As a landlord, you should now be used to change, with an unprecedented level of government intervention in recent years. Mortgage expert Doug Hall says with further changes on the horizon it is more important than ever to stay vigilant.
Recent years have delivered huge changes to the PRS through extra regulation and taxation.
This year continues the trend, with the introduction of new guidelines for the energy performance of rented properties and a roll-out in the licencing of HMOs.
The new regulations could impact one of your properties, so you might need to take action or face funding challenges and a potential fine. Here’s what you need to know.
Energy Performance Certificates
Earlier this year, on 1 April, new minimum energy efficiency standards were introduced for privately rented property.
These standards require landlords to achieve at least an E on the Energy Performance Certificate (EPC) ahead of agreeing any new tenancy agreement.
This means that properties rated as F or G cannot be let to new tenants or even have existing tenancies extended until the rating is improved.
According to data from Low Carbon Energy Assessors Ltd, fewer than 7% of properties are rated as F or G, but if your property is amongst those and you enter a new tenancy agreement without making the required changes, you could be fined.
The first thing is to ensure that you have an up to date EPC on all of your properties to understand whether any are rated as F or G. If you do have properties that fall into this category you will need to make the required improvements to bring them up to standard.
How are lenders reacting?
Different lenders have taken different approaches to how they interpret the new regulations in their lending criteria.
For example, a number of lenders have said that they will require a property to have an EPC rating of E or above.
Whereas TMW, which is the buy-to-let arm of Nationwide Building Society, has said that it will continue to lend on properties that are rated F or G, but will ask the valuer to assess what work needs to be done to bring the property to a minimum E rating and then reflect the cost of these works in the valuation figure.
If you are thinking about applying for a mortgage on a property that is rated F or G, it is worth speaking to a mortgage adviser, who will understand all of the available options to best suit your circumstances, including alternative interim funding solutions.
On 1 October 2018, the government is extending the scope of licensing for HMOs.
Currently, a mandatory licence is required for properties with three or more storeys that are occupied by five or more people from two or more households.
From October, the licence will apply to all HMOs that are occupied by five or more people from two or more households, regardless of the number of storeys.
This means that an additional 177,000 HMOs will become subject to mandatory licencing.
We are still awaiting clarity as to how lenders will interpret these rules and apply them to existing borrowers and new customers.
In addition to this mandatory licencing, the Government has also proposed a minimum room size for bedrooms in licenced HMOs to ensure that the any room with a floor area of less than 4.64 square metres is not used as sleeping accommodation.
The new standards mean:
- Single bedroom to be used by one person over 10 years should not be less than 6.51 square metres.
- Double bedroom to be used by two people over 10 years should not be less than 10.22 square metres.
- Single bedroom to be used by one person under 10 years should not be less than 4.64 square metres.
If you have rooms in your property that are smaller than the required dimensions, you will need to think about your options.
One option could be renovations to the property to ensure that all bedrooms meet the new requirements and, if you need finance to fund these works, a mortgage adviser will help you to source the best solution.
Increased regulation naturally increases the costs of being a landlord and so it is more important than ever to make sure that you are not paying more than you need to on your mortgage.
- For further information on buy-to-let mortgages both for individuals and limited companies please contact RLA Mortgages on 0844 858 4420 or visit the website www.rlamortgages.co.uk.
- This is a financial promotion and in no way should it be viewed as a personal recommendation or advice. Before a recommendation/advice can be given, you should seek independent mortgage or financial advice. RLA Mortgages is operated exclusively for The Residential Landlords Association (RLA) by 3mc, which is authorised and regulated by the Financial Conduct Authority. FCA No. 302992. The Residential Landlords Association is an Introducer Appointed Representative of 3mc (UK) Limited.
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
This article was originally published in Residential Property Investor magazine.