Changes to buy to let mortgage interest relief: how to handle them

Changes to buy to let mortgage interest relief mean that many will see their tax bills rise.

Instead, mortgage tax relief was fairly straightforward until it started reducing from April 2017.

How to get it right as a first time landlord?

The main changes to buy to let mortgage interest relief:

  • The way your tax bill is calculated on rental income is changing by April 2020. Landlords will not be able to deduct mortgage interest from rental income before calculating taxable profit. Landlords may be able to claim a tax reduction equal to the basic rate of income tax, currently 20 per cent, which is less generous than the old system for landlords eligible for the higher or additional rate of income tax.
  • The government has introduced a transition period of four years to phase in the new system of calculating mortgage interest tax relief. The amount of mortgage interest tax relief each year will be as below.

How to build a buy to let portfolio

How much mortgage tax relief can landlords claim every tax year:

  • 2017/2018: 75%
  • 2018/2019: 50%
  • 2019/2020: 25%

Tips on managing landlord-tenant relationships

From April 2020, landlords will no longer be able to deduct the costs of servicing their mortgages from their rental income. Instead, you may receive a 20% tax reduction for your mortgage interest. This means that the final tax bill will be reduced by 20% of your eligible finance costs.

Expenses you can offset against tax as a landlord

However, this will be calculated as 20% of the lowest of:

  • Disallowed finance costs at the higher rate (interim period)
  • Overall property profit before tax
  • Your adjusted total income over and above the personal allowance

How to make your property more attractive to tenants?

For higher and additional-rate taxpayers, landlords will not receive all the tax back on mortgage repayments. In fact, the credit only refunds tax at the basic 20% rate. Landlords may be pushed up into the higher tax bracket as the rental income you will have to declare will be higher. This will depend on income from other sources, such as salary or pension.

Private landlords can avoid the hit that these changes will cause by setting up a company that owns their rental properties

What is West London Property Networking

If you have any questions on property management, please contact Pelin Martin to book a 30-minute free consultation on +0208 994 7327 – pm@bluecrystallondon.co.uk

Using a guarantor for renting: when we advise it

Using a guarantor for renting can smooth the process in many situations.

Guarantors are a secure way of improving the likelihood that those who do not meet the normal requirements of a regular tenancy agreement will pay the rent.

Guarantors must live in the UK, a homeowner or have assets, receive an income that meets the affordability criteria and a relative or a family friend of the tenant.

How to get it right as a first-time landlord?

Using a guarantor for renting: our best tips

  • Ensure that your prospective tenant is aware before the tenancy begins that you may share details of rent arrears other breaches of the tenancy agreement with the guarantor. Also, that this is reflected in the landlord`s Fair Processing Notice.
  • Send a Fair Processing Notice to comply with GDPR regulations May 2018 to the prospective guarantor.
  • Reference check the guarantor and send them a draft copy of the tenancy agreement before the tenant has signed it.
  • Send the guarantor a letter of guarantee for signing with a covering letter.

Company Letting Agreement and Shorthold Tenancy Agreement

We would recommend a full affordability check on the guarantor as well. If the landlord has purchased a rent protection insurance, this is usually the requirement.

The guarantor letter should include some vital points, such as the names of the landlord and tenant and the address of the rental property. It should be signed and dated by the guarantor as well as the witness, as legally this is a deed. The letter should also contain an explanation of what the guarantor is liable for, i.e rent arrears and damage. It should also include a description of the guarantor’s liability, as in the case of a jointly and severally liable tenant, this could extend beyond the individual`s rental ability. In England and Wales only, if the initial tenancy is a fixed-term tenancy, if the tenancy becomes periodic at the end of the fixed term, the guarantor agreement continues.

Section 21 notice and how to avoid an invalid one

Include a covering letter where you can explain that the guarantor may need to seek legal advice.

Urge them to make sure they have read and understood the terms of the tenancy agreement and highlight any key documents that you enclosed with the letter.

Landlords should include the guarantor`s details on the tenancy agreement. Otherwise, this could cause mistakes and confusion. The guarantor is not a party to the tenancy.

Landlord and Tenant: Tips on managing the relationship

Using a guarantor for renting: the recommended procedure

  • Reference prospective tenant
  • Then reference prospective guarantor
  • The guarantor signs The Guarantor Agreement. The guarantor must have sight of the tenancy before it is signed by the tenant.
  • The tenancy agreement is signed by the landlord and tenant

Accidental Landlord Tips

If there is a guarantor for one individual in a joint tenancy, then that guarantor is also liable for the other three tenants in the property. In fact, legally this is a jointly and severally liable tenancy.

In the event of a claim in England and Wales where there are five or more tenants, and all tenants and the guarantor are jointly and severally liable, a judge may only hold the first four tenants liable. It is therefore important to consider the order in which the tenants are listed on the tenancy agreement. Ensure that those with guarantors are among the first four.

What is West London Property Networking

If you have any questions on property management, please contact Pelin Martin to book a 30-minute free consultation on +0208 994 7327 – pm@bluecrystallondon.co.uk

How to get it right as a first time landlord

Avoid common mistakes inexperienced landlords make
Being a Landlord especially with the recent legislation and tax changes has become less attractive and more complicated.

Get a good tenant
You may want to find a tenant quickly so rent starts to roll in, however take it slow and ensure you carry out credit & referencing before letting your property.

Get the tenant to complete an application form that provides you with detailed information to enable you to obtain a credit and referencing report. The credit and refrerencing check may show a history of late payments, many accounts, etc. Take your time to verify references including employers and former landlords references.

