It has been a challenging few years for buy-to-let landlords, with the tapered removal of mortgage interest relief and the introduction of a stamp duty surcharge.
That’s on top of the difficulties and uncertainty which coronavirus threw everyone’s way.
Things rarely stand still though, and if you are a landlord there are a host of new issues to stay abreast of at the start of 2022 – some favourable, others posing further challenges. Here, we take a look at five of the main issues for you to consider.
One – Tighter energy efficiency regulations beckon
You’ll know that energy performance certificates record how energy efficient a residential property is on a scale of A-G. Already, rental houses must be rated E at a minimum, unless you have an exemption.
But the Government is working towards gradually raising this minimum to C, starting from 2025. It’s to help the country achieve net-zero carbon emissions by 2050.
It is reported that 3.2 million privately rented properties will need upgrading if they are to be compliant with this new regulation – work such as installing insulation, double or triple glazing or an air/heat pump boiler.
If your property is affected the costs could be substantial, although they are currently capped at £3,500. If you spend up to this and don’t meet the minimum standard you can apply for an exemption. Start planning your course of action now.
Two – Are you compliant with the new electrical safety and gas safety regimes?
Last year, it became compulsory for almost all rented properties to have an electrical inspection and be issued with an electrical inspection condition report (EICR).
If the report states that remediation is required for reasons of safety, then this must be carried out accordingly. You must send a copy of an EICR to your local authority if it shows that the condition is unsatisfactory.
The reports last for five years, at which point the property’s electrics must be inspected again. Local councils have the power to issue fines up to £30,000 where the inspections have not been made or remedial work not carried out.
If you are behind with this, it is important to address the situation as soon as possible – for the safety of your tenants as well as the legal risk.
It is also necessary to have a Gas Safe registered engineer perform an annual gas safety check and issue a certificate.
Three – Rents on the rise?
According to research from Zoopla, the quantity of available homes for renting is 43% below the five-year average.
This may be exacerbated by significant numbers of landlords choosing to sell off rental stock rather than face ever increasing regulation.
So with the economics of supply and demand in force this may allow you to raise the rent you charge, or at least allow confidence in the market to inform your thinking.
The caveat to this is the effect of any future twists in the coronavirus pandemic, which we have already seen can influence the housing markets considerably.
Four – Beware rising interest rates
If you have a mortgage, you will have enjoyed the fact that buy-to-let borrowing has been relatively benign for years – the lowest ever buy-to-let rate was recorded in October 2021 at just 0.99%.
But now, with inflation surging to 5.1% at the last official count and the Bank of England already raising the base rate once, the only way for mortgage rates appears to be up. If you are facing a remortgage or are on a variable rate, prepare for your margins to be squeezed by higher interest rates.
Five – Have you considered investing through a limited company?
One way to navigate some of the choppy waters of buy-to-lets is to invest through a limited company. More and more people are choosing this path, although it will not be right for everyone.
It comes with an extra layer of administration and compliance, but gives you more flexibility over when and how you are taxed, as well as allowing for more generous expense deductions in some cases.
As companies are limited, it can also offer you some protection over liability. If you have not considered it yet, it is worth doing some analysis to see if you can benefit. It could protect your margins against some of the other pressures you may face.
Need a review?
If any of the above issues raise concerns for you, please do not hesitate to get in touch for a review of your buy-to-let position.
Our property specialists will advise you on the best course of action for your circumstances.