This week, the Bank of England expressed concerns about Buy-to-Let Investment and lending levels. New rules have been proposed that aim to tighten requirements for landlords involved in investment properties and limit the amount that can be borrowed for these types of endeavours.
This reaction comes from recent suggestions that mass buy-to-let property management could have a destabilising effect on the UK economy.
The rules put a spotlight on lenders, encouraging them to require more extensive financial information from the potential landlord before granting a mortgage.
The requirements go beyond ensuring the rental income of the property is significantly higher than the mortgage payments (the income coverage ratio), to also considering an individual’s overall financial situation.
The Prudential Regulation Authority (PRA) - an arm of the Bank - has recommended that banks and building societies take account of:
- all the costs a landlord might have to pay when renting out a property
- any tax liability associated with the property
- a landlord's personal tax liabilities, "essential expenditure" and living costs.
- a landlord's additional income - where this is being used to support the borrowing. This income should be "verified".
If adopted, the new rules could reduce lending to landlords by up to 20% over the next three years.
As a landlord
Whether you choose to set up your property investment business as a sole trader, partnership or limited company, it is important to stay on top of your accounting records. Your records could determine whether you are granted a mortgage for any future investment properties.
Landlords need to register for Self Assessment and companies must file accounts and pay Corporation Tax.
You will need to keep track of the rental income and claim allowable expenses including:
- Mortgage or Loan Interest (but not capital)
- Repairs and maintenance (but not improvements)
- Travel costs to and from your properties for lettings or meetings
- Advertising costs
- Agent fees
- Buildings and contents insurance
- Ground Rent
- Accountants Fees
- Rent insurance (if you claim, the income will need to be declared)
- Legal fees relating to eviction
How can Debitoor help you?
Debitoor is a cloud-based accounting software, which means you can access your records 24/7 on any device. In addition, tenants can be invoiced electronically with a ‘Pay now’ button on their invoice (using PayPal). This integration makes payment simple for your tenants and provides faster payment to you, making it easier to track rent and expenses and stay in control of your finances.
Work with your accountant
Debitoor allows you to provide accountant access so your accountant can help you quickly resolve queries and provide advice, all without the hassle of print-outs and back-ups.