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Category: Legals, Finances & Staying Efficient

Why over 40% of landlords want to expand their property portfolios

by Alysha Taylor SmithPosted on

The property market has seen its fair share of challenges in recent times, from rising bills to a constant stream of government regulations. Landlords have had to navigate more economic uncertainties than they are used to. However, despite the challenges, a surprising number of landlords are feeling positive about the future and are even looking to expand their property portfolios.

According to a study conducted by lending service Landbay, over 40% of landlords have expressed their intention to grow their portfolios in the coming year. So, why are landlords considering expanding their property portfolios in 2023? 

Rising Utility Costs

Fluctuating temperatures contribute towards higher utility costs and tenants may rely more on electricity to cool or heat their living spaces, leading to increased utility costs for landlords and tenants alike. Higher temperatures can result in increased water usage, further burdening the electrical grid and city resources, thereby escalating costs. Landlords offering bills included should carefully consider the monthly charge to make sure that it covers expected usage. 

High Tenant Demand:

One of the key driving forces behind landlords’ willingness to expand is the sustained high demand for rental properties. As the number of potential tenants continues to exceed the available properties, occupancy rates remain high. A recent survey by RICS reported a 32% increase in tenant demand in just one month. This surge in demand has also reduced the average void period in England from 23 days to 17 days in February.

Potential Drop in House Prices:

Another reason contributing to landlords’ positive outlook is the possibility of a drop in house prices. Approximately one-third of respondents in the study cited this as a factor influencing their decision to expand their portfolios. Declining house prices may present an opportunity for savvy investors to acquire attractively valued properties, anticipating future price surges.

Opportunity for Higher Rental Yields:

While the property market may have been less lucrative than other investment avenues in recent years, there remains a silver lining for landlords. The opportunity to leverage properties using mortgages can substantially boost returns. As mortgage rates begin to stabilise and inflation eases, landlords can consider tracker mortgages with falling monthly interest repayments, supporting higher rental yields.

Lower market competition:

The private rental sector has witnessed a significant decline in available rental properties, with around 70,000 landlords leaving the market in 2022 alone. However, landlords who have weathered the challenges are presented with better opportunities to differentiate their properties and secure higher rents.

Rising Rents:

Rent prices have been increasing at their fastest rate in seven years, rising by 4% in 2022. This trend is expected to continue in 2023, with forecasts suggesting rents may rise by as much as 12.91% this year. The combination of rising rents and declining house prices may recalibrate rental yields to more attractive levels, encouraging landlords to remain in the market.

Amidst the uncertainties, some landlords see a window of opportunity to capitalise on the market conditions. Faltering house prices, coupled with rising rents, might offer attractive investment opportunities that confident landlords can seize.

While there are positive indications, not all landlords share the same optimism. Approximately 35% of landlords expressed a more neutral stance, citing concerns over government interference, negative stereotypes surrounding landlords, and overall market uncertainty. 

Despite this, a considerable proportion of landlords remain optimistic about the future and are eager to expand their property portfolios. High tenant demand, the potential for declining house prices, and rising rents are among the key factors fueling this positivity. While uncertainties persist, landlords who approach the market with confidence and strategic thinking may find themselves well-positioned for success in the coming years.

New ruling gives Landlords more power over evictions

by Asif AliPosted on

According to a recent announcement, Landlords will be given the power to evict unruly tenants, despite the proposed abolition of the section 21 ruling. 

There has been concern between Landlords following the discussion to get rid of the section 21 ruling, with Landlords concerned that they will have less control over their properties and not be able to evict tenants who breach their tenancy agreement.

Section 21 recap  

In 2019, the UK government announced that Landlords would no longer be able to evict tenants without a legitimate reason under the new Renters Reform Bill. This decision was met with significant opposition from landlords, with 84% of them against the ruling, according to a National Landlords Association survey. 

Landlords were concerned that this would make it more difficult to deal with tenants who were not paying rent, causing damage to the property, or violating the terms of their tenancy agreement.

Good news for Landlords 

The good news is that Landlords will be given more power to evict tenants under Section 8 .

The proposal is that this will be achieved through the introduction of a new model tenancy agreement, which could allow Landlords to evict tenants without providing a reason after four months of the tenancy. 

This means that Landlords will be able to serve notice on tenants more easily and quickly, ensuring that their property is protected.

Eviction restrictions

This power to evict will come with restrictions; Landlords will not be able to use this power to evict tenants who have raised concerns about the condition of the property or have made a complaint about the landlord. 

