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Private and commercial bank Arbuthnot Latham has set out what it considers to be the 10 easy mistakes which some landlords make.
It says the some, perhaps more recent, investors have considered buy to let to be a relatively easy investment, yet more experienced hands know better.
Here’s the bank’s top 10 easy errors…
1. Minding your own business – The bank says: “Whether you are doing it for the first time or are a portfolio landlord, it is important you keep on top of your record keeping. Good record keeping not only helps you keep track of income and outgoings, but it is also important for staying on top of administrative tasks, like when insurance renewals are due. It can also be a lifesaver if you are unfortunate enough to face a tenant dispute.”
2. Planning for periods with no rent – “It is fair to say you will experience periods when your property is vacant; generally, this is after one tenancy has ended and you are advertising the property for new tenants. If you manage it well, you may have a new tenant lined up to move in soon after the previous tenant leaves, but you cannot assume this will happen. On average, a house will be vacant for up to 4 weeks a year. You need to allow for this either by holding a contingency sum in your bank account or by retaining the surplus rent, after mortgage and other costs, in the account to cover you when no rent is coming in. As a minimum, it is worth holding the equivalent of three month’s rent to help you through these periods.”
3. Thinking ahead, allowing for unforeseen costs – “You need to think about the costs associated with a rental property. Not just the mortgage, but insurance, maintenance and the costs involved with keeping up to date with legislation, such as current energy efficiency requirements and gas safety certification. Have your contingency fund available to cover this, and as with vacant periods, think about keeping it topped up by retaining surplus rent in your bank account.”
4. Dealing with the tenant deposit correctly – “If you do not deal with the tenant deposit correctly you open yourself up to being fined. Legislation is quite strict around this area, so it is important you are familiar with procedures and the paperwork you need to provide to your tenant. Make sure you have thoroughly checked the property before handing it over to your new tenant. Draw up a detailed inventory (take photographs) of the property and any contents included in the rental agreement. Provide a copy to your tenant before they move in.”
5. Carrying out regular inspections of the property – “By undertaking a regular inspection, you have the opportunity to check the property to ensure it is being looked after, but this can also give you the opportunity to catch up with your tenant. Not only does this allow them to draw any issues to your attention, so you can deal with them before they become a major problem, but also gives you the chance to check on them, find out about their work situation and any plans for the future. You may come away with a view that they are planning to stay longer term or may be struggling financially.”
6. Allowing for buy to let tax changes – “You should be aware of tax changes brought in over the last few years and how this may impact your income or ability to raise the level of mortgage you are seeking. Taking advice from a specialist tax accountant before you commit to buying a property is crucial. Not only will this help you understand your allowances and liabilities but may also help you decide how you buy the property (in personal names or a limited company vehicle) and any potential implications on your other income.”
7. Low Rental Yields – “Rental yield is a percentage figure calculated by taking the annual rental income and dividing this by the amount you have invested in a property. It is worth doing your homework to get an idea of the level of yield you can expect to achieve on the property type and area you are looking to invest in. For instance, two smaller properties (e.g. two or three-bed terraced houses) may provide a better yield than if you invest the same amount in one larger four + bed house. This will also drive the amount of borrowing that you can have on the property as this is assessed on the income the asset produces rather than a loan-to-value request.”
8. Choosing the right location – “Location, location, location – it’s a fact that you need to think about the location when purchasing a property to rent. Get to know the area and its reputation. Think about your future tenant and if the property is right for renting in that area. If you choose an area with a poor reputation or poor transport links, you may struggle to achieve the rent you are aiming for. Another consideration: Is the property type right for the location? For instance, an HMO in an area with little need for this type of property is less likely to provide you with a good return on your investment than if it were near a university.
9. Meeting the tenants or vetting them properly – You have invested a large sum of money in your property and are about to entrust it to a stranger. If you are using an agent, do your research. Are they reputable? Yes, you want to make sure your relationship with them is good, but do they treat tenants properly as well? If the tenants are happy, they’re likely to take better care of your property. Similarly, it is good practice to make sure potential tenants are vetted properly, ideally you should meet them yourself before you commit to the tenancy. It is worth finding out a little about them and their reasons for the move. Also, if you can begin to build a relationship with them it will help for the future.
