Here is our rental update of what’s in store in 2019 for Landlords, hold on tight it’s quite a rough ride!
It’s been a rough few years for landlords with tax changes and new regulations, and it looks like this trend won’t stop for now. According to Government figures, tenants will now be saving around £240million a year, and due to new legislation, this could rise.
Landlords, please take heed as most of these savings for tenants will arise due to a reduction in chargeable fees or restrictions on the size of the deposits allowed to be taken from tenants. Details of the changes have been outlined below:
- The Client Money Protection Schemes for Property Agents
The Government has announced that it then intends to bring the second regulation into force on 1st April 2019. The client money protection schemes protect the money of landlords and tenants if a letting or property agent goes into administration. The cash in question is usually deposits, rents or money for repairs.
if a letting agent fails to join an approved client money protection scheme, there will be a maximum penalty of £30,000 for non-compliance.
We’re not too far from it making its way from the House of Lords to it becoming a law in England this April. This means that pretty much any fee that is in the tenancy agreement will be void unless it is exempted. Examples of banned fees would then be:
- Charging for a guarantor form
- Credit checks
- Inventories
- Cleaning services
- Referencing
- Professional cleaning
- Admin charges
- Gardening services
This will be limited to 5 weeks rent as a maximum.
This has gone up from the original Government proposed limit of 4 weeks, but the industry standard is usually 6 weeks, so this will be a big change. Although great for the tenants, it’s not so great for the Landlords on recovering damage or outstanding debt. That is why we always recommend a professional inventory check-in as standard.
Deposits for tenancies where the annual rent is £50,000, or more are limited to the equivalent of 6 weeks rent.
What fees can be charged:
- Breaches of the tenancy agreement (damages)
- Default of payments (late payment of rent)
- Charges for the loss of keys will likely be considered a prohibited payment.
There has been talks of introducing a three-year tenancy term, with a six-month break clause. This would follow a similar model that has already been introduced in Scotland.
It’s a move that could prove popular among tenants seeking long-term security from their rental property.
Government data reveals that people stay in their rented homes for an average of nearly four years – and yet 81 per cent of rental contracts are assured shorthold tenancies with a minimum fixed term of six to 12 months. This move would result in greater security for both parties, with fewer renewal fees from the start, but could mean a rise in agency fees.
Initial reports and research suggest that 32% of landlords would be put off the idea of investing in the buy-to-let property market if the government presses ahead with its proposal to give tenants a minimum three-year contract – as this ties them in for three years, but would allow the tenants to walk away earlier if they wish.
This update to the law will make an appearance on March 20. While the bill could mean higher costs for landlords, all landlords in England will have to make sure their property is fit for human habitation at the start date of the tenancy and for the duration of the term of the lease.
If landlords fail to comply with standards set out under the Housing Act, their tenants can take legal action against them. This is certainly a sensible act to stop rogue landlords giving the industry a bad name and allowing tenants a good standard of living. So be warned!
- Breaching houses (HMO) rules
Keep an eye on the local council’s rules for HMO properties, or you could end up in court. As an example, a husband and wife landlord team were handed £60,000 in fines and other costs at Uxbridge Magistrates Court for multiple occupation and other management offences. They broke a prohibition order on letting a room in a shared house and the property was deemed to be unsafe.
Landlord obligations
- What constitutes an HMO property?
An HMO property is a house in multiple occupation if at least three tenants live there, forming more than one household (for instance, these tenants are unrelated). Bathrooms, toilets, and other amenities will be shared by these tenants.
A property is a large house in multiple occupation if it’s three storeys high, at least five tenants live there (forming more than one household), and amenities are shared between tenants.
You must meet HMO obligations and safety checks, including making sure the property is not overcrowded and that there are enough facilities for people living there. You are responsible for repairs to communal areas. If a property is a large HMO, then you need a license from the council. Some councils need other HMOs to be licensed.
- Mortgage interest tax relief cuts
The level of mortgage interest tax relief that landlords can claim will be reduced further from April 6, with the amount investors can deduct from their rental income falling from 50% of their buy-to-let financing costs to just 25%.
The relief will end completely in April next year, when it will be replaced by a 20% tax credit for mortgage interest. The move will not only leave landlords facing high tax bills, but could also push some basic rate taxpayers into the higher rate band.
Below is a table provided by the Government to show the gradual phase out of tax relief by 2020.
- Energy Efficiency Updates
Around 200,000 landlords will have to upgrade the energy efficiency of their property this year. Landlords were previously exempt from meeting the minimum energy efficiency requirements if measures to improve a property would cost more than £2,500.
But the threshold has now been increased to £3,500, meaning fewer landlords will be exempt. The upgrades are expected to cost landlords an average of £3,500 each.
The Government is expected to unveil more details about its new Housing Court during the year. Under proposals previously announced, it would be a specialist court that provides a single route for dispute resolution and redresses disputes between landlords and tenants.
