Five things landlords need to know in 2018

April will see the introduction of several changes that will affect owners of buy-to-let properties.

There are other things happening later in 2018 which may also impact on landlords. Here is our rundown of five of the most important things this year that buy-to-let landlords should be aware of.

1. The amount of tax relief landlords can claim on mortgage interest is falling
Prior to April 6, 2017, landlords could claim tax relief back on mortgage interest at their marginal tax rate. That meant basic, higher, and additional rate taxpayers were able to benefit from tax relief at 20%, 40% or 45% respectively.

Since this date, however, the amount of tax relief landlords can claim on mortgage interest payments has fallen to 75%. Next tax year, which begins on April 6, 2018, landlords will only be permitted to offset 50% of their mortgage interest, reducing to 25% in 2019-20. From 2020-21 onwards, it will only be possible to reclaim tax relief at the basic rate, whatever rate of tax you pay.

2. Properties must meet new minimum energy efficiency standards from April
It will be unlawful to let out a newly bought rental property which doesn’t conform to the new Minimum Energy Efficiency Standard (MEES) from April 1. Only homes which have an energy performance certificate rating of E or above meet this standard. If your property has a rating lower than this, for example, F or G, you won’t be able to renew or grant a tenancy on your property after the April 1. Landlords who continue letting homes with the lowest energy ratings risk fines of up to £4,000.

If you’re not sure what the EPC rating on your rental property is, you can search the EPC register by postcode.

3. Landlords may soon have to sign up to an ombudsman redress scheme
Under plans announced last October by Sajid Javid, the Communities and Local Government Secretary, it will become a legal requirement for buy-to-let landlords to sign up to a compulsory arbitration scheme. The scheme would provide tenants with a way to raise issues they may be having with their landlord and which cannot be resolved directly between them.

A consultation into the new redress system was launched last month, with the Department for Housing, Communities and Local Government seeking opinions on how best to improve the housing complaints process.

4. You’ll have to pay the 3% stamp duty surcharge if you want to add to your property portfolio
A 3% stamp duty surcharge was introduced in April 2016 for anyone buying a property in addition to their main home, either to rent out, or to use as a holiday home. If you’re considering adding to your rental property portfolio this year, you’ll therefore need to factor the surcharge into your costs.

For example, if you wanted to purchase a property to rent out costing £250,000, the stamp duty bill would be £10,000, rising to £22,000 if you bought a rental property costing £400,000.

5. Prepare for higher mortgage rates
Many commentators are anticipating a base rate increase as early as May this year, so it makes sense to consider whether you’re prepared for higher buy-to-let mortgage costs.

Lots of landlords are coming to the end of two-year fixed rate deals this April, having rushed to purchase properties ahead of the introduction of the stamp duty surcharge in 2016. If you’re one of them and want to lock into another fixed rate mortgage deal when your existing contract ends, make sure you act sooner rather than later if you want to take advantage of current low rates. According to, latest figures show that the average five-year fixed buy-to-let rate has now returned to the record low last seen in October, sitting at 3.43%.


Bank vote hints at interest rate rise in May

The Bank of England has left the door open to raise UK interest rates in May after making no change this month, holding them steady at 0.5%.

Two members of the Bank’s nine-member Monetary Policy Committee – Ian McCafferty and Michael Saunders – backed an increase in rates to 0.75%.

That was a departure from the unanimous vote at the last MPC meeting in February.

In November, the Bank raised rates to 0.5%, the first increase for a decade.

The MPC said “ongoing tightening” was likely to be needed to return inflation back to the Bank’s 2% target.

On Tuesday, the Office for National Statistics said consumer price inflation was 2.7% in February, down from 3% the previous month and the lowest figure since July 2017.

Kallum Pickering at Berenberg said the March minutes “give the nod to market pricing for a May hike”.

What would a rate rise mean for you?

US Federal Reserve raises rates
Alan Clarke at Scotiabank said he was “more and more confident” that the MPC would raise rates in May.

“Thereafter we expect a rate hike in November, but it’s not going to be plain sailing getting there,” he added.

However, Samuel Tombs at Pantheon Macroeconomics argued that the committee members would wait until August to raise interest rates again.

The National Institute of Economic and Social Research (NIESR) reaffirmed its call for a 0.25 percentage point rise every six months to bring the rate to 2% in 2020-21.

Analysis: Kamal Ahmed, BBC economics editor
The MPC is treading a familiar path. First: signal an interest rate rise is coming by toughening up the language.

