As we know, significant changes to the buy to let system started in 2015, when the former Conservative chancellor, George Osborne, introduced a three per cent surcharge on stamp duty land tax for each additional property bought and placed restrictions on mortgage interest tax relief.
In June this year, the Government published its 'Fairer Private Rented Sector' White Paper. This signalled the biggest shake-up in private renting in 30 years. It outlined proposals, some of which include:
- extending the ‘Decent Homes Standard’ from the social rented sector to private tenancies;
- moving all tenancies to ‘periodic’ tenancies, essentially scrapping ASTs and enabling tenants to give two months’ notice at any point;
- abolishing Section 21 and requiring Section 8 notices for all evictions;
- only allowing landlords to raise rents once a year, which tenants can challenge if they feel the rise is excessive.
Just as tenants are struggling with the increase to the cost of living, so too are landlords.
Some coming off ultra-low mortgage rates are seeing their payments double or even triple. Just as businesses are being forced to put prices up, landlords are being forced to raise rents, not to make more money but just to cover costs.
Historically, despite opposing views, landlords do not want to evict tenants, particularly those who are reliable with payments, respectful of the property and grant their landlord access when necessary.
Most of the landlords we work with have opted to keep their tenants on below market value rents in favour of having someone they trust living in their property. The consequence now is that good, reliable tenants are losing their long-term home. Many cannot afford the deposit to buy the property from their landlord, nor can they afford the costs associated with moving to a new rental property with higher rents. Many face having to move to a property of a lesser standard than they have been living in.
As just one example, I spoke to a landlord last week who, for the first time in 12 years, has had to contact his tenants and raise their rents. It wasn’t something he wanted to do, as he has good reliable tenants, but like many other buy-to-let landlords, feels under siege after years of tax and legislative changes, and now mortgage rate rises, mean that letting out a property in some cases no longer generates a profit.
Having spoken to him at length about his personal circumstances, it was clear that his only option is to raise the rent or sell up. He said if costs keep going up, he may still be forced to sell.
This landlord is just one example of thousands around the country. Government figures show that almost 260,000 private rentals have disappeared from the rental market in the past four years and 230,000 more properties a year are required to keep up with rising demand.
The fallout, of course, is a lack of choice for existing renters needing to move, and also new renters entering the market. This is not a situation which is likely to improve next year either, showing the desperate need for high-quality, affordable rental properties. The private rented sector is a sinking ship which has been created by a government which has not considered the wider consequences of forcing private landlords out.
2023
So, as we head into a New Year, is it really all doom gloom? And what can or should landlords do?
It would seem that recession is a given, but much of what happens next will be determined by global factors, such as how long the war in Ukraine lasts, the impact that has on the economy and of course the energy market.
What we do know is interest rates are likely to rise further in the coming year. Those who need or want to sell would be advised to do sooner rather than later. With rising interest rates, demand in the sales market is dipping and prices are likely to drop, in the short to medium term at least. In addition, some may want to sell prior to the CGT reductions.
I also know of landlords looking at selling up to buy in a cheaper, more profitable part of the country, which typically means a move away from London and the South East towards northern towns and cities which tend to offer higher yields. In fact, those looking to buy in 2023 could be best placed to bag a bargain, as long as the figures stack up, even on higher interest rates.
Those who don’t need to sell and are locked into a good rate are in the most favourable position as demand has never been so high. However, even if your fixed rate doesn’t end for another year, it is worth speaking to a mortgage expert to speculatively look at what rents you would need to achieve if your mortgage was to increase.
Ultimately, no one has a crystal ball, and every landlord’s circumstances are different, depending on their property, its location, whether its mortgaged, how much rent is received etc. The imbalance between supply and demand is not likely to change anytime soon, the UK is not building enough properties. Therefore, focusing on the long term, UK property remains one of the more secure investments.
* Paul Shamplina is founder of Landlord Action, Chief Commercial Officer at Hamilton Fraser, and is on Channel 5's 'Nightmare Tenants, Slum Landlords' *
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