It’s that time of the year when all the predictions for the next year start to come in!
Forewarned is forearmed, so here are our Top 5 things that we think landlords need to be aware of in 2014:
1. Interest rate rises
Interest rates have remained historically low for an extended period and rising rates remain a threat to property owners with mortgages.
Indeed, only today, it was reported that rising interest rates are believed to be the single biggest risk to the housing market next year.
The Building Society Association’s final Property Tracker report of 2013 revealed that over a quarter (27 per cent) of people surveyed now say that this is their biggest concern for 2014.
While we need a crystal ball to determine when interest rate rises might occur, landlords need to be planning for them now, because they ARE going to rise at some point.
There is a useful post on Property Tribes which explains:
2. Increased regulation
There is currently no over-arching regulation of the private rented sector. However, early next year, it will become mandatory for lettings agents to belong to a redress scheme.
This is due to a Government amendment to the Enterprise and Regulatory Reform Act 2013 which enables the Government to require agents to sign up to either the Property Ombudsman or Ombudsman Services (Property).
The intention of this legislation is to weed out rogue agents and ensure that consumers have a line of redress.
We are pleased to be able to say that all Northwood office have voluntarily signed up to the Property Ombudsman Scheme, prior to this legislation coming into affect.
There is also the issue of mandatory and voluntary landlord licencing.
Next year, the London Rental Standard, otherwise known as the “Boris Badge” will come into affect in London.
Mandatory licencing areas currently include London Borough of Newham, Oxford, and Manchester, with more in the pipeline.
Apart from the compliance issue, landlords need to be aware that they may struggle to secure additional mortgages in areas where local authorities have imposed additional regulations on landlords.
For example, NatWest, refuses to lend on buy-to-lets in Newham, on the basis that the east London council imposes an extra charge on its landlords and the maximum fine for non-compliance is £20,000.
3. Growth in rental arrears
It has been reported recently that rental arrears are becoming the fastest growing debt problem in the U.K.
The Money Advice Trust charity says that calls to their debt helpline from tenants struggling with paying their rent has doubled in 2013.
Landlords need to be extra vigilant with their tenant vetting procedures or, if wanting complete peace of mind, opt for a Guaranteed Rent service, like the one offered by Northwood.
4. Mortgage Market Review
The Mortgage Market Review was a comprehensive review of the mortgage market, which started with a Discussion Paper in 2009 and culminated in a Policy Statement and final rules in October 2012. It comes into affect on the 26th April next year.
While it mainly effects regulated mortgage products (BTL being unregulated), Howard Rueben of HD Consultants believes that it will have a knock-on effect to landlords and that they should start preparing now if a landlord is intending to expand his/her portfolio in 2014 and beyond:
> At least 3 months bank statements will need to be provided, the entries on the bank statements will be much closer looked at to determine the borrowers lifestyle, there will be much closer cross-referencing between HMRC and the submitted accounts / payslips,
> If employed, lenders like to see that you’re not in a probationary period, so may need to wait a month or so before applying. If knowingly being made redundant, or if about to go on maternity leave, this must all be disclosed too.
> If self employed, know that the lenders look at your net profit (not turnover) and try and make sure that it is the same or possibly higher than previous years. Lenders like to see an increase year on year before they consider providing you with the best mortgage products/ rates.
> Obtain a copy of your credit files – either Experian and/ or Equifax to ensure that you have a clean credit history. It costs about £2. If there are mistakes on the records, these can be requested to be removed … and this would be essential to secure best ‘prime’ rates
> On the same note, if there are any missed payments showing, or defaults or arrears or CCJ’s or bankruptcies, these need to be satisfied asap too. Lenders will want full explanations of why they occurred
> Do NOT use ‘wonga’ style payday loans – some mortgage lenders are now declining applications when they see these entries on the bank statements
> Ensure you are all on the electoral roll where you currently reside.
> Increase savings to pay deposit and to cover purchase costs, Stamp Duty, solicitors fees etc
5. Capital Gains Tax changes
In the Autumn Statement 2013, the Chancellor George Osborne announced some changes to Capital Gains Tax for owners of more than one property.
From next April, the Government will reduce the amount of capital gains tax (CGT) “relief” available on sales of second homes. It will be reduced from three years to 18 months.
The reduction will hit “accidental” landlords who let out their old home after moving, as well as holiday home owners and landlords who exploit these concessions to reduce their tax burdens.
Therefore, if you are thinking of selling a BTL property that you previously lived in, it is recommended that you seek specialist tax advice now on how these changes might affect your tax position.
Northwood is one of the largest and most recognised lettings agents in the U.K. and the leading supplier of Guaranteed Rent to give landlords complete peace of mind.
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