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2017 has been a mixed year for residential landlords. Rents started strong in the first half of the year, but stabilised as 2018 drew near.

The impacts of tax and regulatory changes began to sting residential landlords and property investors, and initiatives such as Right to Rent and Universal Credit caused further confusion. However, projections for 2018 are positive and landlord optimism is beginning to return, proving the resilience of the sector.

Statistically, 2017 has been one of slight but steady national rent inflation. The Countrywide Monthly Lettings Index saw rents rise by 1.2 per cent over the year to November 2017, whilst the DPS Rent Index found that rents were up 1.51 per cent between the third quarters of 2016 and 2017. The HomeLet Rental Index projected a less positive view, with rents up 0.7 per cent in the year to November 2017.

However, as the year drew to a close, things were looking less positive for the London market moving towards 2018. The capital saw rents reach a 10-year high in July, up 45 per cent over the last decade. This was fuelled by employment growth and inward migration from the rest of the UK, as well as overseas. However, by November, London rents had failed to rise for the fifth consecutive month. HomeLet found that rents in the capital were down 0.2 per cent in the year until November 2017, standing at £1,530.

On a positive note for London landlords, predictions from property specialists Savills indicated that house prices in the capital could surge if the UK secures an EU free-trade deal as part of the Brexit negotiations. They suggested a rise of up to eight per cent by 2020 once the future of the country has been secured.

Despite Brexit being a pressing issue in the national news, it is not a key concern for residential landlords. Simple Landlords Insurance found that landlords are undeterred by the prospect of leaving the EU, with domestic influences more concerning. 85 per cent of landlords were unconcerned by the prospect of Brexit, with a mere 8 per cent saying that they would postpone the expansion of their property portfolios due to Britain’s imminent exit from the EU.

In contrast, 56 per cent of landlords who own five or more properties have reevaluated their investment plans for the coming year due to concerns regarding stamp duty, capital gains tax and stricter mortgage lending rules.

Stamp Duty has been a persistent irritant for residential landlords in 2017. The controversial policy, which has been dubbed ‘the landlord tax’ by critics, states that anyone purchasing a buy to let investment property or second home must pay an extra 3 per cent in stamp duty charges. This is on top of general stamp duty. The change was introduced in April 2016.

Analysis from Blick Rothenberg has revealed that the Treasury has earned nearly £2 billion since the introduction of the 3 per cent stamp duty surcharge. It was initially estimated that the changes would earn half this much, at a mere £1 billion per year throughout the years between 2016 and 2020.

Similarly, the phasing out of mortgage tax relief has been a recurring story over the year. Paragon Mortgages found that despite the changes having come into effect, 12 per cent of landlords still fail to understand them. However, more landlords now anticipate that they will be pushed into a higher tax bracket due to the changes, with 16 per cent expecting to now pay more.

Residential landlords and landlord bodies called for a revision of increasingly punitive legislation upon landlords, and there was faint hope that the Autumn Budget might see this confirmed. However, the only explicit mention of landlords in Philip Hammond’s speech related to the launch of a consultation into encouraging landlords to offer longer-term tenancies.

Other areas outlined in the Budget with the potential to impact the buy to let sector included the fact that the announced 30-day payment window for capital gains tax will be deferred until April 2020, and the higher rate income tax threshold will rise from £45,000 to £46,350. Local authorities will also have the power to increase council tax premiums from 50 to 100 per cent on empty homes and the government will investigate how rent-a-room relief is being used.

Significantly, first-time buyers’ history of paying their rent on time will now be recognised in credit scores and mortgage applications, proving the government’s commitment to ensuring tenants meet rental requirements.

Whilst the year has been a challenge for landlords to navigate an increasingly complex market, positive rental inflation and some constructive changes in the Autumn Budget indicate that 2018 could mark an uptick in landlord fortunes.

Source: Residential Landlord

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