10. Choosing the right insurance cover – “Insurers look at a buy-to-let property differently to owner-occupied homes. You will need specialist landlord cover, as standard household insurance is unlikely to cover your rental property. Insurance cover not only considers the building (and contents if you are letting a furnished property) but other risks such as periods when it will be vacant or if serious damage is caused by your tenant. Having the right cover in place now, could save you from substantial cost in the future.”
Article from Landlord Today & Arbuthnot Latham Bank
Article from gov.uk; https://www.gov.uk/government/news/clampdown-on-landlords-with-funding-boost-for-councils
Families living in cold draughty rented properties in England and Wales can expect warmer homes thanks to a new campaign to help councils clamp down on landlords.
Over 40,000 families living in cold and draughty rented properties across 59 local authorities in England and Wales can expect warmer homes thanks to a new campaign to help councils clamp down on errant landlords.
Since April last year privately rented homes must meet a minimum energy performance rating of EPC Band E, making it illegal to rent out homes below that unless landlords have a limited exemption. Landlords caught failing to fulfil their obligations can be fined of up to £5,000 per property and per breach.
Badly insulated properties often leave those renting their homes struggling to keep warm and with higher energy bills. The rule change is expected to see energy efficiency upgrades such as loft insulation, double glazing and cavity wall insulation being installed by landlords in around 290,000 properties – with an estimated average bill saving of £180 a year for each home. This move forms part of the government’s actions to protect consumers, particularly those on lower incomes, as we manage the impact of global gas price rises.
The £4.3 million of extra funding from the Department for Business Energy and Industrial Strategy (BEIS) to councils across the country is designed to support them make an extra 100,000 engagements with the most difficult to reach landlords with the worst performing properties.
The money will support innovative measures including local radio ads, roadshows and workshops with landlords to raise awareness of the rules, free property surveys, as well as enhanced and targeted mail reminders and translation services to reach those not currently complying. One council will even invest in a drone with thermal imaging capacity to help with on the ground inspections.
Business and Energy Minister, Lord Callanan, said:
This funding will help councils to support landlords with these important energy efficiency changes, but also enforce these standards, helping tackle fuel poverty and ensuring everyone can live in a warm home with fair energy bills.
Heating our homes and buildings makes up almost a third of all carbon emissions, meaning raising the energy efficiency of our properties is something we all have to contribute to help us build back greener and reach our world leading climate ambitions.
Deputy Council Leader of Darlington Council, Jonathan Dulston, said:
We know that the vast majority of private landlords stick to the rules and provide good accommodation, but we are determined to crack down on rogue landlords who do not care about their tenants or the standard of their properties.
These new powers will improve the energy efficiency standards of private rented homes both here in Darlington and across the country, which will in turn improve residents’ health, ensuring people do not live in homes that are cold and damp.
To further support private landlords, as well as the overall UK property market, the government has also announced today a new £10 million innovation programme, dedicated to developing world-class energy efficiency products and green finance services – equipping homeowners with new options to decarbonise their homes in a more cost-effective way.
The new Green Home Finance programme, part of the £1 billion Net Zero Innovation Portfolio, will support high-street lenders, financial technology businesses, energy suppliers and others to pioneer world-class innovation into new products which will make it easier and more affordable for homeowners to switch to low carbon heating. This is likely to include piloting cutting-edge heat pumps, glazing and insulation, as well green finance services such as green mortgages and green equity releases.
The investment comes as ministers this week unveiled the government’s Heat and Buildings Strategy, which commits to all new heating appliances installed in homes and workplaces to be low-carbon technologies to help ensure the nation’s buildings are fuelled by clean energy by 2035, as well as bringing down the costs of clean alternatives so they are no more expensive than gas boilers by 2030.
