires you to meet the Private Rented property Licensing Accommodation Standards, which can be seen below. An HMO Licence costs between £1115 and £1788 depending on the property size.
Property standards are very important. On a personal basis, I would not want to find tenants for a property that I would not be prepared to live in myself. However, I cannot help but think it would be better if the council were able to concentrate on cases where there is a problem, rather than inflict the licensing fees on landlords who, as a matter of course, take pride and care to offer decent homes to decent people. Licensing means councils spend their time administering schemes, rather than enforcing against rogue, criminal landlords. According to ARLA, Propertymark, this is a fact that has been proven time and time again over the last decade.
MORTGAGE INTEREST RELIEF DEDUCTIONS RESTRICTIONS
In April 2018, stage two of the changes to the amount of Interest Tax Relief landlords can claim on mortgage interest (and other property finance costs) began. By 2020 landlords with buy to let morgages will no longer be able to deduct mortgage costs from their rental income. The phasing in of these rules are as follows:
75% for 2017 to 2018
50% for 2018 to 2019 (current tax year)
25% for 2019 to 2020
0% for 2020 to 2021 and beyond.
This may have a significant effect on the profitability of investment property. If landlords decide to pull out of the investment property market, then supply of rental property could be affected. Surely the UK cannot afford to have more homeless people?
There is a lot happening and it is all very significant, changing the way we need to work and our ability to make a profit in the world of residential property investment.
Over the coming weeks, we will update you with more important information