Additionally, Landlords will still need to follow the procedure for eviction, including providing the tenant with the correct notice and obtaining a court order.

The introduction of this power to evict is positive news for Landlords. This will give them more control over their properties and allow them to take action when necessary. However, there are some potential negatives to consider. Some tenants may be concerned that this power could be abused by Landlords and lead to unfair evictions. It will be important to ensure that the correct procedures are followed and that tenants are treated fairly.

Renters’ Reform Bill: Everything you need to know before May

by Asif AliPosted on

Announced in June 2022, the Renter’s Reform Bill outlines the Government’s plans to build a fairer private rental sector in the UK. Over the past year, landlords have been following updates relating to this bill, preparing for its live date. Since we are now getting close to the bill due-date (May 2023), this article will summarise everything you need to know should the bill go ahead. 

The end of Section 21 notices

The most significant and talked about change caused by the bill is the end of Section 21 notices. 

Currently, Section 21 notices allow landlords to evict tenants without providing a reason. Under the proposed new rules, landlords will need to provide a valid reason for evicting tenants, such as rent arrears or anti-social behavior. The changes are designed to provide tenants with greater protection and reduce the number of unjust evictions.

Changes to Section 8 notices

Landlords will still be able to use Section 8 notices to evict tenants for specific reasons. However, the grounds for eviction may be limited, and the process time-consuming. For example, landlords will need to give tenants six months’ notice before they can issue a Section 8 notice for rent arrears.

Eviction reasons for a Section 8 notice must be one of the following: 

  • If a tenant has rent arrears
  • If the tenant damages the property
  • If the tenant is causing a nuisance to the neighbours

Security of tenure

The renter’s reform bill will provide tenants with greater security of tenure. As per the plans outlined in the bill, the minimum notice period for tenants to leave a property will be increased from two months to six months, giving tenants more time to find alternative accommodation. 

Additionally, landlords will need to provide tenants with a minimum of three years’ security of tenure before they can end a tenancy.

Preparing for the changes in May 

To prepare for the upcoming changes, landlords would need to review their policies and procedures to ensure they comply with the new rules. This includes ensuring that all tenancy agreements are up to date and providing tenants with the correct documentation.

Working with a letting agent can help landlords to navigate the new rules with ease and ensure that they are properly prepared for all of the new policies which will be coming out of the bill once it is live in May 2023.

Potential tax reform for landlords in 2023

by Asif AliPosted on

Landlords are urging a tax reform in order to combat the rental crisis sweeping the country. In the last year, mortgage prices have been steadily rising for buy-to-let landlords which for many means that selling their investment has sometimes seemed more financially viable than continuing with their rentals.

This has been bad news for tenants, with more people seeking rentals than ever before, in December 2022 Zoopla reported that tenant demand is 46 per cent above the five-year average, while total supply is 38 percent lower, highlighting a significant supply and demand challenge within the UK rental market. 

The widespread supply crisis has additional implications for renters from lower economic backgrounds. With reduced suitable affordable accommodation on the market, many renters will be forced into low quality rentals.

Tax challenges being faced by landlords

Tax changes which have been implemented over the last few years have had a significant impact on landlords. Since the introduction of Section 24 tax ruling in 2015, which means that landlords can no longer deduct their mortgage interest payments from their rental income when calculating their tax bill, landlords have faced increasing challenges and uncertainty around the profitability of their investments.

Additionally, landlords will be familiar with the additional 3% stamp duty surcharge for second residential properties and investments. Introduced in 2016, the reason for the surcharge was to combat housing and financial challenges caused by a nationwide increase in second home ownership.

Conservative MP, Andrew Lewer, made the case in the House of Commons Magazine for a tax reform for property owners, stating “Restrictions on mortgage interest relief and the imposition of a stamp duty levy on the purchase of homes to rent out have indeed made life more costly for landlords.”

In the article Lewer suggested that increasing tax and mortgage rates is contributing to landlords choosing to sell their investments which no longer seem financially viable to keep, causing significant challenges for the UK rental market.

“Marry this to the uncertainty surrounding the government’s plans for the sector, whether in energy efficiency requirements or the ending of Section 21 repossessions, and you do not exactly have an attractive market.”

Lewer wants to see a reform which scraps the 3% stamp duty surcharge for additional homes which he believes will greatly increase the number of new privately rented homes being made available across the next decade. He also suggested an unfreezing of Local Housing Allowance and better security for future rental regulations to encourage more long term investment. 

