How should letting agencies respond? As we pass this significant milestone, here is a round-up of some of the key things agents need to consider when it comes to Section 24 and its impact on the PRS.
How has the market changed since April 2017?
The PRS has remained around the same size since the Section 24 changes were first introduced - accounting for 20% of English households (4.7 million) in 2016-17 and 19% of households (4.6 million) in 2018-19, according to the English Housing Survey. This comes after a decade of growth – in 2007 there were 2.6 million households renting privately, around 13% of the total.
When it comes to average rents, the typical tenant paid £904 per month in April 2017 when the Section 24 changes began, according to HomeLet.
By April 2019, HomeLet reported that the average monthly rent stood at £936, while the most recent figure for March 2020 shows an average UK rent of £959 per month.
The slowdown in the growth of the PRS suggests that buy-to-let investment is less popular now than it was at its peak, which may be partly due to tax changes. However, continued growth in average rents demonstrates that property can still be a good investment.
Furthermore, successive English Housing Surveys have shown that the number of older tenants is on the rise, suggesting that people are increasingly seeing renting as a permanent lifestyle rather than a temporary stage before homeownership. The demand for rented property is only likely to rise.
What impact will the coronavirus pandemic have?
No analysis of the housing market can ignore the effects of coronavirus, and there is no doubt that the pandemic will have an impact on the PRS for many months to come.
Many landlords will currently be considering buy-to-let mortgage payment holidays, and may also be arranging emergency payment plans with tenants.
When calculating how much tax they owe for the coming year, landlords will need to analyse how their portfolios have been affected by Covid-19 and what this means for their income, tax bill and profits.
Letting agencies can help landlords at this time by offering them advice and access to tax specialists, and by providing them with a robust rental payment system with full and transparent record-keeping.
Agents’ expertise will also be valuable in the coming months. While landlords may understandably be focusing on the impact coronavirus is having on their portfolios, it will be important for agencies to continue to help them stay on top of industry changes.
This month, alongside the Section 24 changes, there have been changes to the way Capital Gains Tax is paid after the sale of a property. Last month, the Homes (Fitness for Human Habitation) Act was extended to existing tenancies and the Tenant Fees Act will be extended from June.
In each case, agents will be key in helping landlords to understand and navigate their new obligations.
How can agencies encourage continued BTL investment?
Now more than ever, while the global economic outlook is uncertain, property looks like a comparatively 'safe bet' compared to other investment classes.
In recent weeks, the share prices of many high-profile companies have plummeted, while property values are likely to remain steady even if they fluctuate in the short-term.
As we can see from the analysis above, rental prices have continued to grow, people are renting for longer and the sector is no longer seen merely as a stopgap for younger people saving to buy their first home.
This good news provides agencies with the evidence they need to show landlords why staying in the PRS is worthwhile, why expanding a portfolio could be profitable, and why entering the sector could represent a smart investment.
Given that the tenant demographic represents around a fifth of the population, landlords also serve a social need by providing housing for millions of people across the country.
Now that the Section 24 changes are fully implemented, many landlords will feel the financial effects – but there are still many reasons for them to retain a positive outlook on the market and their role in it.
For letting agencies, the task of the coming weeks will be to guide landlords through the coronavirus pandemic, advise them on tax changes like Section 24 and remind them about the ongoing strength and growth of the PRS.
*Neil Cobbold is Chief Sales Officer at PayProp