Energy efficiency in Falkirk private rented properties – dull but important stuff!

As some of you will no doubt be aware the Scottish Government is conducting a consultation regarding energy efficiency and condition standards in private rented housing.  Details of which can be found by clicking here.

The Scottish Association of Landlords has submitted its ‘generic’ response to the consultation.  Details of this can be found by clicking here.  I have submitted my own as a landlord/letting agent.

We are all busy people but I would encourage you to have a look at what is proposed if you can find the time and possibly respond to the consultation – it is online and not too onerous.

Without boring you to death, the bottom line is that for a variety of reasons including Climate Change and Fuel Poverty, the Scottish Government has put in place a policy that requires all Private Rented Housing in Scotland to meet a certain standard of energy efficiency as measured by the Energy Performance Certificate.

This consultation is not about whether this will happen, but rather how and when.

In its most basic form, all rented properties will need to achieve at least an EPC level E initially and subsequently an EPC level D rating within a timeline that is to be set.

There is no need to panic, I will just repeat that..... Don't Panic.

Worst case, assuming the consultation is adopted wholesale, we have until April 2019 before properties let from that date on ‘new tenancies' need to achieve an EPC rating of E and by end of March 2022 for all properties. After which we have until the end of March 2025 for all properties to achieve an EPC rating level D.

Those of you who are ‘regular’ readers of my blog will notice that I have started mentioning the EPC rating of potential ‘buy to let’ properties where appropriate, this legislation is the reason why.

So having given some background and the bad news, is there any ‘good’ news?

On the plus side, the current proposal does include a cap on the expenditure of £5,000 per property (not massively great news I accept). Most properties, we hope, should be able to meet the requirements at a much lower level of expenditure than this.

Additionally, we have been told that there will be ‘some' funding available (no details as yet) in terms of grants, interest-free loans etc.

I would suggest is that any landlord who has concerns should start exploring alternatives fairly soon.

You might consider the following:

• Identify if your property needs upgrading to meet the standard.
• If it does, have a look at the full EPC report as they usually give some guidance on energy efficiency measures. Whilst I suggest that you take this guidance and the projected costs/savings with a truck load of salt, they are a start.
• Explore all the possibilities for energy efficiency but ensure you get ‘expert’ guidance and written quotes for the different types and their efficiency. The range of insulation, heating, energy efficiency products that are available now is staggering and it’s only getting bigger as ‘energy efficiency’ becomes more and more of a focus.
• Explore the funding situation to see what's available. Some companies that specialize in ‘energy efficiency' works will assist with this and/or will often have a good handle on what might be available. Additionally, some will throw in a post works EPC (which is required to evidence the improvement in the EPC rating) for free.
• If you are going to get work done then allow for disruption, discuss it with your tenants and/or try and plan it for when there is a void period. Maybe combine it with other works you may have planned.

To give you an idea of the kinds of ‘technologies’ that are available here are some examples, with links to some providers. This list is by no means exhaustive and you might try to check out the Energy Savings Trust Scotland website by clicking here. 

I would emphasize that these aren't companies I have used and I am merely providing their details as examples. It is for you to decide whose services you employ bearing in mind that, which technologies or improvements will have the greatest impact on any given property, will depend on a variety of factors and so need to be considered on a case-by-case basis.

• Heating – obviously installing gas central heating is a big improvement but also a sizeable cost and that’s assuming gas is available. However, even if that’s not an option, the range of modern electric heaters that are highly efficient and cost effective is massive. From simple panel heaters to gel, water or oil filled alternatives even modern versions of the venerable storage heaters. I have gel filled in one of my own properties and the tenants are very happy with them and they are a quantum leap up from the old ‘storage heaters’.
• Insulation – there are numerous options depending on the construction of your property and how much you want to spend. As well as the usual loft and cavity wall insulation there are internal/external cladding systems, sprayable options etc. A couple of examples are: (i) ScotFoam – sprayable insulation and noise reduction, great for getting into spaces that aren’t easily accessible https://www.facebook.com/scotfoam/ and (ii) OVO Energy https://www.ovoenergy.com/guides/energy-guides/the-ultimate-guide-to-solid-wall-insulation.html.
• Glazing: Ah yes that old standby, you may already have it, but how old is it? If you don’t have it then maybe now is the time, or a cheaper alternative might be secondary double glazing, if the property is listed or in a conservation area.
• Energy Sources: Assuming your property isn’t a flat then maybe a miniature wind turbine, solar panels etc.
• But let's not forget the basics that people have known about for years. Draft proofing, new cladding on hot water tanks/pipes, increased loft insulation, programmable thermostats to turn things on/off, modern controls on radiators, energy efficient lighting. Sometimes lots of little changes can add up to one larger one.

