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Since 2020, it has arguably become harder to be a landlord. First, there was the Eviction Ban which, although protecting tenants during the pandemic, also forced many landlords to keep tenants who were in rent arrears. Now, news is emerging about a new proposed law from the government – the Fairer Private Rented Sector White Paper. This contains a range of provisions that would impose further restrictions upon landlords.
Below, our financial planners examine some of the proposals in this white paper, also putting it in the wider context of the state of Buy To Let in the UK in 2022. We conclude with some thoughts for current and potential property investors, to discuss with your financial planner. We hope this is helpful to you. If you want to discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
What is in the Fairer Private Rented Sector White Paper?
A “white paper” in the UK is a set of documents, published by the government, which specifies their proposals for a future change in the law. This is the next step after a “green paper”, where the government consults a wide range of people and organisations about a topic/policy. This means that the words in the Fairer Private Rented Sector White Paper are not set in stone, but most of the ideas are likely to be put before Parliament at some point.
The new white paper plans a set of reforms to the private rented sector. So, it bears directly on Buy To Let landlords and other property investors who gain income from tenants. Broadly, it has been welcomed by private renter activists and greeted with mixed feelings from housing sector professionals. Here is a summary of some of the key provisions:
- Abolishing Section 21 “no-fault” evictions in the proposed Renters Reform Bill.
- New protections for landlords with anti-social tenants, allowing them to regain possession of their properties.
- A requirement that all rental properties meet the Decent Homes Standard.
- Tenants will have a legal right to keep pets in rented homes.
- Landlords will no longer be able to refuse to let to tenants who are on benefits, or to families with children.
- Tenants must be reimbursed by landlords if the property is sub-standard.
- Fixed-term tenancies will be abolished. Instead, tenants will change to a system of periodic tenancies (“rolling contracts” involving no set end date).
- Tenants to gain more power to dispute increases in rent.
What does all of this mean for Buy To Let investors?
In 2022, the direction of travel – going on for some years now – does seem to be towards giving more powers to tenants. Some of these are long overdue. At present, under Section 21 a landlord can repossess their properties from tenants without proving breach of contract. This leaves tenants with less security over their homes compared to someone with a mortgage, who can continue living in the property so long as they keep up their payments. Decent landlords would also agree that tenants are entitled to decent living conditions in their homes.
However, some of the provisions are likely to lead to increased costs for landlords. For instance, only 5% of landlords allow pets in their rental properties – fearing the damage they might cause. Admittedly, it is thought that the new legislation will require tenants to take out mandatory pet insurance to help protect landlords. However, this does open up a possible front for tenants to dispute a landlord’s request for tenants to cover damage from pets. Some landlords may also be rightly concerned about the impact of noise (e.g. dogs barking) on surrounding properties.
Under the Decent Homes Standard, nearly 800,000 private rental sector properties will need to be upgraded to be deemed in a “reasonable state of repair” – costing an estimated £12,000 – £15,000 per 3-bedroom property. Hopefully, those landlords who have invested in homes with decent conditions need not worry. Yet there is a concern that even well-meaning landlords may find themselves out of pocket. The government’s recent green energy drive is a case in point. In 2021, the government announced plans to ban gas boilers by 2035, meaning that landlords will be forced to buy heat pumps. Whilst the aim is noble, landlords would face higher costs as these are less efficient energy generators and involve high installation costs (£5,000 – £10,000).
When these reforms are put into wider context (e.g. removing mortgage interest tax relief from landlords in 2022-23), investors need to be extra vigilant when weighing the prospect of a Buy To Let investment. Whilst it can still be profitable for many people, there are more hoops to jump through these days. The direction of travel suggests that these hoops are likely to increase, too. A decent gap between your Buy To Let income and expenses need to be planned ahead, with your financial adviser, to help protect your investment over the long term.
Conclusion
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk