We all know planning ahead is the key to success and avoiding any costly surprises. You could save hundreds of pounds in 2017 by taking some time over the Christmas break to review your mortgages, insurance cover, and planning for the tax changes ahead.
Here are a few of our tips on things to consider:
Interest rates are at an historic low, with lending rates also at their lowest ever, so now is the time to review your buy to let mortgage.
From January 1st, lending rules in the buy-to-let sector will become more stringent, with many lenders increasing their lending criteria to deal with the possibility of rising interest rates or other economic uncertainty.
These new regulations come after the Prudential Regulation Authority (PRA) was asked by Westminster to carry out a review of the buy to let market, and the lending therein.
Those looking to take out new mortgages will need to demonstrate that they can afford to keep up repayments if their borrowing costs should shoot up by two percentage points or an interest rate of 5.5% (whichever is higher). Lenders will also have to take into account other tax liabilities of the borrower, and look at their other sources of personal income to judge how they could shift over the life of the mortgage.
The PRA said that the new regulations will not apply to mortgages with rates fixed for five years or more.
For those mortgages that will be affected by the changes, it was reported that buy-to-let mortgage lenders will request a higher level of rent relative to the mortgage repayments, in order to ensure the borrowers have the ability to pay back what they owe. Void periods in particular are a concern when it comes to lending, and it is vital that mortgage companies know that landlords are making enough through rent to cover them.
Lenders will also be able to factor in rent rises of as much as two per cent per year when it comes to deciding whether or not the landlord can afford their mortgage.
Landlords with four or more properties in their portfolios will need to provide more information about the income and any debts they have.
Trevor Jones of Just Financial Services, Swansea, says “now is definitely the time to be thinking about fixing your mortgages (whether buy to let or residential). Lenders are currently offering some fantastic deals with some having rates as low as 2.49% with free valuations and free legals on buy to let products.”
“Even looking at the mortgage on your own home now could save thousands every year in interest payments with lenders offering rates as low as 1.99% for residential mortgages.”
By law, all income received (rent or otherwise) must be declared to HMRC. The way in which landlords are taxed will be changing again in April, so getting to understand how it will affect you is essential to knowing if you will need to be paying more tax.
From April 2016, the 10% wear and tear allowance for furnished properties was removed, so if you have a furnished property, this April will be the first year where you will not be able to deducted 10%, increasing your tax liability.
From this coming April, too, the first reduction in the amount of interest able to be off-set against tax will be implemented. It will start at 75% and be reduced to 0% by 2020, meaning any interest on a buy to let mortgage will be taxed at a standard 20% rate.
Stamp duty remains at an additional 3% on top of the standard stamp duty rates for second properties, so if you are planning on expanding your portfolio in 2017, you need to factor this in as an additional cost.
We are urging all of our landlords to take independent tax advice from a qualified accountant, such as Morgan Hemp in Swansea.
Having the right Landlord Insurance is essential for any landlord, and reviewing your cover could save thousands should the worst occur. Make sure you are covered for prolonged void periods, and review your excess amounts to ensure you have the peace of mind that in the event of an emergency, you are fully aware of how your insurance will help you. Reviewing the cost of your insurance can also save a few £100’s a year, so it is well-worth an hour or two of your time.
Maintenance is a necessary part of being a landlord, and planning your maintenance in advance should help to minimise costly repairs.
Get your boiler serviced at the same time as the landlord’s gas safety certificate is carried out. A regular service will reduce the likelihood of a breakdown and prolong the life of your boiler, and having them both carried out at the same time can reduce the costs and the time associated with multiple visits.
Clearing gutters at this time of the year will help prevent them getting blocked and causing issues with damp, which can be costly and take a long time to rectify.
If you self-manage, plan when you are going to visit your tenants next year and make sure they know how to contact you or your nominated contractors over the festive break. The last thing you want to start your new year off is a huge bill from your tenant for an ‘out of hours’ plumber they were forced to us when they couldn’t get hold of you!
Get Registered with Rent Smart Wales
It is now a legal requirement for all landlords with a property in Wales to be registered with Rent Smart Wales. Landlords and Agents who manage a property must also have a licence.
Enforcement officers are now in place and taking action against landlords and agents who have not yet complied, so we urge all landlords to start the process if you haven’t already. Penalties include fines, rent stopping orders, and the inability to serve a section 21 notice for possession.
Sources: RentMan / City A.M.