Calling all Landlords
This blog will explore whether private landlords in the UK are experiencing increasing costs. First, let’s define what a landlord is and then analyse the factors that may have contributed to the rise—finally, a solution for those looking to escape these costs.
What is a landlord?
A landlord is a person who owns a property that is rented to another person or entity, known as the tenant. The landlord is responsible for ensuring that the property is maintained in a safe and habitable condition, that any necessary repairs are made promptly and that the tenant’s rights are respected. The landlord is also responsible for collecting rent from the tenant and may be required to pay taxes on the rental income. In addition, the landlord must comply with various laws and regulations related to renting property, including health and safety standards, tenancy agreements and eviction procedures.
What impact have recent tax changes had on landlords?
Since April 2016, the UK government introduced a 3% stamp duty surcharge when purchasing additional properties, including buy-to-let properties and second homes. This extra cost has deterred landlords from investing in new properties.
In addition to the stamp duty surcharge, changes to tax relief on mortgage interest payments have also impacted landlords. Since April 2020, landlords are not able to deduct mortgage interest payments from their rental income when calculating their tax bills. This change saw many landlords’ tax bills increase significantly, reducing their profits.
From April 2023, the capital gains tax allowance for landlords selling a property will be drastically reduced from £12,000 to £6,000 and cut to £3,000 from April 2024.
These significant changes have impacted the rental market, with data suggesting that the number of homes to rent in London fell by 38% as of July 2022 from the year prior.
How have interest rate rises affected landlords?
When the Bank of England raises interest rates, those landlords with adjustable-rate mortgages and variable mortgages see an immediate increase in their monthly mortgage payments, making it difficult to meet repayments.
Landlord’s coming off fixed-rate buy- to-let mortgages may wonder if the purchase is worth it as they will face potential financial shocks. The average 2–5-year fixed rates are currently over 5% compared to 3% a year ago and those fixed rates would have been even lower if fixed in previous years.
Landlords with Assured Shorthold Tenancies (ASTs) are limited to increasing their tenants’ rent once a year. Consequently, passing on these costs immediately can prove challenging, especially given the size of the rises required to accommodate the increased cost of funding. Likewise, those landlords with a high loan-to-value ratio on their rental properties may discover that their rental income no longer covers their costs, rendering the property unprofitable.
Are regulatory changes costing landlords?
Regulatory changes in the UK rental market have placed additional responsibilities on landlords, which can come at a high financial cost. They may also require extra work and the services of professionals to obtain the necessary consents and certifications. Failure to comply with regulatory requirements can result in legal penalties, fines and even criminal charges.
See below examples of several regulatory requirements that have either taken place or are being considered.
• Licensing: Some local authorities require landlords to have a property licence for rented London property, known as a selective license. This typically involves meeting specific standards for property management, ownership and tenant safety.
• Gas safety: Landlords must have gas appliances and flues in their properties checked annually by a registered Gas Safe engineer.
• Electrical safety: Landlords in England must have the electrical installations in their rental properties inspected and tested by a qualified electrician at least every five years.
• Energy performance: Landlords must ensure that their rental properties meet minimum energy performance standards, which the government sets. Currently, to be able to rent out your property, you need an EPC rating of at least an E. Note the government is planning to introduce new rules requiring all new tenancies to have a rating of C by 2025, with existing tenancies following suit by 2028.
• Right to Rent: Landlords must check that their tenants have the right to rent in the UK under the government’s Right to Rent scheme.
• Deposit protection: Landlords must protect their tenants’ deposits in a government-approved scheme and provide prescribed information to the tenant.
• Anti-discrimination laws: Landlords are prohibited from discriminating against tenants based on protected characteristics such as race, gender, religion, or disability
• Renters Reform Bill: Removal of “no-fault” section 21 evictions, outlaw ‘blanket bans’ to families with children or people receiving benefits; allow tenants the right to request a pet in their house (landlords cannot unreasonably refuse); two months’ notice for annual rent reviews and reforming eviction grounds for possession.
Is it time to sell your rental property?
The increased financial costs that impact landlords, namely changes to the tax system, cost of funding and the cost of meeting regulatory requirements, have affected rental income and profitability of rental investment and seen many landlords exit the market. Last year landlords sold approximately 35,000 more properties than they bought, highlighting how challenging an environment is for those owning rental properties.
Are you a landlord with a rental property to sell?
If you are, then here are five reasons why you should sell your property at auction with Auction House London:
1. Access to potential buyers – London is a global city. It attracts investors worldwide, so selling a rental property with Auction House London exposes it to a broader pool of potential buyers.
2. Increased competition – With a larger pool of potential buyers comes increased competition, which in turn can drive up the sale price of your property.
3. Expertise of a London Auctioneer – Auction House London’s auctioneers are highly skilled in selling properties. Their engaging and energetic style ensures they achieve the best price for each property, never bringing the gavel down until every bid has been extracted.
4. Transparent & Comprehensive – Auction House London’s excellent reputation, comprehensive service, transparent bidding and pricing provide peace of mind to sellers and confidence and trust in buyers that properties are being sold and bought fairly and openly.
5. Speed of the sale – Selling a property at Auction can also result in a quicker sale, as auctions often have a fixed timeline and can generate interest from buyers looking for a quick house sale and easy purchase.
For further information on how to sell at auction, check out our guide to selling at Auction.
Contact Auction House London today, a leading UK property auction house that is trusted, transparent and dependable. Auction House London provides extensive national and international marketing, exposure and accessibility to far-reaching databases.
We have local and regional expertise and will provide you with a dedicated team member to update and assist you throughout the auction process. For a free no, obligation appraisal of your rental property today, contact us to speak to one of our experienced team.
We believe that auction is the best means to sell your property and achieve the highest price. However, we recognise that not everyone can wait for an auction date. If you can’t sell at auction and want to sell now, we can also make a cash offer for your property today.