Minister of State for Energy and Clean Growth, Greg Hands, said:
Ensuring our buildings and homes are powered by clean energy is an essential step we need to take in order to meet our target of reaching net zero emissions by 2050.
The UK government is stepping up to the challenge with a new Green Home Finance programme to help drive forward the development of cutting-edge green finance products and services for homeowners that will not only transform the nation’s green property landscape, but also help create more green jobs, as we build back greener.
The government has set 2035 as the target for all homes across the UK to reach EPC C by 2035 and is currently spending £1.3 billion on improving the energy efficiency of 50,000 low-income local authority homes, through the successful Local Authority Delivery Scheme. Measures include cavity wall, underfloor and loft insulation, and replacing gas boilers with low carbon alternatives like heat pumps.
To help consumers further, BEIS has announced plans to trial automatic switching for customers on expensive default tariffs to cheaper deals, and are extending the Warm Home Discount so an extra 750,000 households get £150 knocked off their bill each year.
Thank you to all of our members who attended our meeting last night.
We had two excellent speakers join us – David Aggiss from Three Sixty Mortgages with his presentation; “2021: What a Year – the changing BTL/Investment Lending Landscape”. We also had Jeremy Wood from Excaliber Insurance discussing landlord insurance, the common pitfalls and how to avoid them.
We look forward to our AGM in January which will be in person at The Future Inn hotel. A notice of the AGM will be sent to all members nearer the time.
‘Lagging behind – energy efficiency in low viability properties’, a report released on 21 October, raises concerns over the affordability of retrofitting properties.
We urge the UK Government to give serious consideration to the impact of regional variability in house prices and dwelling stock when installing heat pumps to hit decarbonisation targets.
Failure to factor in huge regional variations in property prices when incentivising homeowners and landlords to retrofit their properties to meet national net zero targets could risk seeing a reduction in the quality and availability of housing stock.
According to the report, in some local authority areas of the north and midlands, the estimated costs of improving home energy can be around 25 per cent of property values, while in affluent parts of London and the south east retrofitting with heat pumps represents less than 2 per cent of overall property value.
For example, in the red wall constituency of Burnley, where nearly four-in-five dwellings need to attain EPC Grade C standards, standard retrofitting costs of £24,000 are equivalent to a quarter of median house prices of £99,500. However, in the Royal London Borough of Kensington and Chelsea, where median house prices are £1,317,500, retrofitting costs are equivalent to a mere 1.8 per cent of overall property values.
The UK Government announced their ‘Build Back Better’ initiative in 2020, however, the policy presents problems for the private rented sector where properties are of low value, landlords are unlikely to have either the rental income or equity to finance upgrades. Furthermore, homeowners in such areas on low income have no incentive to fund expensive improvements that add no value to the property.
The Report was dissected and discussed by a panel of guests including Roz Bulleid, Deputy Policy Director, Green Alliance, Cllr David Simmonds MP, Chairman, All Party Parliamentary Group on Housing and Planning, Erin Walsh, Director of Built Environment, Connected Places Catapult.
Two prominent themes arose, which are – behavioural change and consumer choice and awareness. Targets based on property type, not tenure were also cited.
The Heating and Building Strategy aims to help homeowners make the transition to low carbon heating, however, in order to properly address the retrofit challenge it must:
Other report recommendations include calls for:
https://www.localis.org.uk/wp-content/uploads/2021/10/040_LaggingBehind_PRF3_HR_Final.pdf
Article Abridged, by Propertymark
The following guidance has been updated; Guidance for landlords and tenants – GOV.UK (www.gov.uk)
For further information on the withdrawal of the pilot, read here; [Withdrawn] Rental Mediation Service – GOV.UK (www.gov.uk)
SWLA Tradepoint card holders receive an extra 10% off the deals below;
Wednesday 20th October 2021, 7.30pm Start
Speakers will Include:
David Aggiss, Three Sixty Mortgages:
“2021: What a Year – the changing BTL/Investment Lending Landscape”.
and
Jeremy Wood – Excaliber Insurance:
“Landlord Insurance: Common pitfalls and how to avoid them”.