A few final points:

• Firstly there is plenty of time.
• Bear in mind is that the areas of improvement with the highest EPC impact (in general terms) are insulation and heating.
• Beware of false economies by which I mean by this is don’t do this on the ‘cheap’ and get caught out, don’t pay money to move from an EPC G to an E and then several years later have to get more work done to get to EPC D. Look at the costings and, if it's viable, carry out the work in one hit.
• I can’t promise you the government won't ‘move the goal posts’ (there has been some talk of trying to get to EPC C, however, I think this is unrealistic given the age/type of some of the housing stock and that even some new builds struggle with this).
• There is lots of information and guidance available out there so take your time and do your research.

Watch out for further information on this in future posts on The Falkirk Property Blog.

www.thekeyplace.co.uk

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Flats in Falkirk – worth a look over 7% yields with limited capital needed

I was talking to one of my landlords from Edinburgh the other week about the buy to let property market in Falkirk, when the subject of flats (properties not shoes – see picture!), and in particular whether they would make a good investment, came up.

He said that he was not keen on flats because he had heard people lose money on them in the past and, anyway, she wouldn’t want to climb stairs to a flat or suffer getting no peace in a flat as a result of noisy neighbours.  This is a reaction I have heard a few times so I thought that I would look into the buy to let flat market in Falkirk a bit further.

First of all, let’s take the personal stuff.  As with all buy to let investments, it’s about the returns you can make on the property rather than whether you would want to live in a property.  A flat wouldn’t be my first choice to live now but I was very happy living in flats when I was younger and, anyway, I am no longer renting. 

Secondly, let’s have a look at the financial stuff. 

There is a strong argument that buying a flat these days is not an issue as they are sensibly priced, the error people made in the past was buying them at the start of this century for more than the price of a house.

If you are a landlord with a limited budget, you can still find a decent property to let in Falkirk. Typically, a reasonably priced one bedroomed flat can be bought for around £55,000 in Falkirk – the average rent for this sort of property is likely to be around £385 per month so that’s a yield of over 8%.  A similar two bedroomed flat in Falkirk can be bought for around £80,000 and will also give you a yield of over 7% based on the average rent for these properties of around £475.  In either case, £55-80,000 is not that much for a buy to let property – assuming a 75% mortgage, that’s only £14,000 to £20,000 capital down to get a property.

We hope you find our posts useful.  If you want some advice on this property, another property you have in mind or anything else property related, come and see us in our office (6 Vicar Street, Falkirk) or call me (01324 469840) or email me (news@thekeyplace.co.uk).

www.thekeyplace.co.uk

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Buy to Let Limited Companies – should Falkirk landlords set them up?

Taking you back a wee bit in time, in November 2015 George Osborne disclosed plans to restrain the (BTL) market as he felt its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market (and he also wantd to raise some more tax!).  One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017.  Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic, 40% higher rate and 45% additional rate).

So, for example, let’s say we have a Falkirk landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (2016/2017), assuming no other costs or allowable items …

• ·         Annual rental income £10,800.
• ·         Taxable rental income would be £3,600 after mortgage tax relief
• ·         Meaning they would pay £1,440 in income tax on the rental income

And assuming no other changes… the landlord would have income tax liability’s (at the time of writing September 2017) in the tax years of …

• ·         2017/18 –  £1,800
• ·         2018/19 – £2,160
• ·         2019/20 – £2,520
• ·         2020/21 –  £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability.  However, there is another option for landlords.

The Falkirk landlords who own the 550 rental properties in the town could set up a Limited Company and sell their property personally to that Limited Company

In fact, looking at the numbers from Companies House – many landlords are doing this.  In the UK, there are 93,262 Buy To Let Limited Companies, and since the announcement in November 2015 – the numbers have seen a massive rise ....

