Failure to comply with MEES could affect your finances

March 17th, 2018 . Posted in Landlords |

Some landlords are likely to be affected by the Government’s upcoming Minimum Energy Efficiency Standards (MEES), as these key obligations and responsibilities to comply will largely fall on them. Specialist Landlord Insurance provider Just Landlords explains why it’s essential that landlords stick to the rules.

From 1st April 2018, it will be illegal to grant new tenancies or renew existing contracts if the building in question doesn’t meet the minimum Energy Performance Certificate (EPC) rating of E. As such, it’s important you’re able to get your property up to scratch as soon as possible, as it could greatly affect both your long-term and short-term finances.

Whilst the necessity of an EPC rating is not new, and the necessity of this certification came into place in 2008, the requirement for an E rating will now apply to nearly all buildings and tenancy agreements. As well as possibly incurring an upfront fine and fixed penalty, you might find yourself without tenants until your property meets the necessary standards, losing out on income, which can be avoided.

The most expensive consequence of failing to comply with the new MEES is a potentially hefty fine. If you don’t make sure your building at least holds an E rating before letting it out, and you still let it to tenants, you could be facing fines of more than £4,000, possibly even higher depending on the circumstances and your property.

At only £60 to £120, obtaining an EPC for your property is definitely a better option than possibly being fined thousands for not complying with the new MEES. You simply book a qualified assessor to inspect your property and assign you a rating. If it doesn’t meet the new legal requirement of E, some things you can do to improve it include:

  • Changing lightbulbs to low energy versions
  • Insulating your roof
  • Ensure any cavity walls are filled (funding is sometimes available for this)
  • Install renewable energy sources, such as a small wind turbine or solar panels
  • Introduce a room thermostat, individual radiator valves or a boiler programmer
  • Replace your old boiler with a more efficient model

Whilst it might not seem like the most appealing way of spending your hard-earned profits, especially if you don’t personally live in the building you own, you could greatly improve the quality of life of your tenants. Not only this, but if you should find yourself without tenants, you could attract potential tenants much quicker if your property complies with the new MEES, as well as increasing the value of your property if you come to sell if one day, or even the monthly rent price.

With potentially no tenants in the property until the EPC rating is improved, it could mean that months of rent are missed, meaning you’re losing out on valuable months of income. Not only does improving your EPC rating benefit any future tenants on cheaper fuel bills, but, if there is a period of time in which there is nobody renting the property, the landlord is generally responsible for bills. Especially during the winter, when turning the heating on in your properties helps keep damp and frozen pipes at bay, this will be much more cost effective for all involved if your property is more energy efficient.

Investment Choices for Landlords in 2018

December 18th, 2017 . Posted in Landlords |

There’s no denying that 2017 has been another challenging year for property investors. With more obstacles to overcome and inevitable changes in the pipeline, specialist Landlord Insurance provider Just Landlords looks at the investment choices that landlords have going into 2018…


Be prepared to change your strategy

The buy-to-let sector has faced a barrage of legislative and regulatory changes over the past couple of years, which could have left your portfolio a little worse for wear. In a changing market, you may find that you need to make changes to your investment strategy, in order to make your portfolio more profitable.

To be as prepared as possible for a potential change in strategy, start assessing how well your portfolio has performed over the past year and highlight any areas that need addressing. If you find severe issues, for example, if one of your properties is making a loss, then you know that you need to make changes in the New Year.


Consider moving to a limited company 

One change that you could think about making is moving your property portfolio into a limited company structure. This particular adjustment relates specifically to the Government’s reduction in tax relief on landlords’ finance costs. If you operate as an individual landlord, then you may be aware of the changes, which have been brought in on a gradual basis from April 2017.

Next year, further reductions will be applied, so you should start looking at your taxes on a long-term basis, considering whether moving onto a limited company structure could be the best bet for you – limited companies are exempt from the changes.


Think about your whole portfolio 

Furthermore, the Bank of England’s Prudential Regulation Authority (PRA) introduced some additional underwriting standards on portfolio landlords – those with four or more mortgaged properties – at the end of September this year. This could make it more difficult for you to expand your portfolio using mortgages in the future.

In addition, buy-to-let landlords also have the Government’s 3% Stamp Duty surcharge to consider when purchasing more properties. However, you must think about whether these short-term hurdles are significant enough to damage your portfolio in the long-term.


Look at how your portfolio is managed

While the Chancellor appeared to give landlords a break in his latest Budget announcement, 2018 is still set to bring with it some regulatory changes in the private rental sector, most notably a ban on letting agent fees for tenants. This could see agents pass these costs onto their landlord clients instead.

