Tougher BTL lending criteria begins to bite

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Landlords are being urged to re-mortgage before tougher buy-to-let lending criteria, due to be introduced in September, make it more difficult to obtain finance.

The call comes as the proportion of buy-to-let re-mortgage transactions, as a share of the total lending market, has risen over the last few months*, and as a diminishing demand for new buy to let loans has driven many lenders to slash mortgage rates. The National Landlords Association (NLA) says the rise in re-mortgages is down to  landlords looking to limit their exposure to the new buy to let tax regime.

The forthcoming tightening of lending criteria is the latest in a series of attempts by the Bank of England’s Prudential Regulation Authority (PRA) to cool the buy-to-let market, following measures introduced earlier this year.

The NLA’s most recent Quarterly Landlord Panel** shows that landlords are already finding it harder to arrange mortgages, with forty three per cent saying the process of obtaining finance has become more difficult since the beginning of the year.

Furthermore, more than half (53 per cent) of landlords report that they have had to provide additional evidence to support recent mortgage applications, including tax returns, cash flow forecasts, and business plans.

With just over a month before the second phase of the PRA’s underwriting standards are due to be implemented (30th September 2017), the NLA is urging any landlords thinking about re-mortgaging not to wait any longer.

Commenting on the findings, Chris Norris, Head of Policy at the National Landlords (NLA), said:

“Since the PRA regulations were introduced in January, the marketplace is looking considerably more complex. It was always likely that lenders would start to demand more evidence from applicants, and landlords are already feeling they have to go further to prove that they can afford finance.

“Changes to buy-to-let taxation will eat away at many landlords’ profits and make it more challenging for them to manage their businesses. As a result, many are looking to limit their exposure to the changes, which is why we’ve seen a rise in re-mortgaging.

“However, the situation is due to worsen from September and while it may not be financially advantageous for everyone, if you’re considering re-mortgaging or expanding your portfolio then do so now to avoid any further difficulties”.

Case Study

Jeff, who has been a landlord for fourteen years and has seven properties in Lincolnshire, says it’s becoming harder to get finance because lenders view him as high risk.

“After the 2008 economic crash, my outstanding debt changed the way lenders viewed me, and now I’m regularly either refused or charged higher rates if I want to take out finance.

“Lending regulations and policy need to be changed in order to incentivise investment in rented housing and return the market to a healthy level. The PRA’s new standards will only make things worse and make it harder for small scale landlords like me who are in a position to provide a valuable source of housing”.

*CML/ UK Finance

**NLA Quarterly Landlord Panel – Q2 2017 (780 respondents)

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How to Make Your Home Desirable to Tenants

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Tenancies in Britain are reported to last an average of 18 months. This means that landlords must keep on top of the ever-moving cycle to avoid any loss of income. Ensuring that your property is constantly in prime condition to attract new tenants is crucial.

Read on for advice on how to make the best of your property when it comes to re-advertising for tenants:

Keep it Clean

• Keep the garden area free of any debris with any rubbish bins tucked away.
• Make sure you touch up any scuffs on the indoor walls with fresh paint.
• The kitchen should be gleaming, with all worktops and appliances sparkling.
• Don’t forget about the floors! Even if you have numerous viewings arranged with people leaving on their shoes, try to hoover carpets and mop floors as much as possible in between.
• Keep the bathroom free of toiletries, appliances and towels which cause clutter and create an off-putting ‘lived-in’ feel.
• Ensure that all beds have freshly-washed linen on them as much as possible – not only will they look cleaner but the smell alone will be appealing!
• Don’t forget about regularly cleaning the stairs – they can accumulate a lot of dirt more than anywhere else in the house, as viewers are more likely to leave shoes on as they look around all floors.

Design by Numbers

• Neutral colour schemes give a blank canvas for tenants and avoid putting anyone off with anything too bold or not to their taste.
• For properties with a plainer front, a door canopy will enhance the appearance of the façade in addition to giving extra shelter as people come and go.
• To give modern appeal to rooms such as bedrooms or living rooms, an accent wall can be easily completed with contrasting wallpaper.
• Mirrors on the walls in living rooms, bedrooms and bathrooms will make the space look much bigger.

Finishing Touches

• Trim back bushes and trees to allow more sunlight into the house.
• Mow any lawns regularly for an easy way to create a well-maintained image.
• Flowers around the front will add extra appeal for a great first impression.
• Small but effective additions to the living room give an extra homely feel, such as candles, cushions, rugs and lamps.
• A garden’s potential should be maximised as they are often a deal-breaker for tenants; even if the weather isn’t always reliable a garden canopy is a great way to enjoy the outdoor area.
• Make sure the heating is on in winter to demonstrate the insulation; equally, opening a window on warm summer days will keep the place feeling fresh.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – How to Make Your Home Desirable to Tenants | LandlordZONE.

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Half of landlords in Newham failing to declare rental income?

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Tax Returns:

As tax return time approaches, Newham mayor Sir Robin Wales is claiming that almost half of Newham landlords are failing to declare their rental income to HM Revenue & Customs (HMRC).

As reported by the Newham Recorder, the warning is highlighted in a letter from Newham mayor Sir Robin Wales to Chancellor Philip Hammond. The letter claims that 13,000 out of 26,254 landlords had not registered for self-assessment after signing up for the private rented sector (PRS) licensing scheme.

The borough-wide licensing scheme was first introduced in 2013 and requires all landlords in Newham to licence any property they offer for private rent. The scheme will end in December and the Council says its renewal is under threat due to stricter restrictions being imposed by the government.

Sir Robin wrote:

“It is our understanding that, to date, up to 13,000 Newham landlords are of interest to HMRC, where there are discrepancies between declared income and our records, with potentially significant financial implication for the exchequer.”

Mr Wales’ letter also highlights data obtained by Institute for Public Policy Research (IPPR) in 2014 which estimates that the amount of undeclared tax in London totals more than £183 million.

Sir Robin went on to write:

“Tax evasion at every level takes money from vital services, including from health, education and local government.

“This is money out of the pockets of our poorest residents who rely on our services the most.

“Our core grant funding has halved since 2010-11, that’s less money for our schools, less money for social care, and less money for housing. I urge you to assess the additional benefits of Newham’s licensing scheme in assisting the exchequer to address tax evasion by landlords.”

The Newham PRS licensing scheme has enabled the Council to bring 1,135 prosecutions for housing crimes totalling 70 per cent of the overall figure in London, claims the Council.

The Council claims that the programme receives huge support from Newham residents, while three other London boroughs have followed Newham’s lead.

However, HMRC said it did not recognise the figure of 13,000 landlords put to it by the council.

An HMRC spokesman said:

“We are working with the London Borough of Newham as part of the Let Property Campaign [HMRC tax disclosure scheme].

“This work has generated £115m in additional and previously unpaid tax and interest.”

According the Newham Recorder, the Treasury said it was a matter for HMRC only.

Paying Income Tax when renting out property

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Half of landlords in Newham failing to declare rental income? | LandlordZONE.

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