The move should make it simpler for landlords to navigate the legal system relating to tenancy disputes, while it could also make it easier for them to evict problem tenants. The Government is currently undertaking a call for evidence on the issue.
- Land and Building Transaction Tax hike
People buying a second property in Scotland face a tax hike after the Scottish Government announced plans to increase the surcharge they pay on Land and Buildings Transaction Tax from 3% to 4%. The rate rise is due to come into force from January 25.
Although launched in 2018, it is only from the start of this year that the Government’s Rogue Landlord Database is expected to start receiving entries.
The database will include the details of landlords who are convicted of letting substandard properties or flouting their legal obligations.
After previously saying the information would only be available to local authorities, the Government has since decided the public will also be able to access it.
- Competitive mortgage rates
While landlords have been subjected to tougher affordability checks in recent years, there is some good news on the mortgage front, with the cost of buy-to-let deals coming down. The average cost of a five-year fixed rate mortgage for landlords fell to a record low in the final quarter of last year, according to financial information group Moneyfacts.
The group attributed the fall, which came despite a hike to the Bank of England base rate in August, to the high levels of competition in this sector of the mortgage market.
Are you thinking of buying in 2019?
Excellent news for buyers a house prices drops below £600,000 for the first time since 2015 and well below their peak of nearly £650,000 in May 2016
Miles Shipside of Rightmove notes: “London, which is perhaps feeling more closely affected by the uncertainty associated with Brexit, currently has some of the most reluctant owners when it comes to putting their properties up for sale. While the first two weeks of the new year have seen broadly the same number of new- to -the-market sellers nationally (-2.1%) compared with the same period a year ago, London has seen a fall of 10.0%. So frustratingly for those looking to buy, whilst asking prices are 1.2% cheaper than they were a year ago, new- to -the-market choice is substantially down.”
This is good news for prospective buyers as we go into a traditionally busier time of year, as those looking at what fresh stock is available are seeing average asking prices at their cheapest level for over three years.
However, while there is a lack of homes for sale, London buyers could take advantage of lower house prices. This is definitely the best time for new buyers to buy, as we gradually move into the busier time of year, saying that a lower supply often leads to higher prices, however house prices remain subdued because many buyers are reluctant to commit to making such an expensive purchase with the uncertainty of Brexit landing.
“As expected, we continue to see a shortage of buyers despite having more available stock, and this is more pronounced in London and the East,” David Plumtree, Connells Group Estate Agency chief executive said. “Brexit concerns are, of course, the cause for hesitancy among buyers and we don’t expect to see any change in this until we see some certainty,” he added.
House prices in your London area
The London property market remains highly localised and not all boroughs have been affected in the same way. Where for Bromley it dropped from 4.6% to 0.1% within the year, within the same period we saw Camden make a dramatic leap in average annual prices of 10 per cent, up to £1,074,000. Miles Shipside of Rightmove said that "higher value properties in the typical family home sector in Camden had driven up the overall annual rate in January for new properties coming onto the market in the borough."
As we can see, London does tend to be more volatile each month, especially with lower stock coming on than last year in several areas, so we may see the market shift again next month”, he said.
The remaining London boroughs saw monthly price falls however, with Southwark and Hounslow experiencing the biggest annual change at -8 per cent and -8.7 per cent respectively.
Nationally, £1,207 was added to the average for-sale price of property as the current climate has left new-to-the-market sellers with less pricing power than usual, according to the report. This is the lowest monthly increase recorded in January since 2012.
Keep a look out! Normally new rail stations are a dead giveaway for anyone looking for areas ‘on the up’ so, it’s always advisable to keep an eye out for new stations in the pipeline.
The new, nearly finished Crossrail route across London is likely to benefit areas such as Maidenhead and Slough to the west end and Docklands, Brentwood and Abbey Wood to the east.
In the longer term, south-east London is already seeing a surge of interest as homebuyers and renters wake up to its lower prices and good commuter links to the City and Canary Wharf. Now Transport for London (TfL) wants to add an extension to the Bakerloo line, which currently ends at Elephant & Castle, through to Lewisham in south-east London. So, will the area be set to see the capital’s next boom?
It will be exciting to see and homebuyers are urged to invest now before price rises are expected when the new underground is launched!
There are still areas of the capital of London that are popping and thriving. Hackney remains popular, measured by economic growth, employment figures, house prices and rental rises, according to research exclusive to Homes & Property.
START-UP businesses are also a great sign for buyers according to the Evening Standard's Homes and Property. Companies that can afford to pay London business rates and rents are a sign of an active community for prospective home buyers perusing the neighbourhood. Small independent businesses are another indicator of prosperity.
“Small businesses employ locally, support local supply chains and bring prosperity and life to a community,” says Michelle Ovens, director of the government-backed scheme Small Business Saturday UK, in the Homes and Property article. “It is always great to see lots of independent traders on local high streets, as it can really help increase the appeal of a community, which can often lead to increased house prices as an area becomes more attractive.”
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