Landlords beware! New charges for buy-to-let come in today

Royston Wild looks at the new set of crushing costs that landlords are now facing.

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There’s no question that buy-to-let is becoming an increasingly-troublesome gauntlet for investors to run in 2019.

Landlords have been getting accustomed to the increasing ream of regulations, changes to tax policy, and the subsequent cost increases that the government’s attack on the rentals market has created over the past couple of years.

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It’s why property sales for buy-to-let purposes is falling through the floor — in 2018, sales to landlords tanked 12% year-on-year to some 66,400, recent figures from UK Finance showed — and the latest round of energy efficiency rules introduced from today could hasten the decline of this once-popular investment sector still further.

Energy drive

The new rules that come into effect from April 1 don’t affect all landlords, but those whose homes aren’t on the ‘greener’ end of the scale could be in for a significant hit in the pocket.

From this week on, those landlords whose property or properties have an Energy Performance Certificate (EPC) rating of F or G will need to illustrate that the costs to raise the grade to at least an E would be higher than £3,500 per property (including VAT). They would then be granted a ‘zero cost’ exemption.

If it’s decided that a landlord isn’t eligible for such an exemption, however, individuals without third-party funding will be forced to spend up to £3,500 to upgrade the green credentials of each of their homes to an E rating.

Under Minimum Energy Efficiency Standards legislation that’s been in force since last April, new tenancy agreements cannot begin in England and Wales on properties which require an EPC that have a ranking of E or below. But as from April 2020, all existing tenancies in these regions will be required to have a minimum E rating, including those that are currently registered for those ‘zero cost’ exemptions.

Conditions getting tougher

Facing the prospect of big bills for added insulation, new windows and other similar energy-saving measures, the possible returns for many landlords have diminished still further. And for those operating in London and the South East of England, regions where rental yields have taken a particularly hard smack in recent times, these extra costs are really going to be quite painful.

For many who already own buy-to-let assets, the market may well remain lucrative enough for them to hang on to these properties, at least for the time being. But I staunchly believe that those who are yet to take the plunge, or are tempted to boost their existing investment portfolio with more properties, should resist the temptation to do so.

Government is failing miserably in its bid to jack up build rates in the UK, and it is unlikely to reach its target of 300,000 new homes per annum by the middle of the 2020s (the country is currently building 55% of that magic number each year). This means that, in the absence of a cohesive housing policy to help us meet this goal, the attack on buy-to-let is only going to rise to free up housing for first-time buyers. Think conditions are tough for landlords now? I expect them to be much harder, and as a consequence more costly, for proprietors in a few years’ time. Best to stay away, I think.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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