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' *
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Blanket bans on benefit claimants, how will this be policed ? If I have 10 people want to view a property and I allow them all to view and ask each one where they work, then say I have more viewings I'll let you know in a couple of days, Now say 9 are on benefits and 1 is working, of course I offer the tenancy to the one in work, how could anyone prove that I rejected the other 9 because they were on benefits ?
Apply for rent protection insurance, the insureres enquiries will detemine who is a risk and they will decline to cover you for risky prospective tenants.
I don't think rent protection insurance works like that. The insurance company will accept your payments without looking at the tenant risk. It's only when you try and make a claim they will look into the tenant risk and if they think you did not vet the tenant correctly, not passing credit checks etc. they won't pay out.
It's the same with car insurance, they just take your word that all the information you tell them is correct, then when you claim they look into all the details and if they find anything is incorrect they will not pay out, or reduce the payment.
In a time of unprecedented demand for rental properties it's crazy that government tax policy is forcing long term landlords to sell at least some of their properties.
I still like being a landlord. I would still like to buy more houses but in the current tax climate that would be certifiable insanity. If I was being entirely rational I should sell two properties ASAP. That would at least allow me to continue providing homes for my other 47 tenants. Somewhat unfortunate for the 6 people who would be homeless through no fault of their own though.
I just hope the government wake up and realise how toxic Section 24 is, especially now interest rates have rocketed.
Are you all mad the answer is very simple just scrap those Treasonable Policies now.
Will instantly improve the Housing, Homeless situation and Economy straight away, now that wasn’t too difficult was it at no cost to anyone.
Well said Michael!
Good advice in the article, it’s not all about crunching the numbers, it’s also about where that landlord is in his or her life plan, if you’re at the beginning then you may well stay, but if you’re in your 60’s and heading to retirement ?? Some simply don’t want the hassle, if you’re 65 years old you have at best 20 years of life, that is the undeniable fact… it’s a choice how you wish to spend it.
I shall be 70 this year, and as crazy as it may sound I enjoy what I do, comes of enjoying hard work all my life, if I were to stop I would be dead in 2 yrs, I'm sure of that
It's all a matter for the individual Landlord. I'm just over a decade younger than you Andrew and I could see myself continue to be a Landlord on up to 3 properties. Like you I like to have constructive things to do.
I just hope that it will be a viable option for me in the future.
I won't be able to put up with demanding tenants threatening me with their so called rights!
Andrew, same as that worked all my life, not that I needed to put up with all this agro, discrimination and duress in my later years by Rogue Regulation not fit to lick our boots.
It’s what we do with a passion and alway have done, yet they go so much out of their to despise and cripple us not with standing the huge contribution we made to keep the bone idle doss not alone the wonderful Tenants we provide much needed housing for at no cost to Government whatsoever but we pay revenue huge sums for this privilege, as well as the Penalties we pay to Local Authorities for the good we do.
As with regards to retirement I don’t know anything about that it passed me by years ago.
I suppose at the end of the day it doesn’t matter a carrot to us as we are not allowed to pass it on to family, the Government our dosing partner will be there waiting for the lions share again.
In a nut shell Michael, couldn't have put it better myself, our grandchildren's future is looking like s*;t though, but they will never have known any different, we have had the good years and they are not coming back
I am 68 and I loved working hard providing good homes and knowing people enjoyed them.
Not any more, this downright biased government supporting poisonous populist, movements and regulating anything that moves has absolutely driven my decision to leave. Amazingly I’ve been a life long Tory voter!
For the record 41 years a landlord 4 evictions in all those years, always complied with regs and kept rents below market average, Probably housed a hundred over the years, now my remaining 19 will be getting their sec 21’s for no fault of theirs or mine!
Utterly inept Gov with no hope of anything better.
Anthony. Amazingly a very similar story and experience of a long standing landlord.
43 years a landlord so just 2 years more than you but level pegging on evictions 4 in number. That’s less than 1 in 10 years in over 40 years but far less than this obviously as we had a number of properties,
So Mr Michael Gove housing Secretary writes THE WHITE PAPER to stop all those evictions ? .
