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 Moneyfacts.co.uk, 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%.