How Landlords can Protect their Finances – This week has been extremely busy for landlords, as George Osborne announced his plans for the UK economy in the Budget 2014. Naturally, there are points that some are happy with – such as the fact that non UK residents will soon also have to pay Capital Gains Tax – however there are others which are raising concerns.
This is why many landlords are now taking the time to make sure that their finances and investments are secure. Here, PropertyQuoteDirect looks at some of the most prominent issues that landlords may face in the near future:
Welfare Reforms and Tenants
The welfare reforms have generally been extremely unpopular with landlords, especially the Universal Credit scheme which has led to landlords letting to DSS tenants no longer receiving housing benefits directly. Instead, their tenants receive their housing benefits, along with any other forms of welfare, all in one lump sum once a month, and it is then their responsibility to make sure the right amount goes to their landlords. In his Budget announcement, George Osborne said that there would be further welfare caps, meaning that it is becoming more risky for landlords to let to DSS tenants. In order to combat this risk, it is advisable for landlords to compare landlord insurance quotes that include rent guarantee insurance, as this will protect your business if one of your tenants defaults on their rent payments.
Mortgage Lender Issues
In 2008 Bradford & Bingley and Northern Rock were both nationalised, which led to the creation of UK Asset Resolution (UKAR), whose main priority is to cut back the mortgage book in order to repay tax payers. However, landlords are claiming that UKAR are being unscrupulous in their methods by finding ways to force landlords to sell their properties or even repossessing them. A spokesman from UKAR said: “Our mortgage conditions include a “right to consolidate” clause which applies to our portfolio landlords. Where a property is sold as a result of a repossession or via an LPA receiver, we will apply any sales surplus to other mortgage accounts that the landlord holds with us, if these are also in default.” The FCA are already aware of the issues that UKAR’s customers are facing, and if they continue it is likely the bank will see a class action being launched against it much like the Bank of Ireland.
HMRC closes in on Landlords
Even though the property market is starting to improve, in previous years it struggled immensely, which led to an increase in what is called ‘accidental landlords’. Accidental landlords are those that let properties as they are not able to sell them, and generally these people have little experience when it comes to letting. Unfortunately, this means that many have failed to pay the correct amount of income tax on their rental income to the HMRC, which is why the body has created the Let Property Campaign which aims to recover owed tax from the private rental sector. The campaign also targets those who have purposely failed to declare income, and if caught they will receive a fine of up to one hundred per cent of what they owe. However, a spokesman for the HMRC stated that they would be more lenient for those that had made an honest mistake, but now is the time to double check your tax payments are in order.
New Buy-to-Let Investments
With the economy improving and unemployment figures falling, it is expected that the Bank of England will increase its base rate within the next few years. This means that landlords thinking of investing in new properties in the near future will need to protect their businesses against higher mortgage repayments. Many banks are now offering five year fixed rate mortgages to landlords, which will be extremely beneficial if the Bank of England’s base rate increases in the near future. However, it is also advisable for landlords to calculate whether they can realistically handle higher outgoings in the future, as well as create a contingency fund that can be used if you fall into financial difficulty.
The next twelve months are going to be somewhat trying for landlords as not only is the economy changing in ways that we haven’t seen in years, but the General Election is being held at the beginning of 2015. New taxes, regulations and schemes will likely enter the private rental sector during this time, so it is of the utmost importance that landlords protect their finances now.