How landlords can increase rental prices fairly

by Asif AliPosted on

Average rental prices are increasing across the country with rental demand outweighing housing supply, but how can tenants cope with rising rental prices? And what can landlords do to protect their investments? 

Almost two-thirds of UK landlords will be forced to raise rental prices by at least 10% within 2023 if market conditions don’t improve. Increasing rental prices is a necessity for landlords seeking to protect their profits, but this will be at the expense of tenants who are unable to keep up with rising costs teamed with the cost of living crisis. 

Research by Aldermore Bank found that landlords are conflicted about increasing rental prices at this rate during such a challenging financial time for tenants; with 64% of landlords stating that they would be worried about their tenants being able to keep up with increased monthly payments. 

Guidelines on increasing prices for your existing rentals 

For landlords who are in a position where increasing rental prices is necessary, the below guidelines must be followed to ensure fair and legal practice and to minimise negative consequences for either party. 

  • Tenancy agreements should always include how and when rent prices will be reviewed. Landlords are responsible for ensuring they follow-out the agreed pre-agreed process for increasing rent. 
  • Landlords must seek permission if they want to increase rental prices by more than previously agreed. 
  • Rental increases must be fair and realistic in consideration of local rental prices.

If the tenancy agreement does not state the procedure for increasing rental prices, landlords can: 

  • Increase the monthly rent of a property when the lease is renewed. 
  • Agree a rental increase with the tenant where the tenant must provide a signed written agreement of the rental increase. 
  • Use a landlord notice to increase rent after a fixed term has ended. 

Long-term solutions 
Whilst landlords are facing many serious short-term challenges which are driving up rental prices, landlords should continue to think about their investments with a long-term perspective.

Whilst landlords generally seem concerned about rising living costs, Aldermore’s study revealed that 54% of landlords still feel optimistic about the future. Additionally, it continues to be widely accepted that buy-to-let investments are still a stable way to make a good income.

By making intelligent investment plans, avoiding panic-decisions on current rentals and preparing properties for the future (such as improving energy efficiency), there is still a bright future for buy-to-let landlords in the UK.

How to guarantee rental payments as cost of living increases

by Asif AliPosted on

Cost of living prices in the UK have been steadily increasing over recent years, having serious consequences for renters. A study in August 2022 revealed that food prices had risen by 12.5% compared to one year earlier. Additionally, rising gas and electric prices are putting huge strains on renters across the UK trying to keep up with the rising prices without compromising on their quality of living. 

Many renters are now facing difficulties being able to pay their monthly rent, due to no fault of their own. Long-term renters chose rental properties which fitted their budgets given the average cost of living prices at the time of entering their rental contract. However, renters who have been in their property for 2+ years are now finding their financial circumstances drastically changed, despite having stayed in the same property. 

Whilst a lot of renters have developed plans to cope with the rising costs, the significant increase in cost of living is inevitably causing serious problems for some renters, with knock-on consequences for landlords as tenants struggle to pay rent each month. 

What can landlords do to guarantee rental payments? 

When entering into new rental contracts, landlords should now pay more attention than ever to the average cost-of-living in the local area, and account for this when bringing in new tenants. Ensuring that your potential new tenants can provide proof of yearly income 30 times the rental cost will create a safety-net which should guarantee timely rental payments each month, whilst leaving space for cost of living prices to increase further throughout the next year. 

In addition to this, the most effective way to ensure timely rental payments is to enter into a “Rent Guarantee Scheme”. For a small monthly payment, this insurance will guarantee rental payments when a tenant does not pay their rent within 10 days of it being due – meaning that landlords will receive the rental payments each month even when their tenant is unable to pay. 

In summary, the cost of living crisis in the UK continues to cause serious challenges for both tenants and landlords. However, by developing an informed plan, landlords can limit the impact these challenges have on their monthly profits and gain more security with their investments.

New limitations on social housing rent increases

by Asif AliPosted on

Driven by inflation and high rental demand, rental prices are increasing across the country. But what does this mean for landlords? And what are your limitations when considering rental increases? 

Social Housing rental increases 

Housing associations are considering the impact of rental increases for social and affordable housing tenants; several options are now being considered to offer support to tenants dealing with these price increases. Most notably, new limitations are being implemented in 2023 to cap rental costs for social housing tenants. 

Why does action need to be taken? 

Monthly rental costs for Social housing are permitted to increase by up to CPI plus 1% annually. However, in August 2022 the Bank of England forecast that CPI would be 9.9% in Quarter 3 of 2022, suggesting very significant rental increases would be permitted in 2023-24. These increases will inevitably cause significant pressure for some social renters as they struggle to keep up with the price increases. 