If your finances aren’t as healthy as they used to/should be, one option to think about is managing your properties yourself, rather than using a letting agent. However, you must ensure that you have enough time and knowledge to fulfil all of your legal obligations as a landlord before choosing to self-manage.


In such uncertain and shifting times, it can be difficult for investors to stay completely on top of all of the regulations and financial changes that they face. Remember that it’s wise to always seek professional advice before making financial decisions.

Buy-to-let mortgage changes for portfolio landlords

October 10th, 2017 . Tags: ,
Posted in Landlords |

From the 30th of September 2017, the Prudential Regulation Authority will implement changes to the way buy-to-let mortgage applications are assessed for portfolio landlords.

It seems that the Government and financial regulatory authorities are not prepared to forgive and forget that careless mortgage lending played a significant part in 2008 global financial crisis. Tougher mortgage assessments have already been implemented for private residential property owners and now it’s the turn of portfolio landlords.

Portfolio landlords are defined as having four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate. They are currently assessed for a buy-to-let mortgage based on the rental income and property value of the property they are applying for. Lenders may limit the number of buy-to-let mortgages that can be taken out with them but don’t concern themselves with mortgages a landlord may have with other lenders. So buy-to-let portfolio landlords have always been able to mix and match to get the best deal, and spread outgoings across their portfolios as standard practice. For example, the majority of their buy-to-lets are profitable then they cover any shortfalls on the ones that aren’t. For buy-to-let landlords, the business has always been about finding the balance between outgoings and profit.

In recent years, that business has experienced a few hurdles however. The Wear and Tear tax allowance has been removed; an additional 3% Stamp duty is now charged on second or more property purchases; from April this year, tax relief has begun its tapering descent from 40% to 20% by 2020; and now, for any buy-to-let mortgage application, lenders will have to assess the value and risk of the whole portfolio.

Yes, the whole portfolio. Lenders will have to work out the amount of aggregated debt, the cash flow and associated costs from multiple properties alongside the risks from the property itself. What’s more, they will assess the landlord’s history in the business to work out their risk.

Depending on the lender’s comfort levels, their decision to lend will be based on a landlord’s property investment experience, total borrowing across all properties, assets and liabilities (including tax obligations), total income and whether the new application will add to or detract value from portfolio. Landlords are advised to keep an up-to-date property portfolio spreadsheet, business plan and cash flow forecasts, the past three months’ bank statements, SA302s, tax return documents and tenancy agreements handy.

In addition, lenders will apply a stress test to the loan based on a landlord’s ability to pay should the interest rate rise above 5.5% (between 4% to 5.5% on 5 year fixed rates) and only once the affordability criteria has been met will a lender consider the mortgage based on whether the property’s projected rental value would equal 145% of the monthly mortgage payment.   Plus the whole process will need to be repeated for every new mortgage application or refinancing. The fallout from the 2008 financial crisis is still being felt and all this is to make sure that lending is responsible.

For lenders, it goes without saying that the volume of paperwork will increase exponentially and for some, buy-to-let mortgage products will become more trouble than they are worth. So are landlords facing a dreary future of paperwork, more expensive mortgages with fewer product options? Perhaps, but the likelihood is most lenders will “up-skill their underwriters” while other specialist buy-to-lenders will simply diversify their products to take into account the changes. It also will make brokers more important than ever.

Julian Sampson, Partner (Lending and Real Estate) at TWM Solicitors, also advises: “What has become apparent since the PRA announcement is that lenders have been waiting on each other to release details on how they are treating portfolio borrowers. This, in turn, has knocked onto the intermediary community.

“Those most capable of assisting in such short notice have been those with the internal capacity to assess each lender’s requirements in short measure, which means turning to specialists rather than dabblers will be the most important outcome.

“Landlords should already be able to identify their weakest assets, and the PRA changes will mean underwriting in the round will not be achievable. Therefore, Landlords should look at their leverage positions generally, and work to even their collateralisation as best possible.”

Brokers could end up being the buy-to-let saviours. Advising portfolio landlords on what information needs to be submitted, what products on the market best suit their needs (including a wide selection of specialist lenders often with preferential rates based on their business relationship with the broker), experience navigating the waters of complex buy-to-let finance and whether listing the business as a limited company is worth considering for tax purposes.

Sampson adds: “The macro-economic situation in the United Kingdom means that buy-to-let remains a vibrant market, and whilst it will suffer its fears alongside other areas, it will remain a strong stable market for those Landlords who control leverage, act professionally and keep abreast of legislative changes such as the Energy Act impact on EPC’s next year. Buy-to-let will continue to see new lending entrants and growth in 2017, and so they clearly foresee this is an area worthy of their funds.”

