I am, by my own admission, ever the optimist, but with a barrage of enquiries from concerned landlords facing very real financial struggles, it’s important to also be a realist. There is no getting away from the fact that landlords are not being supported to succeed. 

There is no ‘one size fits all’ advice that anyone can offer landlords in how to navigate the current climate. Therefore, what I think is most important right now is for landlords to be clued up on what is coming, such as tenancy reforms, changing mortgage rates and increased taxes, and then they can assess their own personal circumstances against this information and decide the best route forward in 2023. 

Even some of the most experienced landlords who I have known for many many years are struggling to keep up with the complex market and upcoming changes.  However, with rental demand remaining strong, there is reluctance, certainly from seasoned landlords, to throw in the towel.

Greater protection for tenants

Whilst we are still no closer to knowing an actual date for when the Renters Reform Bill will become legislation, there is no doubt it is on its way and the government has plans to bring it into play by the end of 2023. 

As part of this, as we know, no-fault evictions (Section 21) will be banned, landlords will no longer be able to enforce blanket bans against tenants in receipt of benefits or those with children. Notice periods for rent increases will double and tenants will have greater powers to contest unjustified hikes and to challenge landlords who don’t meet their obligations. 

There is little landlords can do with this information at present, but if you are already having problems with your tenants, my advice would be to try and resolve these or take action now rather than wait. 

Interest rates and mortgage affordability 

Last year mortgage rates spiralled to their highest in 14 years. Whilst many will currently be on fixed-rate mortgage deals, many of these will, this year or next, be coming to an end. Whilst a new mortgage deal on a higher rate will cripple many landlords, actually securing the deal is going to be one of the biggest challenges for some. 

Even if a landlord is able to secure a new mortgage deal, the inability to offset all of the interest against the property will effectively tax many landlords out of the market.

Lenders use Interest Coverage Ratios (ICR) as the key affordability measure for buy-to-let mortgages. These are set at 125 per cent or 145 per cent for higher rate taxpayers, but with sky-high interest rates many landlords could fail to meet minimum requirements unless they can significantly increase rents. If the government was to bring in rent freezes, like in Scotland, this could present a further problem for landlords because if the rental income does not cover the property’s outgoings it will effectively become unmortgageable. 

Landlords need to do their sums. We are no longer in the market of cheap borrowing, and just like running a business, landlords need to know if their sums stack up and how long they can absorb such vast increases. If you’re coming towards the end of a fixed-term, seek professional advice now and base your future plans on a significantly higher rate to cover yourself.  

Capital Gains

The Capital Gains Tax (CGT) annual exempt amount will be reduced from £12,300 to £6,000 from this April, and to £3,000 from 6 April 2024. This will mean that a larger amount of investment income and gains will become subject to tax. This could be another catalyst for some landlords to sell up. Again, this is why it is imperative that landlords know their numbers. 

Growing rental demand

Despite all the challenges which landlords are currently facing, the one thing which is keeping landlords in this market is knowledge that there is a massive stock shortage in the private rental sector, with multiple tenants applying for the same property.  Most landlords are not facing voids and have the pick of multiple tenants seeking every property.   This has been amplified by the number of ‘would-be’ buyers who, due to rising interest rates, are now priced out of the sales market for the foreseeable. 

However, with budgets squeezed further by the cost of living, more tenants are undoubtedly going to struggle to meet their rent payments.  If your tenant is falling into arrears, address this now, before it escalates.  If you are looking for a new tenant, be stringent with your affordability checks. Total Landlord has just published a new guide on preventing arrears and what to do if tenants can’t pay the rent, with lots of practical advice. 

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In summary, no one has a crystal ball and only you know your financial capabilities. If you owned a business that you could see was heading for a bumpy road, you would look at your finances, make cuts and changes where necessary, and have an exit strategy. 

Owning a buy-to-let is no different. Many landlords also come to me asking for advice with a heap of emotion and responsibility on their shoulders. Whilst that’s admirable, you too have a life to live and bills to pay. If it is no longer financially viable, make changes – but do it now whilst you can. 

* Paul Shamplina is founder of Landlord Action, Chief Commercial Officer at Hamilton Fraser, and is on Channel 5’s ‘Nightmare Tenants, Slum Landlords’ *