Between 2000 and 2017, the private rental sector doubled its share of UK housing stock from around 10% to more than 20%, according to data from the Ministry of Housing, Communities & Local Governments.
But despite the fact that privately rented property now provides nearly 5 million dwellings and is helping to replace the diminishing social housing sector, landlords have been penalised with a string of regulatory and taxation changes.
In 2016, an additional 3% Stamp Duty Land Tax was introduced above the standard rate for all second homes and investment properties, and in 2017 the government started to phase in financially significant restrictions on mortgage interest tax relief for buy to let mortgages.
In addition to these tax changes, landlords have had to keep up with a number of new initiatives in the private rental sector, including a ban on letting fees charged to tenants, the introduction of a cap on security deposits, changes to mandatory licensing for houses in multiple occupation, and the introduction of minimum energy efficiency standards.
This is before you start to think about new regulation of buy to let mortgages by the Prudential Regulation Authority, which has introduced more restrictive affordability testing and additional considerations for portfolio landlords.
An added complication is that each lender has introduced its own interpretation of the rules, requiring landlords to meet the lender’s own approval criteria.
These criteria include the number of properties in the portfolio, the overall portfolio mortgage balance, the existing exposure to the specific lender, the portfolio loan to value ratio, and more. Many lenders will also require an entire portfolio to be stress tested at a higher rate than the pay rate.
The latest obstacle being thrown at landlords is the potential withdrawal of Section 21 of the Housing Act 1988, which enables private landlords to repossess their properties without having to establish fault on the part of a tenant. It only applies to Assured Shorthold Tenancies (ASTs), and only after the expiry of any initial fixed term, but the impact of removing Section 21 is expected to be significant. A report by the National Landlords Association and Capital Economics found that the removal of Section could reduce the private rented dwelling stock to rent in England by 20% (960,000 dwellings).
It’s fair to say, therefore, that landlords have had a lot to deal with in recent years. Many of the changes have been piecemeal and some have been introduced with short lead times. The guidance for the tenant fees ban, for example, was published on 3 April 2019, just two months before the ban came into force.
Despite this changing landscape, we haven’t seen the exodus of buy to let landlords from the market that many were expecting. It’s certainly true that some, less committed, investors have decided to step away from residential property, but the majority continue to recognise the ongoing opportunity of being involved in the private rental sector.
The number of considerations for landlords may have increased, but so too has the demand for rental property from tenants, and it’s this demand couple with the potential for long-term capital growth that are continuing to provide incentives for investors.
The latest Private Rented Sector Report from the Association of Residential Letting Agents says the number of tenants experiencing rent rises rose to the highest figure on record in August this year, with 64% of agents reporting that landlords had increased rents, compared to 63%in July. Year-on-year, this figure is up from 35% in August 2017, and 40% in August 2018.
So, as a landlord, how can you overcome the many obstacles on your way to realising the benefits of a successful buy to let investment?
Changes to the regulatory landscape may come from many different directions, but fortunately technology is evolving so that it is easier than ever before to manage your buy to let portfolio in one place. New platforms, like Lendlord, enable you to enter or import your portfolio details, get ongoing insights on refinance opportunities and rate expiry alerts and carry out research on how much you can borrow and the best rate you are likely to get.
This single window onto the financing requirements for your portfolio can help ensure that you have immediate access to clear information and tools to maximise the part of your investment that you can control, so that you are best equipped to handle the other challenges that you cannot.