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Em Morley

Important Changes to Lettings Legislation for 2017 and Beyond

Published On: February 3, 2017 at 11:22 am

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Lettings legislation has been making the headlines over the past year, so what can we expect for 2017 and beyond?

From the 3% Stamp Duty surcharge on buy-to-let properties, to the Right to Rent scheme, these ongoing changes to lettings legislation mean that it is more important than ever for landlords to fully understand their responsibilities.

Romans letting agent has reviewed the recent changes and highlighted some key lettings legislation changes for 2017 and beyond:

Buy-to-let tax restrictions – April 2017-2020

From April 2017, mortgage interest tax relief will start to be restricted to 20% for buy-to-let landlords. The restriction could affect investors who are both basic rate and higher rate taxpayers. The changes will have the greatest impact on higher rate taxpayers, and landlords with high mortgage costs and low rental incomes. Due to the changes, some landlords could also be forced into the higher tax rate.

Important Changes to Lettings Legislation for 2017 and Beyond

Important Changes to Lettings Legislation for 2017 and Beyond

The change will be gradually phased in from this April:

  • From 6th April 2017 – The existing system can still be claimed on the first 75% of landlords’ finance costs, including mortgage interest. The remaining 25% will have the new system applied (basic rate of tax).
  • From 6th April 2018 – The amount of tax relief that landlords can claim on the existing system will drop to 50% of their finance costs. The remaining 50% will have the basic rate of tax applied.
  • From 6th April 2019 – The tax relief using the existing system can only be applied to 25% of landlords’ finance costs. The remaining 75% will be at the basic rate.
  • From 6th April 2020 – Landlords will only be able to claim tax relief using the basic rate of tax. The tax relief will be given as a reduction in tax liability instead of a reduction to taxable rental income. 

Housing and Planning Act 2016 – April 2017 

This piece of lettings legislation became law back in May 2016, and is expected to come into force by April 2017 – once the second legislation has been drafted. The purpose of the act’s rogue landlord and letting agent database is not to ban property managers from operating. The idea is to enable local authorities to monitor the activity of rogue landlords and letting agents, and effectively target enforcement action. The act covers four areas: electrical safety requirements; Client Money Protection; rent repayment; and banning orders.

  • Electrical safety requirements – Regulations will require portable appliance testing (PAT) and an electrical safety check of wiring. Timeframes have not yet been confirmed, or which tenancies these regulations will apply to. There will be penalties for non-compliance.
  • Client Money Protection (CMP) – This will mean that all letting agents must have CMP, which will protect landlords and tenants. A date has not yet been agreed.
  • Rent repayment – If a landlord is convicted of not having a license for a House in Multiple Occupation (HMO) under the Housing Act 2004, they could be ordered to pay the tenant or a local authority up to 12 months’ rent. The tenant or local authority will make the application to the First-tier Tribunal. An order may be made if the landlord: fails to comply with an improvement or prohibition order; unlawfully evicts or harasses a tenant; does not comply with a banning order.
  • Banning orders – If a local authority believes that a landlord or letting agent should be banned from letting or managing a property, it should apply to the First-tier Tribunal for a banning order. The ban will last for a fixed term of 12 months. It will be a criminal offence if the ban is breached – landlords/letting agents could be imprisoned for up to 51 weeks or be fined up to £30,000. The rules are expected to be in force by April 2017.

Further guidance is expected from the Government before the database of rogue landlords and letting agents is implemented, which is expected from 1st October 2017. 

Minimum energy efficiency standards – April 2018

Tenants are already able to request consent from their landlords to carry out energy efficiency improvements on their rental properties. Landlords are not able to unreasonably refuse consent.

However, from 1st April 2018, rental properties entering into new lets or renewals will be required to have an Energy Performance Certificate (EPC) rating of E or above. A penalty of up to £4,000 will be imposed for breaches. The regulations will affect all existing tenancies from 1st April 2020 onwards.

Stay on top of lettings legislation 

With so many changes to lettings legislation over the past and coming years, it is vital that landlords and letting agents stay on top of their obligations.

The easiest way to understand your responsibilities is by keeping up with the latest updates from the sector. Our online news portal is completely free to use, while our handy monthly newsletter is also free and includes the important changes that you need to be aware of. Sign up here: www.34.207.192.121/register/

Tax changes are not having desired impact, says peer

Published On: February 3, 2017 at 10:46 am

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The head of one of the country’s biggest franchise agency groups has stated that the Government’s tax assault on buy-to-let will not impact the drivers that will ultimately lead to rental sector expansion.

Ian Wilson, head of MartinCo said in a trading statement to the City, that the fundamental drivers for the expansion of the private rental sector remain in place:

  • High migration
  • Low supply of new housing stock
  • Deposit issues for first-time buyers
  • Pension reforms for over 55’s

Performance

MartinCo suggest that total returns from buy-to-let investment during the past ten months have outperformed all other asset classes. The prospect of owning a rental property to obtain income in retirement, alongside benefitting from rising capital values, remains an attractive one.

