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HMO – What you need to know

As you may or may not have heard, the Government is changing the Regulations that apply to Houses in Multiple Occupation (HMOs), these changes will give you a new reason to contact your existing HMO customers and target new ones. So, what is changing and what do you need to know?

The licencing rules are changing:

Currently only HMOs that meet the following criteria require a license:

  • A ‘large’ HMO rented to 5 or more people who form more than 1 household
  • At least 3 storeys high

The new rules extend the scope to:

  • Any HMO rented to 5 or more people who form more than 1 household
  • Any number of storeys
  • Purpose built flats where there are up to two flats in a block.

There is also an extension to the ‘mandatory licence conditions’ for HMOs

  • This will include conditions relating to:
  • minimum sleeping accommodation standards
  • maximum occupancy of such rooms
  • and the disposal of domestic waste in HMOs

All these changes will come in to effect on 01 October 2018.

The Bank of England has raised the base rate to 0.75%, just the second time it has been hiked in a decade.

Members of the Monetary Policy Committee (MPC) voted unanimously to raise the base rate by 0.25%, taking it to 0.75%.

The last time the base rate was above 0.5% was in February 2009 when it stood at 1%, and in November 2017, interest rates rose from 0.25% to 0.5%, 15 months after they were dropped to an unprecedented low.

The move came as no surprise as the markets were pricing in a 91% chance of a rate hike, but it does come in the face of weak and fragile UK economic growth figures.

The MPC said that the recent data which showed a dip in output in the first quarter was temporary, as momentum recovered in the second quarter. GDP is also expected to grow by 1.75% per year on average and unemployment is low, and is projected to fall a little further.

Turning to inflation, which stood at 2.4% in June, the MPC said it lingers above the 2% target due to “external cost pressures“, resulting from sterling’s past depreciation and higher energy prices. These pressures are projected to ease over the forecast period while domestic cost pressures are expected to rise.

Minutes from the MPC meeting noted: “Taking these influences together, and conditioned on the gently rising path of Bank Rate implied by current market yields, CPI inflation remains slightly above 2% through most of the forecast period, reaching the target in the third year.

“The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.

“The Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting.

“The Committee also judges that, were the economy to continue to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

From 1 April, new lets and relets with an energy performance certificate (EPC) rating of ‘F’ or ’G’ cannot be rented out, and existing tenancies have until 1 April 2020 to upgrade their EPCs. Any landlord letting a property that fails to meet the standard required could face a penalty of up to £4,000.

 

Let property campaign: your guide to making a disclosure

The Let Property Campaign is an opportunity for landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple, straightforward way and take advantage of the best possible terms.

If you’re a landlord and you’ve undisclosed income you must tell HMRC about any unpaid tax now. You’ll then have 90 days to calculate and pay what you owe. This guide explains how you can do that.

For more details and guidance “Click Here”

Limited companies not exempt from 3% Stamp Duty: Budget 2016

In a shock move, a policy statement supporting the 2016 Budget confirmed investors buying residential property inside a limited company tax wrapper will still be hit by the 3% surcharge.

In a bid to sidestep the 3% premium, thousands of landlords have been placing residential property investments into limited company shells since the consultation was announced in the Autumn statement last November.

Today, the government confirmed only properties worth less than £40,000 along with houseboats and caravans will be exempt the surcharge, regardless of tax wrapper.

Chancellor George Osborne said in his speech, larger landlords would not be exempt the extra charge with many previously speculating that landlords with 15 or more properties may be exempt.

However, today’s policy statement quashed all speculation and said: “Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property.”

to letHow landlord tax is changing

When George Osborne announced the change, he implied that the extra tax would hit only higher-earning landlords.

It’s true that every mortgaged landlord who pays 40pc or 45pc tax will indeed pay much more under his proposals.

But some basic-rate taxpayers will also pay more tax – because the change will push them into the higher-rate bracket.

In fact, contrary to Mr Osborne’s suggestion, the only buy-to-let investors who will not be hit are the very wealthy who buy property in cash and who don’t need a mortgage.

At the heart of the change is landlords’ future inability to deduct the cost of their mortgage interest from their rental income.

In other words, tax will be applied to the rent received – rather than what is left of the rent after the mortgage interest has been paid.

Here is a worked example assuming you, the landlord, pay 40pc tax.

NOW

Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

2020

Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.

Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.

You will have to pay £5,000 tax in this scenario, so you make no profit at all.

 

smoke alarmSmoke alarms and carbon monoxide alarms to become the law

Landlords will be required by law to install working smoke and carbon monoxide alarms in their properties, under new measures announced by housing minister Brandon Lewis.

The government says the move will help prevent up to 36 deaths and 1,375 injuries a year.

This measure is expected to take effect from October 2015, and comes with strong support after a consultation on property condition in the private rented sector.

England’s 46 fire and rescue authorities are expected to support private landlords in their own areas to meet their new responsibilities with the provision of free smoke alarms, with grant funding from government.

Lewis said: “In 1988 just 8% of homes had a smoke alarms installed – now it’s over 90%.

“The vast majority of landlords offer a good service and have installed smoke alarms in their homes, but I’m changing the law to ensure every tenant can be given this important protection.

“But with working smoke alarms providing the vital seconds needed to escape a fire, I urge all tenants to make sure they regularly test their alarms to ensure they work when it counts. Testing regularly remains the tenant’s responsibility.”

The proposed changes to the law would require landlords to install smoke alarms on every floor of their property, and test them at the start of every tenancy.

Landlords would also need to install carbon monoxide alarms in high risk rooms such as those where a solid fuel heating system is installed.

Those who fail to install smoke and carbon monoxide alarms would face sanctions and could face up to a £5,000 civil penalty.

Alan Ward, chairman of the Residential Landlords Association said: “This is a policy that we campaigned hard for, and was a key part of the RLA’s manifesto for the private rented sector.

“Proposals for funding to provide free smoke alarms to landlords are particularly welcome and I look forward to seeing the details of this.”

Many thanks to Kevin for sorting our remortgage efficiently and speedily. This is the fourth mortgage Kevin has arranged for us with competitive rates. Thank you also for your support and advice and for being on the other end of the phone when needed. I would highly recommend Park Gate to friends and family.

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We offer whole of market advice for all types of customers, whether you are a first time buyer, home mover or looking to purchase a buy to let property. Being independent we are able to offer impartial advice from the whole of the market to ensure you get the product that suits your financial needs.

Whether you are looking to protect your mortgage payments or your family, we provide independent advice for life insurance, critical illness cover and income protection from a wide range of providers.

Buildings Insurance is a requirement when you complete on a mortgage the cover is to provide security to the lender, the insurance covers the main structure of your home. It will cover you for subsidence, storm, flood, fire or smoke damage and cover the costs of rebuilding or repair.

Equity release is a way of releasing cash from your property, either through selling a percentage to the reversion company or taking a mortgage on it, while allowing you, the homeowner to continue living there as long as you wish.