By David Alexander, managing director of property management company DJ Alexander
THE private rental market in Scotland is changing rapidly. New legislation and more stringent regulation of the sector has meant that many landlords face a mountain of rules, penalties, and potential legal and financial pitfalls in appropriately dealing with their investment properties. Six in 10 landlords have only a single property yet the regulatory regime has been made considerably more complex and arcane as the Government tries to rein in the buy-to-let (BTL) market comprising larger landlords which it feels may have become too large and too influential in the residential property buying sector.
Most of the larger landlords and letting agents should be able to deal with the financial and regulatory changes which are ongoing but smaller landlords and letting agents could struggle to cope. The financial changes include a three per cent Stamp Duty Land Tax (SDLT) surcharge on all new BTL properties since April 2016 which has considerably softened interest in the market. Before April 2016 BTL purchases accounted for one in 10 property transactions but this figure has now dropped to one in 17.
The limiting of landlords Mortgage Interest Tax Relief (MITR) phased in over four years from 2017/18 means that many landlords will face considerably higher tax bills in the future as relief on interest is removed. Equally the loss of relief on repairs and maintenance means that landlords will have to meet these costs themselves.
New underwriting requirements introduced by the Prudential Regulations Authority since January 2017 requiring lenders to maintain conservative underwriting standards and since September 2017 stricter underwriting criteria for borrowers with more than three BTL mortgages.
The result of these changes is that many landlords have been exiting the market. They have seen the cost of buying and maintaining property rise and the regulations involved in managing it become more complex.
This may be the right thing to do for some individuals who are “accidental” landlords but for many others with larger portfolios they may simply be panicking when there are other options. The mistake is that many landlords take on too much themselves. Most people wouldn’t audit their own company or learn about the law to give themselves legal advice, yet many people assume that being a landlord is something that anyone can learn.
The fact is that the property letting market has never been more complex, more financially problematic, or more legally difficult for the layperson to understand. One option for landlords and smaller agencies considering an exit would be to outsource the management of their properties to experienced property management companies who have the infrastructure, staff, and knowledge to ensure that landlords and letting agents are kept up to date with new legislation, regulations, and that their financial liabilities are constantly monitored to keep them out of trouble with the taxman.
The days of the amateur landlord may be at an end and, in truth, this may be no bad thing. While it was fun for many people to become a landlord – and TV programmes have certainly played a strong part in encouraging many down this route – the reality is that it was never an easy option. Your property investment is somebody’s home and it needs an objective eye to ensure that the needs of the tenant and the landlord are at the forefront of good property management. The legislative and financial changes have been criticised by some within the rental sector but ultimately if it produces a more professional service for all involved then surely that is to be applauded.
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