Andrew Turner, chief executive at Commercial Trust.
As 2018 draws to an end, there has been much to reflect upon in the buy-to-let market.
An evolving market
The past couple of years have seen lender competition rise in the buy-to-let market.
This has helped to drive buy-to-let mortgage interest rates down and led to an influx of products with cashback incentives, free valuations, free legal services and a variety of competitive fees.
Incentives and rates in isolation, might seem enticing, but do not give the full picture. Every aspect of the deal, including criteria, must be taken into account when assessing the suitability and total cost of a mortgage.
As a result of this heightened competition the buy-to-let market has become more complex.
In May 2018, financial data provider, Moneyfacts, reported that for the first time, the buy-to-let market offered over 2,000 products for landlords.
With such an array of choice – not to mention the time it takes to research the market and work out the pros and cons of each product, the demand for practical advice and support from a specialist buy-to-let broker has arguably never been greater.
I expect to see a continued trend of creative product options from lenders, but the days of rock bottom buy-to-let mortgage interest rates, may be numbered.
The past three years has seen buy-to-let mortgage rates drop and hover around historically low levels.
This has partly been down to the Bank of England base rate level, which increased in November 2017, for the first time in a decade – and at the time of writing, remains at 0.75%.
But mortgage lenders are influenced by other factors when setting interest rates - and margins have been tight in recent times.
The number of incentives added on products perhaps underlines that interest rates cannot go any lower, but that lenders are still keen to attract landlord business.
I am expecting us to see buy-to-let mortgage rates rise in 2019.
When the base rate increased again by 0.25% in August 2018 some lenders absorbed the extra costs and in some cases, even reduced mortgage interest rates.
I believe that this cannot continue indefinitely, so if you are considering remortgaging, it may benefit you to secure a competitive deal now in case rates do go up.
MEES net widens
In April 2018 new rules were introduced in England and Wales, regarding Minimum Energy Efficiency Standards (MEES).
Landlord rental property had to have an Energy Performance Certificate (EPC) rating of at least E.
Failure to do so meant an existing tenancy could not be renewed and no new lets were allowed.
There were exemptions, including if the cost of any property upgrades exceeded £2,500. In this instance, the landlord did not have to carry out the work.
The government is raising this cap to £3,500 in 2019. Reports suggest this will affect 290,000 properties.
Government guidance suggests improvement work needed to meet an E-rating costs, on average, £1,200.
MEES rules mean that from April 2020, regardless of tenancy status, all rental properties will have to have an EPC rating of at least E.
So 2019 will impact more landlords, in preparation for the 2020 deadline.
HMO licensing on October 1 2018
New rules redefined what constitutes a House of Multiple Occupation (HMO) and who needs a license.
The theory behind implementing new HMO rules, is to raise standards in the private rental sector.
Local authorities are responsible for ensuring HMOs are licensed. They set their own fees and health and safety and may enhance central government minimum standards for bedroom sizes.
Landlords who run an unlicensed HMO, which should have one, face unlimited fines.
But research suggests many landlords remain unaware of the new HMO rules. They could unwittingly be letting properties illegally. There are also question marks about the fees charged for a license. The 2018 case of Peter Gaskin versus LB Richmond Upon Thames, raised the question of what local authorities can charge for, within the fee.
The Residential Landlords Association (RLA), reported two weeks before the new HMO rules came into effect, that many local authorities were completely unprepared.
The government later earmarked £2m for local authorities to enforce rules.
This was welcomed, but with a note of caution. RLA Policy director David Smith, said in November:
“Poor enforcement of the wide range of powers already available means that the minority of landlords who bring the sector into disrepute undercut the majority of good landlords and bring misery to the lives of their tenants. This is what the funding needs to tackle.”
To demonstrate the challenge ahead, it was estimated that in Nottingham, up to 32,000 private rental homes would need an HMO license.
In November 2018 reports indicated that the council had received 13,450 applications. Of those, the council had reportedly only processed 5,993.
3,536 applications were rejected on the grounds of “paperwork errors”.
Arguments continue that the HMO rules are ineffective. That genuine, law-abiding landlords are penalised and funding councils.
The tiny minority of ‘rogue’ landlords ignore licensing laws or move to areas where they don’t need one.
HMO licensing remains a hot topic and the changes have not resolved all issues. Questions remain over their effectiveness in identifying those unwilling to follow the law.
It is likely to rumble on into 2019.
Healthy and Safety to the fore
The government recently announced plans to review existing health and safety regulations.
The current regulations have not been reviewed for 12 years.
The Ministry of Housing, Communities and Local Government stated: “A new review of the system will consider whether it should be updated and if so, to what extent.
“The review will also look at whether to introduce minimum standards for common health and safety problems in rental accommodation in order to keep renters safe.”
Local Authorities can penalise landlords over safety issues. These include: fire safety, electrical and gas safety checks, minimum bedroom sizes and the number of people living in a rental property.
Once again though, having the resources to enforce represents a challenge.
A review of carbon monoxide alarm laws will form part of the government study.
Landlords need to keep abreast of 2019 changes to health and safety legislation. Many of the above topics fall under landlord legal obligations and carry severe penalties for non-compliance.