In the UK, demand for rental properties has consistently outstripped supply, increasing rental yield. In London, rents have risen by 31% between November 21 and November 23. With high mortgage rates contributing to a shortage in supply, the average rental property receives three times more enquiries from prospective tenants than in 2019.
Although signs for investors appear promising, mortgage and tax rises and uncertainty over changes to legislation, investors are continuing to exit the market. Hamptons data shows close to 300,000 more rented homes have been sold than purchased since 2016.
But is now the right time to sell? Or should landlords expand portfolios? We explore the current rental market, considering the Renters Reform Bill, EPC pressures, the prospect of a new government, and tax changes.
Section 21 Eviction Reform Delay
Under section 21, landlords can evict tenants with two months' notice without reason. In 2019, the Government committed to scrapping Section 21 notices in the general election manifesto. However, in 2023, the idea was paused until there were necessary changes to the court system.
Michael Gove said that the Conservative government would end no-fault evictions by the time of the general election, which will likely be this autumn. He said, “We will have outlawed it, and we will put the money into the courts in order to ensure that they can enforce it.”
With a general election looming, Labour has said it will ban Section 21 evictions quickly if it wins power. The party has also created a Renters’ Charter, which focuses on tenants' rights. The charter proposes ending automatic evictions for rent arrears, introducing a four-month notice period for landlords, and allowing renters to make reasonable alterations to the property.
While Section 21 is causing some confusion for landlords, with the delay, at the time of writing, landlords can continue to regain their property at any point during the tenancy by serving a Section 21 notice.
No More Blanket Bans
Under the Renters Reform Bill, landlords and letting agents are prohibited from banning tenants who receive benefits or have children. This ensures families and vulnerable people are not discriminated against when renting. While some landlords have reservations about tenants being able to pay their rent, DSS tenants often stay longer. The increase in benefits and minimum wage should help to omit these concerns.
Under the new rules for blanket bans, landlords cannot unreasonably refuse a tenant's request to have a pet in the property.
Support For Low-Incomes
According to the most recent set of figures from the National Housing Federation, tenants paying with Universal Credit remains at 33-34%, and these tenants account for 56-58% of total arrears. Previously, landlords with concerns about arrears may have banned people on benefits. However, with the new rules against blanket bans in place, landlords will not discriminate.
There is welcome news for tenants on benefits and for landlords, too. The Local Housing Allowance will increase to cover the lowest 30% of local rents, giving 1.6 million households an average of £800 annually. This, coupled with benefits increasing by 6.7% and a rise in minimum wage, will provide tenants with more income to keep up with rent payments.
The reduction in National Insurance also puts more money in tenants' pockets. With these changes, landlords have more confidence in receiving monthly rental payments.
New Standards For Landlords
Standards for landlords are changing. The Rental Reform Bill will require landlords to pay to join an approved ombudsman scheme. The dedicated ombudsman will ensure all landlords adhere to a code and resolve disputes effectively.
The ombudsman will provide impartial advice to resolve issues between landlords and tenants. Tenants can complain for free to the scheme should the landlord not adequately address their issue. The ombudsman works on behalf of the tenant but does not champion them. Instead, it helps reach a suitable agreement without costly and lengthy court proceedings.
The government also announced plans to apply a Decent Homes Standard to the private rented sector. The review of the plan will consider the following changes:
- Set the standard on dampness and mold to protect residents
- Introduce a minimum energy efficiency standard
- List of items that must be in a reasonable state of repair for a ‘decent’ home
Each of these examples might mean the landlord needs to modernise a property, which could come at a cost. However, with a well-maintained property comes satisfied tenants who are more likely to stay longer.
The new standards will be outlined when the Renters Reform Bill passes Parliament. Local councils will have the power to ensure landlord compliance, issuing fines of up to £30,000.
Landlord Tax Changes In 2024
In April 2024, landlords selling buy-to-let properties may face higher capital gains tax. In April 2023, the tax-free allowance for capital gains decreased from £12,300 to £6,000. This year it will halve to £3,000. Investors who sell properties will now have to pay profits above the £3,000 threshold. This means landlords selling up will pay tax on £9,000 more of their gains than they did in 2022-23.
Invest Or Sell?
While some landlords sell up and retire, the rental market remains strong with high demand and impressive yields.
In January 2024, rental values were 26.1% higher than their 2017-2019 average. While buy-to-let mortgages aren’t as low as a few years ago, they are the weakest since September 2022. Later this year, the Bank of England closes in on the target of reducing inflation to 2%, potentially leading to lenders reducing mortgage rates further.
While the Renters Reform Bill likely means costly upgrades to properties, there are possible savings. For example, several lenders offer lower mortgage rates and cashback for properties with an EPC rating of A-C.
The ombudsman scheme is another expense for landlords. However, it protects the tenant and the landlord from costly court cases and provides an impartial organisation to manage the challenge.
Changes to regulations for landlords can feel complicated. At BHHS London, we stay current with legislation to ensure our clients avoid fines and further action. Contact our team to discuss new regulations for landlords or the rental market in London.
