It seems as though almost every time a new law comes into force in the lettings industry, there is a negative impact on landlords’ profits. While the several new pieces of legislation already on the slate for 2019 shouldn’t make a huge difference to your profits, you should be prepared for some costs to increase.
1. Ban on tenant fees in England
Probably the biggest potential cost increase comes from the ban on tenant fees. While it has been on the table for some time, it was only last month that the Bill reached the final stages of its journey through parliament and the Government announced its intention for the ban to come into force in England on 1st June (expected September in Wales)
The new law, which will apply to any tenancies signed after this date, will prohibit landlords and letting agents from charging tenants for anything other than:
• an administration fee when the tenant requests a change or early termination of a tenancy
• utilities, communication services and Council Tax bills
• payments arising from a default by the tenant, e.g. replacing a lost key.
It will also see holding deposits capped at one week’s rent and tenancy deposits capped at 5 weeks’ rent.
This means the full cost of administering each let, certainly at the outset – including carrying out credit checks, referencing and right to rent checks, plus all other paperwork – will fall to the landlord and/or agent. If you self-manage, you should have already been preparing to factor this into your budget. If you use an agent, make sure you know how they intend to handle the extra cost, e.g. will the whole amount be passed on to you directly or do they plan to simply increase their management fees across the board?
2. Mandatory Client Money Protection (CMP) insurance for all letting agents
From April this year, all letting agents will have to insure their business against the loss of your (and your tenants’) monies – that’s the rent they have collected on your behalf and any maintenance funds of yours they might hold.
Many agents, particularly those that are members of professional industry bodies such as ARLA, RICS and NALS, have held CMP for a number of years. However, if you are currently using a letting agent that doesn’t already have it, you should be prepared for one of two things:
1. If your agent is able to meet the business and financial requirements to secure CMP – and not all agents will - there may be a small increase in the fees they charge.
2. If your agent isn’t offered the insurance, for whatever reason, they will be unable to continue to do business and you will have to find another agent, which may charge higher fees than you have been used to.
3. Fitness for Habitation Bill
On 20th March this year, the Homes (Fitness for Human Habitation) Act 2018 comes into force in England. Although landlords are already obliged to respond to existing tenants’ complaints about the condition of their property and make any necessary repairs in a reasonable timeframe, this new law means there will be a minimum standard for properties from the very start of a tenancy.
If you are one of the majority of landlords that already bring their properties to the market in a good and safe condition, this law won’t make any difference. However, some of the remaining minority will have to be prepared to invest some money into making improvements.
And finally….the 3rd phase of the withdrawal of mortgage interest as an ‘allowable expense’
While it’s not a new law, remember that for the tax year beginning on 6th April 2019, the amount of mortgage interest you can deduct as a straight ‘allowance’ reduces to 25%. The remaining 75% attracts tax relief at the basic rate of 20%. For your 2018/19 tax return, it’s 50/50, so you can deduct half your mortgage interest payments as an allowance, with the other half subject to 20% relief.
If you’re a basic-rate tax payer, you will only notice a difference if you are pushed into a higher rate tax bracket. If you are in the 40% or 45% bracket already and were previously used to deducting the full amount of interest from your profits, you will need to budget for the change.
Important information
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.