Tax changes are not having desired impact, says peer

Tax changes are not having desired impact, says peer

Mr Wilson said: ‘We do not envisage the Government’s recent interventions in the buy-to-let sector significantly impacting our business. Buy-to-let investors have generally reduced gearing in their portfolios over the years since 2008 and are believed to be able to absorb rising interest rates.’[1]

‘We are well positioned to sell investment properties if investors decide to exit and our research suggests that larger buy-to-let investors would purchase this stock. Early indications from the mortgage industry show that investors are beginning to incorporate their activities into trading companies to avoid the stamp duty surcharge and to retain the benefit of interest tax relief on buy-to-let loans,’ Wilson added.[1]

[1] https://www.lettingagenttoday.co.uk/breaking-news/2017/2/tax-changes-not-hitting-buy-to-let-significantly-says-agency-chief

BoE Freezes Base Rate at Record Low 0.25% for Another Month

Published On: February 3, 2017 at 10:11 am

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The Bank of England (BoE) has frozen its base rate at a record low 0.25% for yet another month.

BoE Freezes Base Rate at Record Low 0.25% for Another Month

BoE Freezes Base Rate at Record Low 0.25% for Another Month

The Monetary Policy Committee voted to keep the record low 0.25% rate on hold, with the economy performing much better than most experts predicted in the wake of last year’s Brexit vote.

The base rate was originally cut to a record low 0.25% in August last year

Financial markets forecast a 50% chance of a rate increase by December this year, although many economists now believe it could be much later.

That said, a rise isn’t set in stone, with the Governor of the BoE, Mark Carney, suggesting last month that the rate could even be cut further.

The economy has grown by 0.6% in each of the past three quarters, contradicting predictions by experts, including those at the Bank, of a sharp decline after the vote to leave the EU.

The BoE, which had warned that a Brexit vote could tip the UK into recession, has increased its growth forecasts since the EU referendum, with its latest quarterly inflation report expected to show a further nudge upwards for 2017.

So how will the record low 0.25% rate affect property owners and buyers?

The CEO of eMoov.co.uk, Russell Quirk, explains: “Today’s decision is great news and will no doubt boost both UK buyers and sellers, as well as the wider economy. It also acts as validation that the overall market stability seen throughout 2016 should carry on well into 2017, with the UK property market remaining in good health.

“With interest rates remaining as they are, the wider availability of affordable mortgage rates should further encourage buyers that now is as good a time as any to get that first foot on the ladder.”

He continues: “Some may even argue that a slight cooling in property values across the nation isn’t such a bad thing, and will further aid struggling buyers and help to partially address the growing housing crisis in the UK, although those already on the ladder may not share such a view.

“But a word of warning: those looking to buy should still do so wisely and not be encouraged to buy beyond their means due to today’s further rate freeze. It is inevitable that, at some point, interest rates will increase, and the normal rate being enjoyed currently could increase to 3-4%. Should this happen, those that are ill-equipped to deal with the escalating financial costs will find themselves in a very tough predicament.”

What do you think of the rate freeze?

UK rental inflation down for seventh straight month

Published On: February 3, 2017 at 10:03 am

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The most recent figures from Homelet have revealed that UK rents increased by an average of only 0.7% in January, in comparison to the same period in 2016.

This decline means that British rental price inflation has dropped in all of the seven months. The peak of the market in June 2016 saw prices rise by an annual rate of 4.7%.

Future Falls

At the current rate of growth, UK rents could begin to fall in the coming months.

Across Britain as a whole, the average rent for a new tenancy starting in January was £888pcm, in comparison to £882 in January 2016.

The most prominent slowdown in rental price inflation was evident in regions that had previously seen the greatest increases. In Greater London, annual rental price inflation was just 0.4% in January, in comparison to a peak of 7.1% in January.

In the South East, annual rental price inflation has now moved into negative figures, with rents for new tenancies in January down by 0.6% in comparison to last year.

These falls in rental price inflation are likely to mean that rents are increasing at a slower pace than inflation in general. As rental price inflation is also lagging behind average pay growth, this is good news for tenants worried about affordability in the private rental sector.

UK rental inflation down for seventh straight month

UK rental inflation down for seventh straight month

Affordability Concerns

Martin Totty, Chief Executive Officer of HomeLet, noted: ‘Our data has been showing, for some time, that landlords do not feel able to raise rents on new tenancies at anything like the pace seen during 2015 and the first half of 2016. Now it is even possible that rents will begin falling which would be unprecedented in recent times.’[1]

‘Landlords and letting agents have clearly recognised concerns about the affordability of rising rents and are now being cautious about what they expect tenants to pay. However, with many landlords facing increasing costs in the months ahead, as the Government begins to cut back on mortgage interest tax relief, the sector faces a difficult balancing act,’ he continued.[1]

Concluding, Totty said: ‘It remains to be seen if landlords feeling the pressure of tougher tax and regulation will be able to recoup these higher costs, as many in the industry had assumed. We see no sign of landlords panicking, and there is little prospect of an end to the long-term imbalance between supply and demand for residential property; still, with economic uncertainty adding to the unpredictability of the short-term outlook, landlords and tenants alike will be monitoring the marketplace very closely.’[1]

[1] http://www.propertyreporter.co.uk/landlords/uk-rent-inflation-falls-for-seventh-month-in-a-row.html

 

A Quarter of London Tenants Still Spend Over Half their Wages on Rent

Published On: February 3, 2017 at 9:36 am

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A quarter of London tenants are still spending over half of their wages on rent, despite prices falling by an average of 1% at the end of last year.

