Here’s a handy round-up of what we know is in store for landlords in 2018, and a review of the changes seen during 2017.
It has been a momentous year for landlords. Many of the traditional assumptions they have made in the past about investing in property have, to a certain extent, been turned on their heads during 2017. This includes how they pay Stamp Duty, the tax relief they receive, how buy-to-let mortgages are approved, and what tenants can be charged by agents or landlords.
Changes during 2017
Less Tax Relief
From April 2017 the government began phasing in a reduction of tax relief on interest payments for landlords. The amount they claim is now restricted to the basic rate of tax if they are claiming interest payment on mortgages, loans or bank overdrafts. Many landlords used to deduct all these finance costs from their annual tax bill, but this is being slowly reduced back to just 20% over the next three years. You cna read more about this change and get an idea of how it might affect you in 2018 here.
This change is in addition to the Wear and Tear allowance reduction brought in during 2016. The tax-deductible costs of maintaining a buy to let property were moved from an assumed 10% of annual rental income to only claimable expenses.
More Stamp Duty
Changes made to the Stamp Duty system in 2016 – which required buy-to-let investors and second homeowners to pay an additional 3% on top of existing rates when buying a home over £125,000 – didn’t deter buyers as much as thought (which was its original intention) and instead raised double the amount of tax revenue than expected – £2 billion.
The government’s own data shows that rental prices increases have, on average, been slowing during 2017, which it says is due to landlords bringing their property buying decisions forward to avoid the Stamp Duty increases (see above) introduced in April. This, the government says, created a surge in the number of properties available to rent and therefore reduced rents as landlords competed for tenants.
This, the government says, created a surge in the number of properties available to rent and therefore reduced rents as landlords competed for tenants.
More landlord registration
During 2017 in Wales landlords have been required to register for Rent Smart Wales, a system of landlord licensing that requires them to maintain minimum standards of behaviour, property quality and service. And in England, many local councils have introduced localised registration schemes with similar aims to the Welsh system – to enforce minimum standards of tenant and property management. For the first time, the number of schemes in England passed the 500-scheme milestone in 2017.
Technology taking off
According to a report by Oxford University, 2017 has marked a “turning point” in the adoption of technology within the property market, and that the “billions of pounds” being invested in what it calls ‘disruptive’ or ‘smart’ technology is now beginning to take hold, driven by an “explosive wave of innovation, investment and entrepreneurial activity”.
The online/digital start-ups this has created, the report says, are changing the way landlords and tenants interact with each other and the wider market, namely how rented homes are searched for and let, properties and portfolios are managed and buy-to-let mortgage lending is accessed.
Tougher buy-to-let lending
A second wave of tougher mortgage lending rules for buy-to-let landlords were introduced in September 2017 by the Prudential Regulation Authority. Smaller landlords can rest easy, though. The new rules require lenders to look at the financial background, experience, business plans, cashflow and portfolio structure of those with more than four buy-to-let properties bought with a mortgage. You can read more about the new rules here.
What’s in store for 2018?
An end to tenant fees
Next year the government intends to bring in legislation to ban all fees charged to tenants by landlords or agents in England other than deposits and ‘holding’ deposits. A similar ban already exists in Scotland, while the Welsh government recently said it would also follow suit.
This will significantly change the way landlords pay to find, vet and move in/out tenants, and renew their contracts. Charges for these services, which agents used to ask tenants to pay, will have to be picked up by landlords instead.
It is why we at Howsy believe our service is an ideal solution to this looming financial challenge. We offer a low-cost fixed fee service for landlords which includes tenant finding, contract management, credit checks and references and a fully-managed property service. Find out more about our service.
Changes to tenant payments
Both houses of parliament recently held debates about how tenants can be helped to improve their credit scores by requiring credit referencing agencies to add tenant’s rent payments to their credit histories and, therefore, help improve their chances of accessing affordable finance.
The government is to spend £2 million to help make this a reality, although several companies already offer this, including Experian’s Rental Exchange which we believe is the best way for tenants to achieve better credit scores.
Even more landlord registration
The government has said it wants to introduce a national redress scheme during 2018/19 that landlords will have to join, and that will enable tenants to have an official channel through which to complain about poorly managed properties. The idea is to weed out ‘rogue landlords’, the government says.
During the summer of 2017 the government said it would incentivise landlords in the private rented sector to offer tenants ‘family-friendly’ three-year tenancies should they wish to, and legislation is expected later in 2018.
During the Queen’s Speech in June 2017 it was revealed that the government wants to cap the permitted rental deposit on a property to four weeks, reducing it from the relatively common six-week’s rent asked by many landlords now. The National Landlords Association says approximately 40% of all deposits are more than four week’s rent. Legislation is likely towards the end of 2018.
The government is keen to see more high-quality rental properties come on to the market to offer more choice to ‘generation rent’. One outcome of this policy is that ‘build to rent’ developments, which are apartment blocks built with the backing of institutional investors and then rented out all for the same price and rental terms and conditions, are growing in number. According to the British Property Federation, there are nearly 100,000 built or with planning permission, with more than half of them in London. The government wants to see even more built, partly because they can be constructed quickly and require no government cash.
What should landlords do next year?
More and more landlords are now running existing and new properties through a limited company structure, which helps legitimately avoid some of the recent tax relief reductions, although it can be a more complicated way of investing in property. A recent report by a leading building society revealed that 70% of all new buy-to-let loan applications are now from limited companies rather than individuals. If you are interested in becoming a limited company, you should watch our session on key tax issues to consider when incorporating a property business – with Grant Thornton tax specialists.
Choose your agent
The tenant fees ban to be introduced in 2018 will mean both landlords and their agents will not be able to charge their tenants any fees, so landlords will face a dilemma – what to do when their letting agents pass on these costs to them. Find out how Howsy can help solve this problem with our fixed, low-cost fees.