This month, the Lets Rent newsletter aims to summarise the recent changes in the regulations for the Buy-to-Let (BTL) property market and the BTL mortgage market. The newsletter also summarises the recent changes in tax legislation that will affect landlords and BTL investors.
The Housing and Planning Act 2016
New powers brought in by the Housing and Planning Act 2016 came into force on 1st April. Local authorities can issue a financial penalty to landlords of up to £30,000 for the following offences without taking out a prosecution:
• Failure to comply with an improvement notice
• Offences in relation to licensing
• Contravening an overcrowding notice
• Failure to comply with management regulations in respect of Houses in Multiple Occupation (HMOs).
The Act also strengthens the law with regard to rent repayment orders by landlords who have broken the law in respect of the rights of tenants, and introduces a national database of rogue tenants and letting agencies.
The Housing White Paper, January 2017
The Housing White Paper was published by the government in January, and there are some implications in the white paper for landlords and Buy-To-Let investors. The first thing to say is that the white paper is a consultation document. Implementing the proposals will take some time, and some of them may not happen or may be amended following the consultation process.
The main objective of the white paper is to introduce government measures to improve the supply of housing, in co-operation with local authorities and private sector house builders. However, there are some measures in the white paper that will affect BTL landlords more directly:
An extension of mandatory licensing of HMOs to include homes with fewer than three storeys. This is expected to be introduced in October 2017, but landlords will have until April 2018 to comply.
• Longer tenancies on new-build rental homes
• A ban on letting agents’ fees to tenants
• Mandatory electrical safety checks
• Mandatory deposit protection for letting agents.
Some of the regulatory measures for BTL landlords in the white paper, such as tenant deposit protection, will already be familiar to landlords and letting agents, and most will already be compliant. The proposed ban on letting agents’ fees is no surprise as it was included in the chancellor’s autumn statement in 2016.
Changes in Taxation for Buy-to-Let
Three changes in the taxation of BTL have recently been introduced:
1. In the November 2015 Autumn statement, the chancellor announced a 3% stamp duty surcharge on BTL investments; but the introduction of this measure was delayed until April 2016.
2. In the 2015 budget, the chancellor announced cuts to tax relief for mortgage interest payments. Until April of this year, landlords could offset their entire mortgage interest cost against tax. The cuts in tax relief will be phased in, but by 2021 the maximum relief available will be 20% of the interest in the form of a tax credit.
3. From April 2016, landlords could no longer automatically deduct 10% of their rental profits as notional wear and tear. But they are able to claim tax relief on costs that they have actually incurred, such as a new sofa or bed for the property.
Limited Companies and Buy-to-Let
The changes in tax for BTL have caused some buy-to-let investors to consider setting up a limited company. This is likely to reduce the year-on-year tax liability, but no capital gains tax relief will be available if a property is sold, and running a limited company will incur additional administrative costs including filing annual accounts with Companies House.
New Regulations for Buy-to-Let Mortgages
In January 2017, the Bank of England introduced stricter tests for BTL mortgages. Lenders are required to check if that an applicant can still afford their mortgage if interest rates rise to 5.5%; and most lenders now require the rent to cover at least 145% of the mortgage interest. In effect, this means that BTL investors will need to find higher deposits.
Conclusion: The New Regulations and the Bristol Buy-To-Let Market
The forecast annual house growth in house prices in Bristol is 4% up to 2021, compared with an average forecast increase for the UK of 2.5%. The forecast for the annual average rent increases in Bristol is 3.8%, whereas the average forecast for the UK is an annual increase of 3.3%. Rental yields in Bristol are around 5%. In total, buy-to-let investors can therefore expect an annual return-on-investment of around 9%. In summary, the Bristol BTL market is expected to continue to perform well over the next five years.
Bristol BTL investors can therefore remain reasonably confident, but at the same time there is no doubt that the BTL property market and the BTL mortgage market have become more highly regulated. In this context, it is important to comply with the regulations and to get sound professional advice - starting with Lets Rent!
Property Options – Tax Advice Workshop with Ian Wallis
Free for all Lets Rents Landlords to attend. On the 25th May 2017, we have arranged a free-to-attend evening with celebrity property expert Ian Wallis, as featured on BBC TV’s “Homes Under the Hammer”. Ian is a Chartered Accountant and Property Tax specialist, and a best-selling author. He will show you that all is not lost, how not to panic and rush in to changes that you may regret – and above all, how to keep more of your hard earned wealth. More information is available at
If you would like to attend, please confirm your attendance by email to email@example.com