Vidhur Mehra, Finance Director at Benham & Reeves Residential Lettings advocates making sure your “house is in order”. This means ensuring that the information you need regarding your properties is up to date, organised and readily available. Vidhur insists this will be invaluable in assessing any impact of the changes.

We also asked Vidhur what’s the most significant change on buy to let mortgage changes for portfolio landlords? And in this case how should landlords approach it?

  • Regulations: whilst sometimes onerous, they are there for protection which is beneficial to the market overall.
  •  Excessive borrowing can become a problem. The stress tests will become an important consideration.
  •  Using debt finance is sensible but plan ahead and don’t over-leverage

In the uncertainty of September’s changes, this advice and support will be invaluable. Matching the portfolio landlord and their mortgage requirement with the right lender will make a huge difference in terms of time, effort and cost. So why not make an appointment to talk through your buy-to-let borrowing options with Visionary Finance today?


Updated: 11th October 2017

The cautionary tale of the interest-only mortgage

September 28th, 2017 . Tags: , ,
Posted in Landlords |

There was a time that interest-only mortgages were viewed as a win/win option because for the term of the mortgage, the repayments were only the interest on the loan. For people looking to buy their own home, they were a lower-cost option that meant homebuyers could buy a higher value property than they could have considered on a repayment mortgage (though still subject to the normal affordability checks) or limited by their own variable income when applying for a mortgage.

For landlords, they were a low-cost, high-profit investment that could be sold to clear the mortgage debt once the repayment period ended. So why did the Financial Conduct Authority refer to them as a “ticking time bomb”?

Simply because not enough emphasis, then and now, has been put on the need for a strategy to repay the underlying debt. According to the Council of Mortgage Lenders, one in ten families has no idea how they will pay off their loan when they reach the end of the term and still owe the amount they borrowed. Even those who have made provisions, such as a feeder account that they can pay extra into or an endowment policy linked to the stock market, may find that the final amount falls way short of the loan. Without the ability to raise the necessary funds, they will have to sell their homes to clear the debt.

Holly Thomas writing for The Guardian notes that interest-only mortgages are: “Seen as one of the worst examples of irresponsible lending in the years running up to the credit crunch, when their popularity soared. The majority of deals were taken out without any proof that borrowers could pay off their debt.” Obviously with today’s tightened mortgage affordability checks, no new interest-only mortgages are being approved without a water-tight repayment plan but that doesn’t help the two million people who have the debt deadline looming and have failed to make any repayments. Nor does it help those who have consistently made repayments into a stock market-linked endowment policy or ISA and are finding the amount is far lower than will be needed.

So what can be done? Taking independent financial advice is the best course of action. For some, there may be time to switch to a repayment mortgage or even for a portion of the mortgage if a repayment ISA or endowment policy has fallen short. For others, it may be possible to apply for a new, more appropriate, mortgage on the basis that property values have risen and circumstances have changed. Downsizing to another property is always an option or negotiating to make overpayments or extend the term of the existing mortgage are viable considerations too. There is another element to the interest-only story however, and that is the number of pensioners facing the “interest-only time bomb” for whom the above may not be possible.

Research by More 2 Life shows 41% of over 65-year-olds, 37% of 65 to 74-year-olds and 56% of 75 to 84-year-olds have an outstanding interest-only mortgage. Naturally, mortgage age limits prevent them from being eligible for a new mortgage arrangement or even negotiate their existing mortgage arrangement; setting up a repayment or endowment or even overpaying may be too little too late and selling may be the only option, provided they are eligible for a new mortgage deal. It is a pretty worrying state of affairs and one which is currently being investigated by the FCA.

For pensioners facing this problem, equity release is a serious consideration – essentially using the value of the property to pay for it. Figures show that £1.25bn has been released from homes in the first half of 2017 alone, that’s £6.9m a day, according to Key Retirement, and it will have been used, amongst other things, to pay off interest-only mortgage debts. Equity release firms are no doubt carrying out due diligence that the mortgage can be repaid in total from their payments (otherwise there may be legal implications over the ownership of the property with the mortgage lender once the occupant passes away). It has also led the Council for Mortgage Lenders to warn that for some, the equity in their homes isn’t sufficient to pay the mortgage debt.

For many reasons, the Financial Conduct Authority was right in its assessment. Interest-only mortgages require a great deal more thought than many were initially led to believe was needed. If you have an interest-only mortgage, or are interested in applying for one, make an appointment with Visionary Finance to discuss your options thoroughly and make informed decisions. As an independent FCA-regulated broker, we will discuss with you the best offers available in the marketplace to suit your personal circumstances.