2017 is already shaping up as a landmark year for landlords, as many changes in the private rented sector start to be implemented.
In this blog, we look at three of the main issues that may affect landlords in the new year:
1. Taxation: Section 24
Section 24 of the Finance (No.2) Act 2015, which received Royal Assent on 18 November 2015, will start to apply from the 2017-18 tax year and, in graduating stages up to 2020-21, will reduce a landlord’s ability to offset mortgage interest costs against rental profits before calculating the amount of tax payable to HMRC. It essentially means landlords will be taxed on their income, not their actual profit.
This may push some landlords into a higher rate tax bracket and/or may see landlords paying tax on a loss! It will especially impact on sole trader landlords who are highly leveraged with mortgage finance.
We are advising all our landlords to seek professional tax advice as to how best to structure their property investments to mitigate the impact of S24. We can make recommendations to reputable tax advisors, should you require an introduction.
2. The Housing and Planning Act
This is a Bill to make provision about housing, estate agents, rent charges, planning and compulsory purchase and introduces new regulations.
There are a number of elements that impact on landlords. Our colleagues at the Residential Landlords Association have created a helpful video documenting them.
This increasingly onerous legislation is not a problem for our “fully managed” and Guarantee Rent landlords, as we have a whole department dedicated to keeping up with the latest compliance and ensuring that our landlords’ properties and tenancies are adhering to all regulation. This is ideal for busy people who feel that they do not have time to keep up-dated themselves and especially vital as the Housing and Planning Act allows for fines up to £30K for landlords who are found to be non-compliant!
When things do not go to plan, there are also changes in legislation to follow. This is why we launched Northwood Legal Services in summer 2016, as a resource for landlords, whether you let through us or not.
In this short video, Mandy Chandler, who heads the department, gives an overview of the service.
Our services include:
- Service of notices
- Issuing of legal proceedings
- Obtaining & enforcing possession orders
- Pursuing the outstanding debt
You can find out more about our Legal Services Department >>> here.
Legal Helpline on 01329 820420
3. Implementation of the PRA
The Prudential Regulation Authority’s recommendations for BTL lending come into effect on 1st January 2017.
In a nutshell, lenders will be required to undertake more rigorous due diligence on borrowers, taking into account their other debt and mortgage lending, and there will be stricter criteria for lending, along with a higher “stress test” for calculating how much landlords can borrow.
The new calculation to determine how much you can borrow based on the rental income of your prospective purchase is:
Monthly rent x 12 divided by 5.5% divided by 145%.
So, for example, a monthly rent of £500 pcm would allow you to borrow approx. £75,200.
In many cases, this will mean landlords will have to put in significantly larger deposits, and we envisage the average deposit being around 35 to 40%, depending on where you are located in the country and the yields you can achieve.
Shawbrook Bank have provided this helpful video summary of how the PRA will impact landlords:
At Northwood, we can connect you with professional mortgage advisors to ensure you get the best advice on how to finance your property investments.
It is our aim to support our landlords throughout 2017 and ensure they survive and prosper, no matter what challenges arise!
You can find your nearest office >>> here.
Northwood is one of the largest and most recognised estate agents in the U.K. and the leading supplier of Guaranteed Rent to give landlords complete peace of mind.
Find us on Twitter @northwoodUK or visit our YouTube Channel.