What are the Buy to Let (BTL) Rules?
Posted on 25th May 2023 at 10:00
Investing in buy-to-let (BTL) properties has long been a popular choice for individuals seeking to generate rental income and build a property portfolio. However, like any investment, there are rules and regulations that landlords must adhere to.
In recent years, the government has implemented various changes to the BTL rules, aiming to create a fairer and more transparent rental market. This article will outline the current BTL rules, highlight the upcoming changes, and provide guidance on how to prepare for these modifications.
What are the rules for BTL properties?
The current rules for BTL properties are:
Today, domestic private rental properties must meet a minimum EPC rating of E.
A minimum deposit of 20-25%.
A deposit of approximately 40% to access the most favourable interest rates.
Compliance with the lender's affordability rules and interest cover ratios, which entails ensuring that your anticipated monthly rent covers your mortgage payments.
Adherence to any lender-imposed restrictions on the number of properties allowed in your portfolio.
Annual Gas Safety Certificates
Electrical Certificate (EICR) every 5 years
How are the BTL rules changing?
As of April 2023, the annual exemption for capital gains tax will be reduced.
Therefore, if you are intending to sell a rental property now, there is a possibility of incurring higher capital gains tax liabilities.
Additionally, from 2025, all new tenancies will require the property to have a rating of C or above. Moreover, from 2028, all new and existing tenancies will require the property to have a rating of C or above.
Do Landlords Need to Act Now?
Some people think that because there are many properties that need fixing, it might take a long time to get help from tradesmen. Also, if these tradesmen are really busy, their prices will probably go up. Plus, if a property can't be rented until it's fixed, there could be periods without any rental income.
So, the advice is to act quickly before the rush starts. Acting now will definitely save you from stress and costs.
Are there any EPC exemptions?
Your property may be excluded from the Minimum Energy Efficient Standards and EPC requirements. The following are the primary exceptions:
Buildings listed or protected, which would be negatively affected by improvements.
Temporary structures that are intended for a maximum duration of two years.
Certain workshops and industrial sites.
Detached buildings with a floor area of 50 square metres or less.
Buildings scheduled for demolition.
Renovating and upgrading period properties to meet the required standards can be significantly challenging and expensive, and this has been recognised. Currently, there is an affordability exemption for situations where implementing changes is technically infeasible or would cost more than £20,000.
It might be good practice for landlords to familiarise themselves with their property’s current EPC rating and start thinking of how the minimum standards can be met in the years to come.
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