The latest rental report from Spareroom.co.uk found that the average room rent price in the capital dropped from £755 a month to £748 at the end of 2016.

Rents in the capital widely stagnated over the past year, as an increase in the number of available homes provided London tenants with more choice and opportunities to negotiate.

A Quarter of London Tenants Still Spend Over Half their Wages on Rent

A Quarter of London Tenants Still Spend Over Half their Wages on Rent

“Falling rents in London might sound like good news for renters, but they’ve got a long way to go before they’re genuinely affordable,” says the Director of Spareroom, Matt Hutchinson. “One in four house sharers now spends over half their salary on rent.”

Nowhere highlights this more than in the London areas where rental properties are in short supply. St Paul’s, in EC1, is the most expensive part of the capital for London tenants, with rents averaging £1,346 per month. This is almost three times more expensive than London’s cheapest postcodes, which are typically found in up-and-coming areas on the fringes of the capital.

The cheapest postcodes for London tenants 

North London dominates the list of top ten postcodes for the cheapest homes, with rooms in Zone 4’s Upper Edmonton the least expensive of all, at an average of £530 a month.

Meanwhile, rooms in leafier and slightly further out locations, such as Winchmore Hill and Totteridge & Whetstone, cost renters £559 and £565 respectively.

Rent prices dropped by up to 5% in all but two areas on the list – Lower Edmonton in north London and Abbey Wood in southeast London, a soon to be Crossrail hotspot, where room prices have increased by 4%, to £541 per month.

However, as London tenants seek cheaper alternatives, demand in more affordable locations surges and prices are likely to rise in line with demand.

“As 2016 came to a close, we saw London rents peak and renters look to commuter towns around the capital instead of concentrating on central locations, as we’ve seen in the past,” Hutchinson comments.

London’s fastest rising postcodes

With rent rises of 8%, north London’s Southgate, in Zone 4, and southeast London’s East Dulwich, in Zone 2, are among the fastest rising postcodes in the capital.

East Dulwich is benefitting from the recent Overground extensions through Forest Hill on one side and Peckham on the other, which have led to southeast London increasing in popularity, and room rates rising accordingly, to an average of £662 a month.

Hutchinson adds: “The SE postcodes are still the cheapest in the capital, so are proving popular with young professionals looking for a balance of lifestyle and affordability.”

Southgate, at the top end of the Piccadilly Line, is starting to see an increase in demand, as rents in more central locations are pushing London tenants’ affordability to breaking point. Room rents of £613 are a much more appealing prospect, as is having a better change of getting a seat on the Tube!

Landlords seeking investment properties in the capital should look to the areas that still prove affordable for average London tenants – you will be guaranteed a high level of demand and strong capital growth in areas undergoing improvements.

Housing chief slams Right To Rent

Published On: February 2, 2017 at 2:50 pm

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An industry peer has moved to lambast the Right To Rent legislation, suggesting that the Government is largely unaware of its impact.

Mr John Perry, senior policy advisor at the Chartered Institute of Housing, feels that the Government must rethink the scheme before it rolls out to Scotland, Wales and Northern Ireland.

Application

Writing in The Guardian, Mr Perry said that no one knows if the Right to Rent bill is achieving its objective or if it even being applied whatsoever.

Perry wrote: ‘The Home Office has admitted it cannot monitor the scheme and it’s a fair bet given the limited publicity that at least a proportion of England’s 1.8m private landlords are still completely unaware of it.’[1]

‘Refugees who have been accepted in the UK often have to wait many weeks for documents to prove it – and many become homeless because they can’t get either a social or a private tenancy. Meanwhile British people can also be affected if they have no passport or other accepted proof of UK residence, and there are a raft of other circumstances that could mean a person may not satisfy the checks,’ he warned.[1]

Housing chief slams Right To Rent

Housing chief slams Right To Rent

Checks

At present, Perry thinks that there are 11,300 daily Right To Rent checks, but as of December 2016, there were only 654 individuals without documents attempting to rent.

Concluding, Mr Perry said: ‘The additional work by landlords was estimated by the government to cost a staggering £4.7m a year. It’s time for the government to seriously reconsider the impact of right to rent on vulnerable tenants and would-be tenants before it is rolled out to Scotland, Wales and Northern Ireland. It’s simply not good enough to claim that the scheme has a deterrent effect when the proven benefits are so limited and there are regular reports of the damage being caused.’[1]

[1] https://www.lettingagenttoday.co.uk/breaking-news/2017/2/right-to-rent-housing-chief-says-its-not-good-enough