If you would like to attend this meeting, Please register with the SWLA Office who will send you details nearer the time;
email: info@landlordssouthwest.co.uk or phone 01752 510913.
We hope to see you on the night.
On 01 October 2021, the government updated their guidance to reflect recent changes to possession notice periods. The document is well worth a read – lots of valuable information for landlords and agents.
Local Authorities sometimes remind licence holders that their HMO licences are due for renewal. These reminders are not always reliable so ensure that you diarise your HMO licence renewal to avoid voids in your licence.
Article by GoSimpleTax
How much do you know about Making Tax Digital (MTD)? Well, if you’re a UK landlord you should know some basic facts, because MTD could affect you in the near future.
Making Tax Digital is an ambitious government initiative that will completely change how people and businesses keep their financial records and report data to HMRC.
MTD is being introduced to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes. These are estimated to have cost the government more than £9.9bn in lost tax revenue in 2017-2018 alone.
Making Tax Digital will totally transform how financial records are kept and reported to HMRC. MTD for Income Tax will bring in a new way of reporting your earnings as a landlord to HMRC. This guide provides a basic overview of MTD and its implications for landlords.
Here’s what we’ll cover
How will Making Tax Digital for Income tax change things?
When introduced, you (or your accountant if they look after your books and tax returns) will need to use MTD-compatible software to maintain digital records of your income and expenses.
Your MTD-compliant software will summarise your figures, which you must send online via your HMRC digital account (you will get up to a month after every quarter end). You’ll also be able to see how much tax you owe, based on the information you’ve supplied, so you can budget for paying your tax bill.
At the end of the tax year, you’ll need to finalise your business income and submit a final declaration, confirming that the updates you have provided are accurate, with any accounting adjustments made. Then, you’ll soon receive your tax bill. You must submit your final declaration and pay the tax you owe by 31 January the following tax year.
When will MTD for Income Tax be introduced?
Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from their next accounting period – starting on or after 6 April 2024. This has been postponed by one year, a written ministerial statement from the Financial Secretary to the Treasury, Lucy Frazer confirmed.
You’ll still need to send HMRC a Self Assessment tax return for the tax year before you signed up for MTD for Income Tax. But after that, you can wave goodbye to completing an annual Self Assessment tax return and all the hassle and panic that can go with it. Having to record your expenses every quarter might also prevent you from forgetting and not claiming some.
If you’re already using software to maintain your financial records, HMRC recommends asking your provider whether they plan to make their software MTD-compatible. Government website GOV.UK already lists software that is compatible with Making Tax Digital for Income Tax. If you currently maintain paper records, you’ll need to find an MTD-compatible digital solution.
MTD for Income Tax pilot scheme
Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. You may be able to sign up voluntarily for MTD for Income Tax if:
You can sign up now for your current or next accounting period. It could be a good way to get used to the requirements of MTD and make sure you have the right software and systems in place. If an accountant maintains your financial records and/or looks after your tax returns, they can sign up for MTD for Income Tax for you. If you need to report income from other sources (eg wages from working for someone else), you cannot sign up voluntarily.
Visit GOV.UK to sign up your business for Making Tax Digital for Income Tax. You’ll be asked for your:
MTD: What if I have more than one property for rent or let?
You only need to report your earnings and expenses via MTD for all of your properties together, you don’t need a digital account for each property. However, you should maintain detailed records for each individual property, for your own benefit, so you can better understand and compare income and costs.
Making Tax Digital: What if I co-own property?
If owned by a business partnership of which you’re a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner.
Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated.
In cases of jointly held property, for example, where a husband and wife own a property for rent or let, each person who has received income from jointly held properties must report that income separately, after registering for Making Tax Digital.
Where can I find more information about MTD for Income Tax?
Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
Our software submits directly to HMRC and is the digital solution for Landlords to record income, expenses and file their self-assessment giving hints on savings along the way. Covering all self-assessment pages, not just property, GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees.
25% software discount for SWLA members.
Wednesday 20th October 2021 – 7.30pm – Speaker Meeting – All Members Welcome