Making the Right Decisions

Landlords, as ever, need to be a pretty resilient group, with all the regulations, tax changes and market conditions thrown at this sector over the years, and now we have rising mortgage interest rates!

On top of these developments, there are more changes coming down the track, such as the Energy Performance Certificate reforms (see box item below). However, a recent positive is that landlords will also benefit from the reduction in the Stamp Duty charges, albeit the 3% surcharge still remains.

Wanting to remortgage

As a consequence of the regulatory issues applied back in 2017, a sizeable number of landlords took out 5-year fixed rate deals to avoid some of the stress-testing requirements back then.

For those that are yet to remortgage, it’s vital that you have a conversation with us. The current turbulent market environment means that some lenders are further tightening their stress-testing for mortgage loans.

The stress test rate is applied to check the ability of the borrower to pay at a rate above the deal rate on offer – and the percentage rate stress test rate seems to be rising. In addition to this, we still have the affordability criteria, where lender’s will be looking for a buffer in rental income to the tune of around 125-145 per cent. This is there to help cover non-payment of rent, void periods, repairs, etc.

Demand remains

For those renters who want to become homeowners, there’s still a lack of suitable housing stock, and problems with building up a deposit. Plus, the current climate may delay some from wanting to get onto the property ladder at this time, and continue to rent.

Limited Company status

This is proving to be a popular direction, but won’t be the most suitable option for all, so do speak to your accountant and solicitor regarding tax issues, and property structures (such as any leasehold issues you may face). And we’re there to give an overview, and to assist with sourcing suitable deals.

Energy Performance Certificate (EPC)

Over three-quarters of landlords are willing to spend up to £3,000 to upgrade each of their properties to an EPC rating C, in order to meet the new regulations.

However, according to Paragon Bank, the average cost for these improvements may well be over £10,000 – covering elements such as replacement windows and loft insulation.

New tenancies must have an EPC rating of at least C by the end of 2025. For existing tenancies, this will apply from 31 December 2028.
(Source: Paragon Bank, Rental Sector Energy Challenge report, July 2022)

Please get in touch if you’re keen to discuss your borrowing needs.

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