Recent years have seen some big changes for landlords and 2018 was no exception. And, with yet more change on the horizon, it’s important that property investors keep an eye on what’s ahead and make sure they have the right landlord insurance, particularly when it comes to landlord tax changes expected in 2019.
Felicity Hannah (@FelicityHannah) gives us a rundown of what’s changed in 2018 and are likely to change next year.
Many landlords are struggling to get their heads around exactly how much has changed this year. Research carried out by online letting agent MakeUrMove (@makeurmove) found that 27% of landlords admit they don’t fully understand the changes and how to be compliant with them.
Alexandra Morris (@real_alexmorris), managing director at MakeUrMove, explains: ‘In April, the government introduced energy-efficiency requirements for new tenancies, requiring all properties to have a minimum ‘E’ rating on the official energy performance certificate register.
‘The government predicted as many as 285,000 landlords may not be compliant, and many face having to make alterations to their properties to meet the new standards.
‘At the same time, mortgage tax reliefs were reduced further. From 6th April this year, tax relief dropped to 50%, with landlords receiving a 20% tax credit on the remaining 50% of their payments. Of the landlords we spoke to, 28% were concerned about the impact of this change on their ability to sustain their rental property.
‘The reduction in tax relief was also compounded by an interest rate rise in August, which was a major worry for 30% of landlords we surveyed. Landlords with a buy-to-let mortgage on a variable or standard variable rate are likely to have seen payments rise, while those on fixed rate deals wouldn’t have been impacted.’
There have also been local changes as different cities and regions take steps to protect tenants – for example, all London boroughs have signed up to a rogue landlord checker, allowing unscrupulous landlords to be named and shamed.
Rob Dix, co-founder of The Property Hub (@PropertyHubUK) and presenter of The Property Podcast, says the changes have made it a tough year for investors. ‘2018 has been another difficult year for landlords who continue to be used as scapegoats for the housing sector’s troubles.
‘Tax relief reforms, the Stamp Duty surcharge and increased focus on regulation and legislation have made property investment more complicated than it has ever been.’
‘While it’s been a bumper year for changes in housing law in 2018, it’s less clear whether 2019 will contain as much change,’ says Nicholas Nicol (@NikNicol63), housing barrister from One Pump Court (@OnePumpCourt).
‘We are expecting the Homes (Fit for Human Habitation) Bill to come into force next year, inserting a new term into every tenancy that the property be fit for human habitation. We can also reasonably expect to see the Tenant Fees Bill, which abolishes most agents’ fees and caps deposits, become law in 2019.
‘In relation to tax changes, the mortgage interest tax relief restrictions will continue to take effect: it will be restricted to 25% in April 2019 and then removed entirely by 2020.’
Rob Dix warns: ‘Next year will see a decision on the way energy efficiency renovations are funded, the ban on tenant fees come in – which will impact the way landlords work with letting agents – and, of course, the continuing challenge that is Brexit.’
However, that doesn’t mean he’s pessimistic about the future for landlords: ‘Those landlords that are still around have battled the worst of the storms now and proven their resilience. As long as they keep a long-term view and work out the figures they’ll be successful. It’s never been more important to make sure the numbers stack up.’
There has also been political attention on letting from both sides of parliament, with Labour announcing plans to strengthen the rights of tenants to keep pets.
It can be hard to predict what changes are ahead, particularly when rental properties remain so firmly under the political spotlight.
Shilpa Mathuradas, lawyer and head of housing and property litigation at Osbornes Law (@osborneslawyers), makes one suggestion: ‘Next year, eyes will firmly be fixed on leasehold reform. The issue is currently the subject of consultation by the Law Commission and changes are expected to tackle high and escalating ground rents, leaseholder homes that are un-mortgageable and houses being sold as leaseholds for no apparent reason save to extract profits for the developer.
‘Landlords should expect the legislation relating to lease extensions and the purchase of freeholds by leaseholders collectively to be completely overhauled. It is currently thought that the proposals being considered may result in a reduction in the compensation being received by landlords.’
While a lot is certainly changing for landlords, one thing is certain: demand for quality rented homes remains high.
A survey released by the Royal Institution of Chartered Surveyors earlier this year showed 22% of letting agents said they had seen a fall in the number of landlords coming to them. Meanwhile, they said they had seen a 4% increase in the number of would-be renters in the three months to August.
By staying on top of what’s changing and working out exactly what it means for your property portfolio, every landlord can improve their chances of making a profit this year, next year and well into the future.