Landlords and letting agents might feel they’ve taken a bit of a battering from the government in recent years – and with some justification. Not only have we seen changes to stamp duty and mortgage interest tax relief, but also the proposed upcoming ban on letting agent fees to tenants and tougher affordability checks.
Quite a lot to contend with, in other words.
But it’s not all been bad, with positive changes to improve the energy efficiency of rental homes and a movement to include rental payment histories in credit scores.
Even so, there is a lot of regulation and legislation to get to grips with. In a recent Research piece for Letting Agent Today, editor Graham Norwood outlined more than 125 rental laws and regulations – mostly introduced in modern times – that agents and landlords currently have to abide by.
Here, I zone in on some of the pieces of legislation that have had the biggest recent impact – and also look forward to some that will be on their way soon.
Stamp duty surcharge
Arguably the biggest law change to rock the private rented sector in recent years, the introduction of the additional 3% stamp duty surcharge on second homes in April 2016 led to genuine talk of the death of the buy-to-let sector and a mass exodus of landlords.
There was a huge surge in buy-to-let purchases in the lead-up to the change, with a rush from landlords to buy up homes before the new legislation came into play. In March 2016 gross mortgage lending went up 43% month-on-month, and was 59% higher than March 2015, while the number of transactions soared to 141,310 – considerably higher than the 78,240 witnessed a year before.
While the stamp duty surcharge definitely had an impact, it didn’t herald the death of the buy-to-let market. The plan, initiated by then-Chancellor George Osborne, was to dampen enthusiasm for buy-to-let so more homes would be available for eager first-time buyers. However, recent figures suggest efforts to cool the market – and put buy-to-let investors off – haven’t been very successful.
Although buy-to-let mortgages now account for less than 13% of all new loans, down from 17% in 2015, the last tax year showed that the number of buy-to-let landlords hit an all-time high of 2.5 million – suggesting that people haven’t been deterred. While property remains the most reliable and profitable investment class, and a great way of funding retirements, buy-to-let is unlikely to lose its allure.
There is, though, speculation about further stamp duty charges on buy-to-let being announced at the Budget in November.
Ban on letting agent fees to tenants
In a move that almost no-one saw coming, Philip Hammond announced in his first Budget as Chancellor that letting agent fees to tenants would be scrapped. That was nearly two years ago, in November 2016, and we’re still no clearer on when the ban will actually come into play – although the government says it won’t be until spring 2019 at the earliest.
The ban was met with considerable opposition from agents and trade bodies, with the argument being that letting agents would have to charge higher management fees to offset their loss in revenue. To cope with this, landlords would then charge higher rents to their tenants, which would ultimately mean the very people who the ban is supposed to help would actually be harmed the most.
Supporters, meanwhile, have pointed to Scotland – where a ban is already in place and there has been no noticeable rise in rents or exodus of landlords from the market – as evidence that a ban on fees can work perfectly well.
The Tenant Fees Bill is currently making its way through the House of Lords (it has its second reading in October), but is still quite a way from being enshrined in law. However, letting agents have been warned to plan in advance for the loss in revenue – with advising Build to Rent operators and offering short-let management services two possible solutions to make up the shortfall.
Rental payments in credit scores
The campaign to ensure paying rent counts – and helps people to secure loans or a mortgage in the future – has gained plenty of traction and support in recent years. And it’s much closer to becoming a reality after the Creditworthiness Assessment Bill, launched by Big Issue found Lord John Bird in 2017 to make sure rental payments are a compulsory part of a good rental score, completed its journey through the House of Lords with barely a hiccup.
It will now head to the House of Commons, where broad cross-party support – and strong public backing – should give it a very good chance of receiving Royal Assent and being enshrined in law. When that will actually happen is less clear, but it’s seen as a positive step forward for renters and increases the value of renting as a lifestyle choice. That can only be good news for agents and landlords, too.
Phasing out of mortgage interest tax relief
Another huge piece of legislation, introduced just a year after the changes to stamp duty, was the phasing out of mortgage interest tax relief. In essence, these new rules – phased in from April 2017 to April 2020 – mean that individual landlords are progressively losing valuable tax relief on their buy-to-let mortgage costs.
Previously, those with a buy-to-let mortgage were at a massive tax advantage, as landlords only needed to declare rental income after they’d paid their mortgage, which cut tax bills by thousands of pounds.
The new legislation, however, means all this has changed – with many landlords now facing higher tax bills as a result. This article explains the situation in a clear, succinct fashion.
One way some people have tried to get around the changes to tax relief is by registering their rental portfolio as a limited company – something that is known as incorporation. Limited companies only have to pay corporation tax – currently standing at 19% - which can help landlords to save on costs. There are, however, pros and cons to this approach.
A better balance
While regulation and legislation are needed to improve, safeguard and evolve the industry – and necessary to root out rogue operators – some of the legislation in recent years does seem to have been a direct attack on landlords and letting agents, and we understand the frustrations of our readers when it comes to trying to make sense of the huge range of laws they have to adhere to.
A more balanced approach – that protects the interests of tenants as well as landlords and letting agents – seems sensible and best for all concerned, but currently it seems like the government has other ideas.
Until next time…
*Nat Daniels is the Chief Executive Officer of Angels Media, publishers of Estate Agent Today and Letting Agent Today. Follow him on Twitter @NatDaniels.