Assetz® News - Buy-to-let investors warned of potential fines

Buy-to-let investors warned of potential fines

13th June 2006 |

As the UK's buy-to-let industry continues to expand, investor landlords have been reminded of the importance of complying with forthcoming legislation.

On July 6th, new rules will come into effect to improve the quality of rental properties and to reduce the number of unsuitable landlords operating in the UK. Those who ignore the changes could face fines of up to £20,000 and it is a threat that will affect thousands due to the current buoyancy of the market.

There is no doubt that buy-to-let investment is appealing to more and more people in the UK and recent surveys indicate that existing landlords are looking to expand their portfolios.

It is perhaps a measure of the increased profile of buy-to-let as a viable and rewarding investment option that Alliance & Leicester has now moved into the market with the backing up American investment bank Lehman Brothers.

Speaking to the Independent, Stuart Dawkins, A&L's director of corporate communications, said: "Buy-to-let and so-called specialist mortgages are now well-established markets and account for up to a quarter of all new lending. That's a lot of potential customers that up to now could not buy one of our products."

But this confidence will mean very little if landlords carelessly disregard the new requirements, as stressed by mortgage broker John Charcol.

The biggest change is that landlords will soon need a licence if they own a House in Multiple Occupation (HMO). Because this licence is specific to both the property and the landlord, it will be non-transferable meaning that new landlords will face additional costs. It is a process that has been brought in to weed out landlords who are not up to the task and most are welcoming it in this respect.

On the other hand, there are some reservations about the complexity of the rules.

The mandatory licence will be required if a property has three or more storeys and is occupied by at least five occupants from two or more families, but local authorities will also be able to demand licences for other HMOs if they feel this is the appropriate action.

There will also be an issue with inconsistency when it comes to the cost of this licence as local authorities will be able to use their discretion. Experts from John Charcol propose that this could range from £100 to £1,100.

Meanwhile, landlords will also be prohibited from holding their tenants' deposits unless the funds are backed by an insurance scheme. In normal circumstances, the deposits will instead go to an independent body.

Ray Boulger from John Charcol suggests that some landlords may make up for the loss of the deposit by raising rents, although this will be dictated by supply and demand in the majority of cases.

The changes will certainly raise the standards in the buy-to-let industry which will be welcomed by all concerned. There are, however, new risks that landlords will need to take into account and seeking professional advice before committing to an investment property remains the most sensible option.