Tom Entwistle gives his tips on surviving and thriving in the buy-to-let business after the new bill becomes law.
First the positives. Labour has promised not to introduce rent controls, interest rates are on the way down, and demand for renting has never been higher.
With the right approach, it’s perfectly possible to survive and thrive long-term in the private rented sector (PRS), but it calls for a degree of savvy and a lot of hard work.
Landlords have had a challenging time under the Conservatives but under the new legislation proposed by Labour, it’s going to be something else. Tenants will have far more protections than they’ve had since the regulated tenancies of old. If you get a bad tenant, it’s going to be much harder to remove them, so avoiding them in the first place is key.
Labour’s potential hike in capital gains tax (CGT), its reinstating of the previously relaxed energy efficiency targets for buy-to-lets, and its Renters’ Rights Bill (RRB) will present you with challenging but not insurmountable hurdles.
The long-suffering buy-to-let landlord can be forgiven for contemplating the ultimate defeat, but throwing in the towel in the face of such adversity may not be the most profitable way to go long-term.
The RRB represents the biggest change in renters' rights in a generation and is likely to relieve some of the pressure on local authorities’ emergency housing lists, at landlords expense, no doubt intentionally. Here is a useful guide to the Renters’ Rights Bill.
But tenants need housing and ultimately the government can’t afford to completely destroy the housing market. For those landlords who hang in there and stay the course, the rewards could ultimately come. Survival will involve a lot of hard work, keeping up a highly professional approach.
2025 will be a challenging year for landlords and agents when the new RRB becomes law. The Labour government doesn’t seem to have grasped the intricacies of running a buy-to-let operation from a landlord’s perspective and I wonder whether they have fully appreciated the full impact this bill will have?
One interpretation is that it’s a rogue tenant’s - rent dodgers - charter that will allow them to run up long-term arrears. What’s more, the courts and civil justice system in England are in no state to deal with the onslaught that is going to result.
In my view, private buy-to-let landlords - despite many housing tenants receiving benefit payments - are not social landlords and should not be seen as such. They should not be expected to underwrite those tenants who face economic difficulties, which is effectively what the RRB imposes.
It may seem harsh, but if you have existing tenants who are struggling to pay a below market rent, are in arrears or you are not happy with their behaviour in some way, now is the time to consider a Section 21 eviction, while it’s still available to you.
It’s also a time to consider the profitability of your individual properties. If you have any properties that for one reason or another don’t make money - perhaps they are badly located or of an unusual size or configuration - now is the time to consider culling them, leaving you with only the most profitable ones and the ones that let most easily.
For those tenants who are either in rent arrears or breaching the terms of their contract, for example refusing to allow access for inspections or for crucial safety checks, landlords will have these key grounds under the RRB to rely on:
Mandatory ground:
Ground 8 - Rent arrears. The tenant has at least 3 months’ (or 13 weeks’ if rent is paid weekly or fortnightly) rent arrears both at the time notice is served and at the time of the possession hearing. 4 weeks' notice.
Discretionary grounds:
Ground 10 - Any rent arrears. The tenant is in any amount of arrears. 4 weeks' notice.
Ground 11 - Persistent arrears. The tenant has persistently delayed paying their rent. 4 weeks' notice.
Ground 12 - Breach of tenancy. The tenant is guilty of breaching one of the terms of their tenancy agreement (other than the paying of rent). 2 weeks' notice.
Ground 13 - Deterioration of property. The tenant has caused the condition of the property to deteriorate. 2 weeks' notice.
Ground 14 - Anti-social behaviour. The tenant or anyone living in or visiting the property has been guilty of behaviour causing, or likely to cause, nuisance or annoyance to the landlord, a person employed in connection with housing management functions, or anyone living in, visiting or in the locality of the property. Or the tenant or a person living or visiting the property has been convicted of using the premises for illegal/immoral purposes, or has been convicted of an indictable offence in the locality. Landlords can begin proceedings immediately.
A key phrase in the guidance to the RRB says: "Ultimately, we expect our rental reforms to reduce demand on the courts because only cases where there is a clear, well-evidenced ground for possession will be able to proceed." Be warned.
Survival means running your rentals in a businesslike manner. It means running a fully compliant operation while ensuring you get a fair market level return – you are not a charity. However, when you know you have a good long-stay tenant, you might consider offering them a small discount to encourage them to stay.
Bear in mind that ALL assured and assured shorthold tenancies with be switched to periodic tenancies on the day the RRB becomes law, sometime next year - existing as well as new tenancies will switch. Any Section 21s applications in train will be processed but after the start date no new Section 21s will be possible
If you have mortgages, you should consider longer term (5 or 10 year) fixes as interest rates are coming down, giving you long-term certainty as to what your major outgoings will be. Use a good mortgage broker to hunt around for the best deals that are suited to you, and similarly with your landlords’ insurance policy. But remember, with insurance, it’s only when you have a claim that you find out how good your insurers really are, cheapest is not always best.
Remember also, fixtures and fittings and décor don’t last forever, so floor coverings, kitchens and appliances, as well as decorating, all need to be on a rolling programme for replacement if living standards are to be maintained. But if you have kept your rents in line with the market level, these maintenance items should be affordable, and you can still make a decent profit.
Finally, you will need to register with both the Private Rented Sector Landlord Ombudsman scheme and the Private Rented Sector Landlord Database as part of the Renters (Reform) Bill. If you don’t register you are subject to a fine if you market a property to let, and you won’t be able to use the Section 8 eviction process.
All landlords will be required to join the Private Rented Sector Ombudsman scheme, which will be part of the new RRB Property Portal. Landlords will register online, by phone, or through an offline process. They will need to provide their name, contact information, address, and details of their private rented properties.
All residential landlords will need to register for the Private Rented Sector Landlord Database and there will be a fee to pay. You will receive a unique identifier number for yourself and each property you register. Landlords cannot legally market a property as available for rent unless they are registered.
The Property Portal and the Landlord Database will, according to the government, help to improve transparency and information for tenants. The database will also help HMRC identify cases for investigation, such as for tax, late payment interest, and tax-related penalties.
Good luck with your lettings.
[Revised 27 September 2024] - Read the full guide to the RRB - it's being continually revised.
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