Shelter I think says many thousands of evictions in the last year omitting to mention it was caused by themselves targeting landlords. The tax free Charity that house’s no
one Congratulations.
I have put huge number’s through my hands over the years especially in the early probably 2 changes a year as almost everyone paid for themselves not the Government. The Benefits, Housing allowance and Single Parents weren’t there. No Computers thank god the root cause of all, no University Graduates just sitting there playing with buttons destroying our Business on £100k pa. One Add in the Evening News they would come from all parts of London and the first ones usually successful on day one.
Now we are being driven out perhaps there should be an amendment to the Bill to exempt long standing landlords who haven’t abused Section 21 to have it retained.
Michael, I had 16 properties and around 40 tenants in 2015. Saw the rot start to set in with G Osborne’s sec24 meddling and have been selling off ever since, now down to 7 with 19 tenants. The remaining will be sold over the next 2-3yrs.
My average length of tenancy is 9yrs with the current longest being 14 yrs. These politicians are responsible for wrecking an astoundingly good and effective PRS. Our task now is to see that they don’t wriggle of the hook!
33 years a Landlord and 3 evictions in that time with one of those going through now.
Therefore I'm in the same bracket of 1 eviction every 11 years.
This government and the one in waiting really need to re-think this strategy, but of course they won't we are way to good a target.
i'm the same as you long time landlord for some 33 years then the council started jumping all over me with the rules changing by the month,The worst thing I did was to let to benefit tenants who did not care simple as that not evected anyone apart from when it came to selling and the courts are quite useless But di=oing the sums make me think I had a three-bed house worth 250,000 The tenants was paying the rate from UC which has been frozen for over three years now, but even then they were no getting the full rate, some £740 per month and of course, UC doesn't talk to landlords unless they are "trusted" ie social housing I put the 250,000 in a fixed rate bond (more that one) at 4.7% which was available at that time now 4.1 and that returned £979 per month no voids, no repairs, no cashing rents, no tenats thinking your reponsable for everything, no Council tax, no insurance, no agents, no calls in the milldle of the night, not concerned what new rules are coming out, in fact no worries at all. can sleep in and go on holidays with no worries it's GREAT!!
I wonder if the last few years of totally unfair and uncalled-for landlord bashing where we are ghettoised as a lower form of humanity by the government, politicians and tenant organisations, can be classed as discrimination, harassment, or a disinformation campaign just like Hitler did to devastating effect with "The Jewish problem"?
Instead of "The Jewish problem", we now have "The landlord problem", with the end goal quite openly stated to get rid of all those greedy landlords running businesses, providing services, and taking houses away from ordinary decent folk, just like the "greedy" Jews were accused of setting up businesses and enriching themselves at the expense of ordinary hard working Germans. The parallels are so clear they are unavoidable. There is even talk of dispossession from public figures and thinktanks, just like the Nazis actually did, and there have been cases of landlords being harassed for what they do as a result of all the rhetoric. Hopefully it will not turn violent like it did in Germany and occasionally does in America. We may not be far behind if people start thinking that we really are the reason behind their housing problems.
Perhaps we should get together in a class action to get this stopped? The findings of the recent select committee that contradict most of the things that have been said about landlords should surely count as evidence?
As a disclaimer in case anyone finds the comparison distasteful, I come from a part-Jewish background on my father's side. My grandmother fled to England to escape the Nazis and met my grandfather, so here I am!
I hope all you long standing landlords enjoy your retirement in whichever way you choose. You (and me) even though I’ve only been in the game for 24 years, deserve to reap the benefits whilst you can. So if you choose to sell up, buy more or stick with what you’ve got, I wish you all the best.
Stuff the crusty government, they can sort out the mess THEY created whilst each of us get on doing what we like - we deserve it!
Well said Peter we have heard the vile propaganda spewed out by the hate gangs and these politicians before
Every time these monsters of hate spew out their hate filth you cannot just smell the stench of the Swastika you can taste it
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