In October 2022, the UK government launched a consultation to cap these social housing rental increases in 2023. The consultation proposed to protect existing social tenants from significant rent increases in 2023 by capping social housing rent increases from April. The consultation considered rental increase caps at 3%, 5% and 7% in response to these concerns. 

Whilst many social housing providers might independently choose to cap property rental below CPI plus 1%, imposing a rental increase ceiling would provide protection for tenants who are in exceptional circumstances. 

The Government has now confirmed that these rental increases will be capped at 7% from April 1st 2023, this change also applies to shared ownership tenants. 

A detailed report of the October consultation can be found here. 

The new cap on rental increases for social housing tenants in 2023 should offer a sense of security and protection to tenants concerned about rental increases. 

Call for evidence on the impact of short-term lets

by Asif AliPosted on

The government has released a call for evidence to evaluate the impact of short-term lets on the housing market with the view to implement more effective regulations. 

Housing supply challenges are leading to mass shifts in quality of living – with young adults unable to leave their family homes, household overcrowding, unstable living circumstances and even an increase in homelessness.

How should this crisis be addressed? 

The most powerful way to address this crisis is to build more affordable homes across the country. The UK government has stated targets for this, but are falling behind on their plans to build new properties.  

Another factor in this crisis is unused homes, with an increasing number of properties being used primarily as a holiday home or other short-term let. Short-term lets are often criticised for having a big impact on the private rental sector, contributing to a significant lack of suitable housing for locals.

How big is the problem? 

  • Research from the BBC indicated that the total number of holiday lets across the country has risen by 40% since 2018.
  • Propertymark estimated in 2020 that 46,000 properties have already been made unavailable for local people looking for a home due to private landlords changing from long-term to short lets and one in 10 landlords would consider switching to short lets, under the current regulatory framework.

The correlation between increasing short-term lets and housing supply problems in the UK is hard to ignore. There is now pressure on the Government to take action to apply stronger controls to short-term lets to ensure a better balance between housing supply and the potential economic benefits from holiday makers. 

Government plans for 2023

The UK Government has released a call for evidence to develop a registration scheme in England for tourist accommodation with the aim of collecting data on the market to better understand the impact of short-term lets. 

The  review will look to address potential solutions for the key challenges caused by increasing short-term lets – particularly localised to areas where these issues are intensified by larger numbers of holiday makers. 

It will consider the growth of the short-term letting market, benefits of short-term lets and the potential impact of new policy suggestions. Additional consideration should be given to localised effects of the policies to account for the county variation in holiday let oversaturation.

It may be difficult for the UK government to balance the need to provide long-term homes with the economic benefits of holiday rentals, particularly considering the ever-growing need to boost the UK economy and move out of the cost of living crisis. 

We hope that the call to evidence will pave the way for balanced and data-driven initiatives which can benefit both the private rental sector and short-term letting agents.

Abolishing Section 21 – Could it be good news for landlords?

by Asif AliPosted on

The section 21 notice allows landlords to regain possession from assured shorthold tenancies without establishing fault on behalf of the tenant, usually referred to as a ‘no fault eviction’.

This has been criticised for affecting the wellbeing of private tenants, creating a sense of insecurity and lack of clarity. Abolishing this process and implementing more predictable systems is intended to provide more security for tenants and landlords across the country.

As part of the renters reform bill, the abolition of the section 21 ruling is part of a Government white paper which promises to create fairer standards of living for renters across the country.

What is changing?

The Renters Reform Bill sets out plans to abolish section 21 eviction notices. The abolition would supposedly put an end to ‘no fault evictions’, granting tenants more clarity in regards to the length of their tenancies.

After section 21 is abolished, landlords will need to provide a suitable reason for ending tenancies, for example, a breach of contract or selling the property.

Whilst bringing significant change to the buy-to-let market, landlords will be relieved to learn that the changes to section 21 do not affect their ability to take back properties from anti-social tenants or for necessary reasons (such as wanting to sell the property or move back in.)

In fact, this process may become easier when it is for a suitable reason. With the new changes, Court processing is intended to be reformed to be quicker. Evictions currently can take 6 to 12 months.

We can expect that this new system brings both a sense of security for tenants as well as an easier process for landlords who need to reclaim their properties for necessary reasons. However, we would advise that landlords work with a suitable managing agent such as Howsy, who can help them navigate the changes in legislation as well as the eviction process.