Over the past four years, the Government has introduced a raft of reforms in the private rented sector. Touted as promoting a higher standard of living and security for tenants, these seemingly endless changes have hit many landlords hard – increasing costs, while at the same time reducing tax relief, which is effectively eating into rental yield. This has seen a rapid decline in Buy to let investment, with new investment in buy to let property falling by 80% in the years 2015 – 2018.
While this is no means that end for the Buy to Let market – it does mean that, as an investor, it’s more important than ever before to properly research any UK investment, and purchase property with the best possible returns.
Director of Benoit Properties Matt Lavin says “With demand as high as ever for quality property to let from tenants, government changes are squeezing out smaller investors with one or two properties. Instead, we are seeing a shift to those wishing to invest for the long term, considering price appreciation, and buying in prime areas where rental demand is high”.
We look at some of the biggest changes in PRS over the past few years, the impact they may have on your portfolio and how best to negate any negative outcomes.
BTL Mortgage Relief and Added Purchase Costs
In 2016 and early 2017 two major changes took place which have fundamentally changed the sector. In April 2016, the 3% stamp duty surcharge on the purchase of buy to let and second homes was introduced.
In January 2017, new stress tests were introduced by lenders, requiring borrowers to show that they could still meet payments should the base rate of interest rise significantly, and in April 2017, the start of the abolishment of buy to let mortgage interest tax relief began – reducing each year until it reaches the basic rate of income tax in the 2020/21 tax year.
However, while some landlords have chosen not to expand their portfolio’s, and of course some leaving the market altogether, rental growth has remained steady, despite the changes.
Matt states “While the additional costs of purchase and reduction of tax relief has affected many in the buy to let market, there is still very much a healthy appetite from investors looking for a good deal, even taking into account the new financial landscape, there are excellent opportunities across the North with properties which offer investors both excellent rental yields and real scope for capital appreciation”.
Tenant Fee Ban
Introduced in July 2019, the tenant fee ban has pushed some costs traditionally borne or shared by tenants onto landlords. Additionally, the reduction of the maximum tenancy deposit to 5 weeks for properties where rent is less than £50,000 per annum means that investors now have to factor these extra costs/risks into account.
Find out more about what the tenant fee ban means for landlords.
The introduction of minimum energy efficiency standards means that landlords with older, or less energy efficient properties will need to take steps to bring them up to standard prior to letting, potentially incurring additional costs.
That said, keeping investment portfolios in good condition should be an aim of any investor in order to protect their assets.
Find out more about MEES.
What Does the Future Hold for BTL?
With a real focus on tenant security, there are still many proposed changes which may impact the BTL market – not least of which is the suggested abolition of S.21, which, if introduced may well have a huge effect on the market.
However, bricks and mortar still remains one of the most stable investments, so while perhaps the profile of property investors is changing, property investment still one of the most popular choices for those looking to reap both the short term and long-term gains.