Archive for April, 2016
Many mortgage lenders are now tightening their lending criteria following changes to legislation on tax relief for landlords. The Guardian reports Nationwide’s response to this:
Nationwide building society is tightening up its criteria for lending to buy-to-let landlords ahead of changes to how much tax relief they will be allowed to claim against their repayments.
Landlords who take new loans from the society’s specialist arm The Mortgage Works (TMW) will only be able to borrow up to 75% of a property’s value, instead of the current 80%, and will have to prove that their rental income is at least 145% of their monthly mortgage payments. Currently the figure is 125%, in line with most other lenders.
The changes come ahead of new rules on mortgage interest relief for landlords, which will begin to take effect in April 2017, and as the Bank of England attempts to rein in buy-to-let lending.
Under the tax changes, landlords who can currently get tax relief of 40% on their interest payments will see the amount reduced over five years to 20%. Lenders have also been told to consider the borrower’s costs associated with letting the property, including tax costs, when they assess affordability for loans.
Nationwide’s changes to the rules on rental income, which come into effect on 11 May, will mean that a landlord who takes £10,000 a year in rent will see the maximum loan they can have reduced from around £160,0000 to £138,000.
Alternatively, if they want to borrow up £160,000 at 65% loan to value “they will have to source a property that will yield an extra circa £130 in rent per month”, the lender said.
Paul Wootton, the managing director of TMW, said the move was designed to help landlords strengthen their cashflow position “and help them withstand the impact of increased costs from the new tax regime”.
He said: “As a responsible lender, this change is a pro-active move that recognises the need to help safeguard rental cover for landlords over the coming years, and in advance of the forthcoming changes to mortgage interest tax relief.”
Andrew Montlake, the director at Coreco Mortgage Brokers, said the change showed that lenders were starting to worry about how recent tax changes would effect landlords’ income in the future.
“I suspect they will not be the last to change their rental calculations with this in mind and landlords should review their portfolio and financing requirements sooner rather than later, as well as making sure they are aware of the very real effects these tax changes will have on their future income,” he said.
“The worry is that this will hit not just landlords, but tenants too in the form of higher rental payments at a time when many are already stretched”.
Other lenders have been making changes to criteria, with Barclays increasing the rent needed to cover repayments to 135% in December. Borrowers who do qualify for loans, however, are being offered record low rates.
Letting Agent Today reports the large drop in rental housing, following information from the Association of Residential Letting Agents:
The supply of rental housing stock on letting agents’ books fell sharply in March, to the lowest level since the start of last year according to the Association of Residential Letting Agents.
Demand also dropped in March; ARLA agents had 33 prospective tenants registered per branch on average, down 11 per cent from 37 in February. This stands below the figure recorded in March last year when agents registered 36 on average.
Supply has also fallen year on year. In March 2015, the average number of properties managed per branch was 192, which is down 12 per cent this year with just 169 rental properties managed per branch- the lowest level since records began in January 2015.
It’s a brighter picture in Scotland, where agents had on average 273 properties on their books, and Yorkshire and Humberside, where 207 properties were recorded on average per branch. In London however, agents had just 122 properties on their books per branch.
In March, some 65 per cent of ARLA agents predicted that current and prospective buy to let landlords will walk away from the market following the April stamp duty changes, causing a decrease in the supply of rental properties.
Rent costs rose in March for a third of tenants and three in five ARLA members fear they will increase further as a result of the changes.
“We don’t expect falling supply to stop here – the recent stamp duty changes are very likely to cause supply to decrease even further, as landlords withdraw from the market” says David Cox, the association’s managing director.
April brings New Legislation For Letting Agents and Landlords – iConn Property Management, Canterbury0
New changes to legislation came into effect at the start of the new tax year (1st April 2016).
The big four legislations for lettings and buy-to-let include: SDLT changes, the abolishion of Wear and Tear allowance, tenants right to request energy efficiency improvements, and Universal Credit. ARLA explains:
Higher rates of Stamp Duty Land Tax for buy-to-let properties have now been introduced and apply from 1 April. A surcharge of 3% will be payable on all buy-to-let properties and second homes.
David Cox, ARLA MD said: “We’re about to see supply nosedive, demand sky-rocket and rent prices go through the roof. The introduction of the new stamp duty charges is set to push the private rental sector into a state of despair.” “In order for landlords to be able to afford to own a BTL property, tenants will begin to see the additional costs passed onto them, which means they could see less money spent on maintaining their property, and also an increase in rent costs.
Wear and Tear Allowance
The current 10% Wear and Tear Allowance which allows landlords to reduce the tax they pay, regardless of whether they replace the furnishings in their property, will be replaced. From April 2016 landlords will only be allowed to deduct the costs they actually incur for replacing furnishings in their rental properties.
Right to request energy efficient improvements
Tenants now have the right to request energy efficiency improvements to the property they are renting that may not be unreasonably refused by their landlord, provided that:
– The measure is one of the energy efficiency measures listed in the Schedule to the Green Deal (Qualifying Energy Improvements) Order 2012, or is a measure to be installed in order to connect to the gas network;
– The improvements can be financed at no cost to the landlord – this may be from central government, a local authority or any other person;
– It can be wholly funded by the tenant/s themselves;
– OR it an be wholly financed by a combination of two or more of the financial arrangement listed above.
Universal Credit is a new type of benefit designed to support people who are on a low income or out of work. It will replace the six outgoing benefits including housing benefit and is currently being rolled out across the UK.
In times of many recent legislative changes, Landlords and Letting Professionals are put under pressure to keep up-to-date with all new regulations. As licensed members of ARLA, landlords and tenants are guaranteed to be using a professional agent that understands and complies with the current legislation and best practice. iConn are “governed by a Code of Practice”, and therefore able to provide a framework of ethical and professional standards at a level far higher than the law demands, making sure our landlords and tenants remain in safe hands.