Private rental prices are climbing, the economy is growing stronger, and demand is increasing. Reports predict that rental prices will see a ten percent increase by 2024, and during that same period, house prices are forecast to increase by a huge 15.3 percent on average.
Despite this bounceback in the market, UK landlords are still confronting numerous changes. Government reforms, perplexing mortgage rules, and cumbersome tax increases combine to pinch profits while creating new headaches for landlords. As a result, many landlords are starting to utilise short-term letting sites such as Airbnb.
With the implications of a rapidly changing buy to let landscape in mind, the UK’s landlords recently shared their concerns in Portico London estate agents’ landlord survey, along with advice for maintaining and maximising profitability moving forward.
Taxes and legislation were top concerns for UK landlords
It’s no surprise that concerns over recent and upcoming legislative changes and tax increases are at the top of the list for most landlords. A full 58 percent of UK landlords placed these two considerations above all other matters.
Several pieces of new legislation take effect in 2020. Landlords and those who are considering entrance into the buy to let marketplace should be aware of:
- The Homes (Fitness for Human Habitation) Act of 2018, which outlines certain standards that must be met within all rental properties. This isn’t a concern for landlords who maintain their properties well, however it’s worth a look simply to ensure that your property meets specifications. The Homes Act applies to all tenancies as of 20 March 2020.
- Minimum Energy Efficiency Standards of E or above will apply to all non-exempt rental properties as of April, 2020. Landlords who need to arrange for an EPC assessment or have necessary maintenance work completed should prioritise compliance to avoid complications.
- New Capital Gains Tax rules take effect on 6 April 2020. Changes to lettings relief and final exemption periods apply and from April, landlords will be granted only 30 days to tell HMRC and pay Capital Gains tax. This is a major change; previously, landlords were allowed to delay payment of Capital Gains Tax to the next tax year.
- Client Money Protection Scheme changes take effect in April 2020 as well. Lettings agents in England were previously allowed a 12-month grace period to join an approved client money protection scheme. This has expired. All UK lettings agents must now protect landlord and tenant money by belonging to a client money protection scheme.
- An Extension of the Tenant Fees Act will cover all existing tenancies beginning in June 2020. In short, this legislation bans many tenant fees for new tenancies. It prevents landlords and letting agents from charging fees other than deposits, holding deposits, rent, and charges for defaulting on contracts. Breaking this law means fines up to £5,000 for the first offence and fines up to £30,000 for subsequent offences.
- Section 21 changes, electrical safety checks, and other rules without specific dates.
Property maintenance and tenant behaviour worry landlords
More than a third (31 percent) of landlords surveyed stated that property maintenance was a top concern. Tenant behaviour and property damage were listed as leading issues for a full 27 percent of landlords. These two concerns often go hand in hand, yet a full fourteen percent of landlords stated that they don’t carry landlord insurance to offset potential costs associated with damages. Another fourteen percent weren’t sure whether their portfolios included landlord insurance.
With concerns over property maintenance and damages caused by tenants and their guests at the fore, Portico recommends taking security deposits, screening tenants through a tenant credit check, securing detailed tenancy agreements, and building healthy relationships with tenants. Portico states property management is designed to ease these concerns for landlords via rent guarantee and other protective measures.
Budgeting for maintenance and renovations should be a major consideration. Portico’s survey showed that a full 54% of landlords found themselves dealing with up to three maintenance issues in 2019 alone, while another 25 percent of landlords had to handle four or even five maintenance-related issues that same year. A smaller percentage of landlords were faced with even more problems: About five percent had between 5-9 issues to deal with, while another five percent had to handle ten or more problems.
Just how much money should landlords set aside for general maintenance costs annually? Research from LV suggests that it’s wise to set aside £3,134 per property, per year. Portico’s survey respondents typically budgeted less; only 44 percent said that they actually budgeted for maintenance, and those landlords set aside an average of £1,000 to £2,000 per property per year.
As for renovations, a full 63 percent of landlords surveyed renovated at least one property after purchasing it. 33 percent of those said that the purpose of the renovations was to reduce void periods and make the property easier to rent, while 38 percent said that they improved their properties to keep current tenants happily housed.
Brexit takes fourth place; market conditions come in fifth
A mere 19 percent of landlords continue to place worries over Brexit’s impact ahead of other concerns. As the market continues to stabilise following the general election results and the so-called “Boris bounce,” only 18 percent of landlords put market conditions at the top of their list.
Portico states that “As stability returns to the property market after Brexit, we predict that homebuyers and sellers will have the confidence to return to the housing market. Sellers in particular have the incentive required to move forward now that there is a good likelihood that they’ll receive better offers.”
Short-term rentals make void periods less of a concern
Not too long ago, void periods were a chief concern for landlords across the UK. These days, worries over empty rental properties have subsided, taking sixth place. While London places limits on the number of days a rental may be offered via Airbnb, it’s still easy for landlords to utilise short-term rentals as a simple, effective method for maximising revenue between long-term tenants.
There’s another reason why more landlords are turning to Airbnb as a solution: Airbnb management services eliminate the legwork associated with offering rental properties to holidaymakers, so landlords enjoy a more profitable return on investment without worries over mundane tasks such as laundering linens, hiring cleaners, and handling other essential yet time-consuming chores.
Letting agents gaining popularity
Not surprisingly, landlords find tax and legislative changes worrisome – and the many day-to-day demands associated with managing rental properties can be cumbersome particularly when landlords have other professional demands. Only about 54 percent of landlords are managing their own buy to let properties; meanwhile, 43 percent take advantage of letting agents and another 3 percent use online management services.
The buy to let industry is becoming more complicated, but there is still money in buy-to-let and landlords are remaining optimistic. Landlords who work with lettings agents and other property experts can enjoy access to greater insight and assistance with issues including taxes, compliance with legislation, and more. Handyman services, rent guarantees, and maintenance between tenancies are in higher demand than ever before. While industry experts can’t completely erase landlords’ concerns, it’s clear that a team approach eases the way forward in an increasingly complex buy to let landscape.
Source: London Loves Business