2019 is set to see a number of changes for landlords. More legislation, ongoing tax changes, and the dreaded B-word ‘Brexit’, there is a lot to consider so here is our update and views on how to get through it all and come out smiling.
- On 20th of March the Fitness for Habitation Bill comes into force.
Following agreement by both Houses on the text of the Bill, it received Royal Assent on 20th of December 2018. The Bill is now an Act of Parliament. The Ministry of Housing, Communities and Local Government will publish guidance for local authorities, landlords and tenants in the new year, but until then, here is our synopsis.
Karen Buck MP sponsored the Bill giving tenants the right to take legal action against Private and Social landlords if a property isn’t up to the standard of the Housing Health and Safety Rating System (HHSRS) for breach of contract.
What is the HHSRS?
The Housing Health and Safety Rating System (HHSRS) introduced a new risk assessment system, focussing on identifying and tackling the hazards that are most likely to be present in a property to make homes healthier and safer to live in.
The system deals with 29 hazards relating to:
– Dampness, excess cold/heat
– Pollutants e.g. asbestos, carbon monoxide, lead
– Lack of space, security or lighting, or excessive noise
– Poor hygiene, sanitation, water supply
– Accidents – falls, electric shocks, fires, burns, scalds
– Collisions, explosions, structural collapse
Each hazard is assessed separately, and if judged to be ‘serious’, with a ‘high score’, is deemed to be a category 1 hazard. All other hazards are called category 2 hazards. The best advice for your landlords is to explain the 29 hazards, paying particular attention to the condition of the property and highlight any areas of worry for the landlords/tenants. For any property you feel at risk (usually older properties), advise that a risk assessment is carried out, which will look at the likelihood of an incident arising from the condition of the property and the likely harmful outcome. If a local authority discovers category 1 hazards in a home, it has a duty to take the most appropriate action, so try to ensure your properties are up to the required standard before they are rented out.
- The Tenant Fees Bill will be made law in 2019 (likely to be April) and it will abolish most upfront fees for tenants in England and cap security deposits at the equivalent of five weeks’ rent where the annual rent is less than £50,000. The cap is still six weeks’ rent where the annual rent exceeds £50,000.
What fees can you ask a tenant to pay?
You cannot require a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with a tenancy. You cannot require them to enter a contract with a third party or make a loan in connection with a tenancy. The only payments you can charge in connection with a tenancy are:
– the rent;
– a refundable tenancy deposit (reserved for any damages or defaults on the part of the tenant) capped at no more than five weeks’ rent
– a refundable holding deposit (to reserve a property) capped at no more than one weeks’ rent
– payments to change the tenancy when requested by the tenant capped at £50, or reasonable costs incurred if higher
– payments associated with early termination of the tenancy, when requested by the tenant
– payments in respect of utilities, communication services and council tax
– payments arising from a default by the tenant, such as replacing a lost key
Third Reading in the House of Lords is scheduled for the 15th of January 2019.
- More action being considered by the Government during 2019 is:
A new requirement for all landlords to be members of a redress scheme to give tenants easier access to dispute resolution;
A new requirement for all letting agents to be registered and members of a client money protection scheme;
The introduction of banning orders and a database of rogue landlords and agents (in force);
and Consultation on the benefits and barriers of longer tenancies in the private rented sector.
Whilst the ban on tenant fees has and will continue to be a huge issue for letting agents and landlords who charge tenants for the heavy administration involved with setting up a tenancy (referencing, contract preparation, inventory makes and checks) the legislation is going to be law very soon and it is advisable to get systems and processes in place in order to cover the loss of this income without service standards being affected. The main worry is that many tenancies could commence with below standard checks and paperwork, meaning more issues arising throughout and at the end of the tenancy. Alternatively, rents could start to rise, as maintaining administration standards does incur charges and landlords/letting agents may not want to take on the additional costs involved. Ultimately, this could mean fewer investors in the market, leading to lower amounts of rental stock and simple economics will see demand pushing rental prices up. We shall not know the outcome until the legislation comes into force, but it is happening so best to be prepared!
A series of taxation blows have been dealt to buy-to-let investors in the Private Rental Sector such as the additional 3% Stamp Duty payable on additional residential property purchases and the reduction of mortgage interest as an allowable expense (Section 24 of the Finance Act 2015):
Landlords are no longer able to deduct all finance costs from their property income in order to arrive at property profits. Instead, they will only receive a basic rate reduction from their income tax liability for their finance costs from 2020 onwards.
Currently landlords are able to obtain relief as follows:
2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
in 2019 to 2020, this will reduce to 25% finance costs and 75% given as a basic rate tax reduction, then from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
The NLA estimates that by 2020, the cost to landlords will be in the region of £858,199,985.28 with almost 205,000 landlords affected. This is broadly equivalent to a typical loss of benefit of £1,497 per annum per mortgaged property let by a landlord paying higher rate (40 per cent) tax, or £1,872 in respect of those in the additional band.
Furthermore, should interest rates increase and landlords are unable to remortgage at more competitive rates, the higher monthly non-deductible mortgage payments could compromise cashflow. Sadly, landlords are already finding profit margins being reduced to the point where one in five are planning on selling their rental properties, according to the National Landlords Association (NLA).
As 2019 begins, it is understandable that estate and letting agents are being asked what the impact of Brexit, on March 29, is going to be on the property market. However, with such uncertainty in the Government, it is really difficult to predict anything accurately or precisely!
The Bank of England has warned that a no-deal Brexit could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis. Their prediction is that a failure to reach a deal with Brussels – with no transition period to a new trading relationship – could spark an immediate economic crash, with GDP falling by up to 8%, unemployment increasing to about 7.5%, interest rates surging to 6.5%, and property prices crashing by up to 30%. Quite a gloomy prediction!
However, Zoopla reported at the end of 2018 that the average British property value increased by £2,860 in 2018, a rise of 1.02 per cent. They predicted that the property market would follow a similar trend this year – although they did admit that the Brexit outcome could impact people’s ability to afford to buy a new home.
The Halifax has forecasted a 2 to 4 per cent increase in house prices for 2019, which is more positive. Halifax’s Russell Galley said: ‘Aside from the obvious political and economic uncertainty, the biggest issue for the housing market in 2019 will be the degree to which mortgage payment affordability changes.’ He went on to say: ‘Average pay growth is likely to gather pace but, with a further interest rate increase also predicted, house prices are unlikely to be pushed significantly in either direction’.
Ultimately, time will tell and we will have further updates as we understand more about the Brexit deal we will be facing in March.