Has the start of a new year tempted you to finally get into the Buy-To-Let (BTL) game?
Perhaps you’ve been a landlord for some time but have heard of forthcoming changes to the BTL market and that’s left you with unanswered questions.
Whatever your situation, consider this your ultimate, need-to-know guide for Buy-To-Let properties in 2020.
The price war between lenders looks set to continue
Rates for BTL mortgages fell consistently last year. Whether or not that trend will continue remains to be seen, but one thing is certain – the price war between lenders shows no signs of abating.
This means now may be a great time to look at refinancing your portfolio to find the best possible rate. Just remember to price up the total cost of the deal, because a nice low rate or £1,000 cashback might sound great, the less publicised high interest rate or upfront fee may make you worse off in the long run.
Slow property price growth
Last year wasn’t a great one for UK house price growth. In fact, Land Registry data reveals prices only increased by 1.3% year-on-year.
Will it be any better in 2020? We shall see, but when you take into account the backdrop of continued economic uncertainty we certainly wouldn’t expect a huge year or increases.
Some investors have turned to cheaper markets in the north of the country for better rental yields, and if you want to expand your portfolio this year, you’d do well to follow their lead and conduct thorough research before buying. Others are looking at properties that need a bit of love and attention to modernise or repair and increase value that way.
No more unfair leasehold practices?
2020 is expected to be the year when the government finally gets a hold on unfair leasehold practices.
They want to do this by banning the sale of new houses as leasehold while simultaneously capping permission fees, ground rent, and service charges.
This has created a great deal of uncertainty in the market, therefore if you want to grow your portfolio this year, it’s vital that you pay attention to the tenure of any properties you’re interested in.
Agents must belong to a client money protection scheme
Since April 2019, all letting agents in England need to belong to a client money protection scheme.
This acts as an insurance to protect tenants and landlords against malpractice from agents.
If you need a letting agent this year, Which? offers a brilliant guide on what to look out for.
Electrical checks might be introduced
Back in July 2018, the government announced plans that would force landlords to carry out electrical safety checks on their rental properties.
Expected every five years, these enforced electrical checks are yet to materialise, but many believe 2020 might be the year they finally come into practice.
If they do, landlords should get six months’ notice before implementation. Once in place, the new rules will require a two-year transitional period during which new tenancies are made applicable first, followed by existing tenancies the year after.
The new Minimum Energy Efficiency Standard
The new Minimum Energy Efficiency Standard (MEES) comes into effect this April, and will require more landlords to ensure their properties have a minimum Energy Performance Certificate (EPC) rating of E.
If you’re a landlord and your property doesn’t meet the standard, you’ll be expected to carry out any required energy efficiency measures (with a cap of £3,500).
This will apply to all exiting tenancies.
Potential increases to capital gains tax bills
An overhaul of property residence relief is due this April and may result in smaller landlords paying more capital gains tax if they sell their properties after 6th April 2020.
At the moment, you can claim up capital gains tax relief if the property was (or is) your main home – even if you haven’t lived there for a while.
This loophole will disappear in April, meaning you’ll actually need to live in the property to be able to claim the relief. Click here for further information.
Changes to mortgage interest tax relief
Since 2017, the government has been systematically phasing out tax relief on mortgage interest. This has resulted in a year-on-year reduction of the proportion landlords are allowed to deduct as part of their tax return.
The start of the 20/21 tax year this April will signal the final chapter of this controversial change. From then, landlords will then only receive a flat tax credit of 20% of their mortgage interest payments. Further information here.
And finally, what about Brexit?
Although there’s still a great deal of uncertainty surrounding Brexit, the result of last year’s general election does at least mean we have a date to work towards.
Our exit from the European Union may result in the Bank of England’s base rate shifting in either direction, thus impacting BTL mortgage rates, one way or another. Similarly, the continued economic uncertainty might result in a slow property market this year.
If you’d like help with any of the items we’ve covered in this blog, please get in touch with the Gough Mortgage + Protection team.
Not all Buy to Let Mortgages are regulated by The Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on your mortgage.