Even if the tenant wants to move in quickly still ensure you carryout the checks above. Do not feel rushed or pressured into making a decision until you have all the information so you can make the best decision.

Avoid common mistakes inexperienced landlords make

Being a Landlord especially with the recent legislation and tax changes has become less attractive and more complicated.

Company Letting Agreement and AST differences

  • Get a good tenant

You may want to find a tenant quickly so rent starts to roll in, however take it slow and ensure you carry out credit & referencing before letting your property.

Get the tenant to complete an application form that provides you with detailed information to enable you to obtain a credit and referencing report. The credit and referencing check may show a history of late payments, many accounts, etc. Take your time to verify references including employers and former landlords references.

Even if the tenant wants to move in quickly still ensure you carry out the checks above. Do not feel rushed or pressured into making a decision until you have all the information so you can make the best decision.

How to deal with damp and mould in a rental property?

  • Allow 10% margin for voids 

Do not calculate your figures based on anticipation the property will always be let. Allow 10% void, the market rent, less 10%.

HMO Licensing changes 2018

  • Do not underestimate repairs and maintenance costs

You have a legal obligation to maintain the property in good order.  You need to factor in cost of repairs and replacement in your calculations. Be prepared to use money from your business from your personal funds in the event that you don’t have the cash needed for major works.  Consider allowing 15% for repairs and replacement costs out of the rent.

How to build a buy to let portfolio?

  • Being a landlord is not a hobby

Owning rental properties is a business and in order to turn a profit you’ll need to operate it as such. You will need separate bank accounts for deposits and expenses, using a bookkeeping system and consulting a tax professional to ensure you are correctly handling taxes on the rental income.

Section 21: Eviction Notice

  • Good tenancy agreement 

To avoid potential problems it’s essential that your tenants sign a comprehensive tenancy agreement. If you have  any problems with your tenant than you will need a written, binding tenancy agreement in order to obtain a possession order easily.

Landlord and tenant tips on managing relationships

  • Property Check

The property you are renting out is your responsibility. It needs to be regularly checked, to be aware of any damage to the property or any repairs or maintenance that may be required. Some tenants do not report problems and consequently further damage is caused due to unreported problems. Ensure to confirm your visits with the tenant to protect their privacy.

Renting to students

  • Keep up to speed with new legislation

Make sure you are aware of new legislations that come into force. As a landlord you’re required to make sure the property meets health and safety standards.

Where to invest in property?

  • Delaying an eviction

If your tenant has rent arrears do not delay and take legal action as soon as possible. Not beginning eviction proceedings in a timely fashion may become a costly mistake. If you run into problems with a tenant and are unsure about your rights or how to proceed, contact an eviction company as soon as possible. landlordadvice.co.uk is one of the leading national tenant eviction companies.

Where to invest in London with best commuter areas?

  • Ensure you enforce breach of the terms of the tenancy Agreement

If you outlined that late rent payments would incur a penalty, charge it. If you noted that no pets are allowed and your new tenant buys a pet, enforce the penalty. If your tenants realise that you are relaxed about the terms of the lease they will likely follow suit. Set the standards you want upheld.

Accidental Landlord Tips

  • Make notes

It is important that you keep written account of all interactions with your tenants in the event that you need to take your tenant to court. Note all phone conversations and keep copies of emails, voicemails or text messages, etc. to be able to support your claim. Where ever possible try communicating by emails so a record of communication is logged.

What is West London Property Networking

If you have any questions on property management, please contact Pelin Martin to book a 30-minute free consultation on +0208 994 7327 – pm@bluecrystallondon.co.uk

How to be the best property manager

Being a property manager is very demanding. Owners, tenants, contractors, colleagues … someone is always trying to get a hold of you. You also need to possess many different skills to balance everyday tasks and responsibilities. Being a property manager can also be very rewarding if you are able to be boundaried and can work towards deadlines and able to stay calm.

We have prepared a short list to guide you on your path to successfully manage your property portfolio and learn how to be the best property manager.

Know Your Properties Inside and Out

It’s important to be knowledgeable about each specific property you manage in order to answer any questions tenants may ask.

Get to know the property to learn about any unique qualities or quirks about it. This helps you provide more information to the tenants, shows you have actually been to the property, and saves you time by not having to read notes each time.

How to build a buy to let portfolio?

Be Dependable, available and reliable

Being a dependable person is extremely beneficial to be a successful property manager.

It’s important to respond to phone calls and e-mails in a timely manner. If you are managing numerous properties you will be very busy, but being available when owners and/or tenants need to speak with you is essential. This builds trust within your business relationship and makes your client feel confident that they can rely on you.

You certainly have a life outside of work and ensure tenants are aware not to contact you outside office hours unless it is an emergency. As long as they have your e-mail address and you are available as much as possible during regular business hours, that is enough.

Time management and organization are also a huge part of being dependable. Don’t spread yourself too thin. Make sure you schedule meetings accordingly in order to meet your clients’ needs.

Lastly, a great quality to possess is people skills. You will be working with numerous people and it’s your job to keep them satisfied.

Landlord and tenant relationship tips

Work with a Great Team

It may sound cliché, but teamwork really does go a long way. All of the responsibilities that come along with being a property manager are too much for one person to take on. Make sure to allocate outstanding work to the best contractors and the best price. The team you enquire to fulfil client needs will make all the difference.

Client satisfaction and peace of mind is the main goal.

What is West London Property Networking

If you have any questions on property management, please contact Pelin Martin to book a 30-minute free consultation on +0208 994 7327 – pm@bluecrystallondon.co.uk