• ·         Q2 2015 / Q3 2015 – 4,193 Buy to Let Limited Companies Set Up
• ·         Q4 2015 / Q1 2016 – 5,403 Buy to Let Limited Companies Set Up
• ·         Q2 2016 / Q3 2016 – 3,007 Buy to Let Limited Companies Set Up
• ·         Q4 2016 / Q1 2017 – 7,149 Buy to Let Limited Companies Set Up

So, by selling their buy to let investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL’s as an ‘allowable expense’ – effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.   

I am undeniably seeing more Falkirk landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company? 

In fact, I have done some extensive research with Companies House in the 15 months (1st January 2016 to 31^st March 2017) and a number of Buy To Let Limited Companies have indeed been set up in the EH26.

Well if you are looking to hold your BTL investments for a long time it could be very favourable to take the short-term pain of putting your BTL’s in a limited company for a long-term gain.  You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.

As the law sees the new Limited Company as a separate entity to yourself, you are legally selling your BTL property to your Limited Company, just like you would be selling it on the open market. Your Limited company would have to pay Stamp Duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated (with appropriate exit charges).

On a more positive note, what I have seen though by incorporating (setting up the Limited Company) is landlords can roll up all their little buy to let mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital.  Finally, if the tax liability is too high to swap to a limited company, some savvy buy to let investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company?  Just an idea (not advice!).

It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance.  Whatever you do, always get the opinions from these tax consultants in writing and you shouldn’t hurry into making any hasty decisions.  The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation, because with decent tax planning (from a tax consultant) and good rental / BTL portfolio management (which I can help you with)… whatever you do – let’s keep you the right side of the line!

For more advice and opinion on the Falkirk Property Market, visit the Falkirk Property Blog at www.thefalkirkpropertyblog.co.uk.

www.thekeyplace.co.uk

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Falkirk Buy To let – Bedrooms?

Last week, a landlord from Falkirk emailed me to ask, after reading the Falkirk Property Blog, if he should extend his terraced house making an extra bedroom in the loft. He had a builder friend who owed him a favour, and he thought that a good way to make more money out of his property would be to get an ‘inexpensive’ extension.

Having more useable space is generally thought to be consistent with better quality accommodation and homeowners and tenants are prepared to pay for it. If you added a bedroom to a two bed terraced to make a three bed terraced, it will add 10% to the value of the property. Turn a three bed terraced into a four bed terraced and 9% will be added to the value. Looking at semi detached properties, and turn a two into a three bed and 12% will be added to the value, whilst making a three bed semi into four bed will add 9% in value.

However, before you rush off to the planning department there are some important considerations, whether you are a homeowner or landlord. What would be the cost of making that extra bedroom? The average value of a terraced house in Falkirk is currently £104,161 whilst the average value of a semi detached house is £139,349, meaning to make money the cost of the extension would need to be less than £9,375 on the terraced property and £14,630 on the semi detached house. Talking to a number of tradespeople in the Town, most are booking up into the New Year now. Also, no matter how good a friend he was, I know of no builders that would charge as little as that. Maybe the builder was just thinking of a bit of pointing work on the chimney!

Well, that got me thinking about how bedrooms affected rental prices and rent-ability as well. The average rent of a two bed property in Falkirk is £500pm, but a three bed is only £125pm more at £625pm, whilst the average four bed rent is £775pm.  Interestingly, you will see that whilst bedrooms do have an effect on the rent that can be achieved and the rent-ability of the property – the difference does not warrant the expense, hassle and trouble of extending.

No, if you want to increase the value of your property, be you a Falkirk landlord or homeowner, there are things that cost a lot less than building extra bedrooms. Spruce up the exterior, emulsion all the rooms, install fresh carpets and curtains. For homeowners, a matter of a few hundred pounds will add thousands whilst for landlords these things can add an extra 10% to the rent that you can achieve.

For more advice and opinion on the Falkirk Property Market, visit the Falkirk Property Blog at www.thekeyplace.co.uk.

www.thekeyplace.co.uk

#falkirk #property #buytolet #realestate #ownermanagedbusiness #retirement #retirementplanning