Wednesday 18 May 2016
It's nice to hear that rents are rising of course - this article found its way to my inbox:
http://www.express.co.uk/finance/personalfinance/667849/Rents-rise-uk-new-landlord-stamp-duty-tax-takes-effect and I thought I'd take a moment to write to you to let you know what you can do to improve your property investment returns in light of this news that new taxation istaking effect and rents are rising.
I had predicted this would happen to a great extent once the tax returns for would be filed at the end of the 2017 tax year (mortgage interest relief is reduced in 2017), but it seems however that many investors are upping their rents due to the increased costs in the rental sector. It's therefore important that you take advantage of increasing rental prices also, even if you haven't bought recently - here's the how and why.
3% stamp duty surcharge on second homes (so basically any investment property) - this adds a whopping 3% to the purchase price, which of course means that investors will have to put more money into the property to begin with. This carries a cost of course, not just the extra 3% of the purchase price, but they will have to find the money, so borrowing costs will increase and naturally there will be an opportunity cost also. The stamp on a £400,000 investment property in Clapham for example will now be £22,000 instead of £10,000. That would mean an extra £12,000 on to a mortgage and at a BTL mortgage rate of 4% that would mean an extra £40 per month. "Not that much" I hear you thinking, but all in all investors are in it to make their investment work for them, they won't swallow these costs for the tenants! If you therefore assume an average £1500pcm flat will go up by £75-£100 anyway just because of increased annual demand, inflation and so on, it will now probably be worth closer to £1650!
Wear & Tear relief is now a thing of the past. Whereas in the past landlords have been able to claim 10% relief on their total gross rent, this cannot be done anymore. However it has been replaced with a "new fixtures" relief, so any replacement of items that do break or wear out during the tenancy can be offset. Not sure how this will work out, very much property dependant I would have thought.
Energy efficiency - from 1st April 2016 tenants can make reasonable requests for the landlord to make improvements to the energy efficiency of the property. My take on it is that this is a bit of a storm in a teacup, because the litmus test for "reasonable request" is that it must be able to be funded with no cost to the landlord... Nonetheless, more red tape means more work, and when landlords do work, they will want compensating for that, they're not putting their money on the line for no return! If your property is in band F or G then you are liable for a fine unless improved and re-inspected (from April 2018).
Section 21 - A load more protection for the tenants from "retaliatory evictions," the so-called "getting rid of troublesome tenants." Nobody wants tenants that complain every 5 minutes about repairs, but the law is really designed to protect a tenant from being given notice for asking for reasonable repairs. Don't get caught out though, if you want to serve S21 to get the tenants out for say a refurb or a higher rent you can't have any outstanding repairs at the time of serving the notice otherwise the notice is deemed invalid and they can stay on (they still have to pay and behave themselves according to the terms of the contract of course, it's not a get-out-of-jail card for non-payment of rent).
Right to Rent - More red tape, landlords are now working in partnership with the border patrol to ensure the tenants are legal in the UK. Fines for non-compliance are severe though, be warned!
Mortgage interest will not be fully deductible from the 2017 tax year onwards, so my thinking is that landlords that are geared to any extent will be passing on some of these costs to their tenants. Most BTL properties are mortgaged, so if you are lucky enough to have an unencumbered property you could see your margins increase significantly as you will be no worse off on your tax return.
So there you have it, a brief summary and by no means exhaustive. More work for you the investor, more red tape, and more costs. I predict that over the next few years we'll see some sharp rises in rents when more investors realise the increased costs, especially taxation, so be sure to review your rents. Don't be caught out and be sure you are getting a good market rent at a good occupancy rate. If you are after a rent review for your portfolio - whether in Clapham, Brixton, or a little further afield, I can certainly offer you my assistance. With nearly 15 years of experience of property sales, lettings, management in South London you can be assured of expert advice.
Email me on email@example.com and ask for a rent review today to make sure you're getting the most from your property. Advice is free and if you do decide to increase your rents I can guide you through the how and when.
at May 18, 2016
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