Bank governor Mark Carney said at the last MPC meeting in February that everyone should start preparing for more rapid interest rate increases than previously signalled.

Second: notice that the two hawks on the MPC have split from the more doveish tendency.

Ian McCafferty and Michael Saunders voted for a rate rise today, just as they did last year for three successive MPC meetings before they were joined by other members of the committee. Rates were finally raised in November to 0.5%.

Third: watch the market predict a “nailed on” rate rise for the next MPC meeting.

Most now believe that a rate rise at the next meeting in May is all but certain.

Just two points of caution. Inflation fell more rapidly than expected earlier this week, undermining claims that price rise pressure is a present risk.

Growth is fairly weak, and too sharp a yank on the interest rate lever could apply dampeners just when they are not needed.

Muted growth

Official figures released on Wednesday showed that average earnings rose by 2.6% in the three months to January – the fastest pace since 2015.

On Wednesday, the government announced a 6.5% pay rise for many NHS workers over the next three years.

Higher wages could make it harder for the Bank to see inflation fall closer to its 2% target.

Muted economic growth is another complication. Last month, the Bank forecast growth of 1.8% for this year and 2019 – well below the UK’s historic average.

Thursday’s MPC minutes said the UK economy would suffer a “temporary” hit from the recent cold weather, suggesting growth may slow to 0.3% in the first quarter, down from 0.4% for the last three months of 2017.


Northern Ireland sees strongest house price growth

Northern Ireland was the strongest performing region while London was once again the weakest with house prices down 1% year-on-year, The Nationwide House Price Index found.

Northern Ireland saw acceleration in growth in the first quarter, with annual price growth accelerating from 2.0% to 7.9%.

London continued to experience modest annual price declines, with average house prices down 1% compared with a year ago.

Annual house price growth remained subdued in March with annual house price growth steady at 2.1%.

Robert Gardner, Nationwide’s chief economist, said: “UK house price growth remained broadly stable in March at 2.1%, little changed from the 2.2% recorded the previous month. House prices fell by 0.2% over the month, after taking account of seasonal factors.

“On the surface, the relatively subdued pace of house price growth appears at odds with recent healthy rates of employment growth, a modest pick-up in wage growth and historically low borrowing costs.

“However, consumer confidence has remained subdued, due to the ongoing squeeze on household finances as wage growth continues to lag behind increases in the cost of living.

“Looking ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates. Subdued economic activity and the ongoing squeeze on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year.

“But historically low unemployment and mortgage interest rates together with the lack of properties on the market is likely to provide some support for house prices. Overall, we expect house prices to be broadly flat, with a marginal gain of around 1% over the course of 2018.”

Wales saw a pick-up in annual house price growth, from 3.3% in the year to Q4 2017 to 6.1% in Q1 2018. But conditions remained more subdued in Scotland, where prices were essentially unchanged compared with a year ago.

The West Midlands, the top performing region in 2017, had the strongest price growth amongst the English regions, with prices up 4.9% year-on-year.

Average house prices in England increased by 0.9% in the first quarter of 2018 and were up 1.9% year-on-year.

Home ownership rates have declined across all English regions over the past decade. While the decline has been fairly uniform across regions, the biggest reduction has been in London, where the home ownership rate has fallen from 57% to 47%.

Jeff Knight, director of marketing at Foundation Home Loans, said: “The first quarter has been typically sluggish – typically a period when buyers and sellers contemplate their next move.

“While there is talk of a cooling London market and narrowing north-south price divide, let’s look at the bigger picture: prices are holding and, particularly for those first-time buyers, affordability remains an issue. Even with those benefiting from stamp duty cuts and low mortgage rates, the lack of supply remains the nagging problem.”

“It’s imperative more is done to support not only those seeking a first or second home but also those seeking rented accommodation to tide them over.

“Minimal choice, poor standards and unaffordable prices risk many feeling alienated in the market and in time will impinge future activity.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “This is another example of what we have seen in other surveys and on the ground – of higher and still rising prices in northern areas in contrast with London and the south east.

“Prices in the latter are turning negative as buyers and sellers come to terms with new market realities.

“Fewer forced sellers and less dependency on mortgages means that the level of price falls is staying low. This pattern began in early 2015 in response to higher stamp duty, tax changes, affordability and Brexit uncertainty, despite lower interest rates and unemployment.

“There is a long way to go but if this price drift downwards continues, the north/south divide will continue to narrow, although there is no sign of any larger market correction at present.”