From changes in eviction rules to new energy efficiency standards, it’s certainly a challenging time to be a Landlord. However, with the right team on board, you can create a profitable Buy to Let (BTL) portfolio that will stand the test of time. Here are 10 things you need to know about being a Landlord in 2022.
1. Increasing rents throughout the year
It’s no secret that there is still a significant demand and supply imbalance, leading to a nationwide shortage of rental properties. This issue is unlikely to be addressed anytime soon, meaning we are likely to see rents increasing steadily throughout the year, across all regions.
We’ve seen this demand-supply imbalance increase rents by up to 20% in Leeds & Sheffield over the last few years, and coupled with relatively low purchase prices, this has allowed us to offer rental returns of 6-8% on funds invested.
2. Increasing BTL mortgage rates
Although mortgage interest rates for Buy to Let properties fell slightly in 2021, rising inflation caused the Bank of England to increase the base rate from 0.25% to 0.5% in February, and this trend looks like it is set to continue throughout the coming months and years.
This could be a potential disaster for Landlords as increasing rates results in higher mortgage costs, reducing rental profits. At Lifestyle Property People, we now model our properties on a 3.5% mortgage interest rate. With current rates at sub 3%, this buffer allows our clients some wiggle room if rates do increase substantially.
3. Complex local licensing schemes
Local licensing schemes have long been a source of confusion for Landlords, with the National Residential Landlords Association (NRLA) reporting complaints of various approaches throughout the country. They’ve also expressed concerns at the costs to register and how these schemes are policed across councils. In October 2019, Safe Agent and Property London found that, despite the licensing schemes, many properties across the country were not compliant with the licensing regulations.
Currently, more than 50 councils in England operate licensing schemes for Buy to Let Landlords. Last year, the government reviewed the schemes but, after some consideration, decided not to change them, so it looks as if the schemes are here to stay.
4. New energy efficiency standards
A new law states that all rental properties must have an energy performance rating of C or above. As a Landlord, you will have to meet this requirement for any new rental agreements from 2025 and any existing tenancies from 2028.
To help reach this goal, the government has increased the cap on the amount Landlords can be forced to spend to ensure their property is energy efficient, from £3,500 to £10,000. It anticipates that the average Landlord will need to spend £4,700 per property to ensure the standards are met, so knowing which properties to choose and what work to do to them has become even more important.
5. The growth of the ‘green’ mortgage
While ensuring your property meets the energy performance standards requires an up-front investment, these improvements could actually benefit the Landlord. An increasing number of lenders are launching specialist deals and offering lower rates for Landlords who own energy-efficient properties. Banks will also provide additional borrowing to Landlords at reduced rates if they use the money to fund sustainable improvements.
Although ‘green lending’ is currently quite a niche, we expect this to become more popular over the next few years as the country’s values evolve.
6. New carbon monoxide requirements
Carbon monoxide is known as the silent killer as it is smokeless, tasteless and odourless. Last November, the government announced that all homes with gas boilers or fires must have a carbon monoxide alarm present. Landlords must implement this precautionary measure in all new and existing rental properties by law to help prevent deaths.
7. Potential changes to evictions
Later this year, the government will publish a white paper on rental reform. It is likely that this document will abolish Section 21, a clause that permits Landlords to end ‘rolling’ tenancies without providing a reason.
The NRLA is working with the UK government to reach a balanced approach for both Landlords and tenants and want to ensure that Landlords can confidently regain possession of their property when they have a legitimate reason to do so.
This could cause a major change in attitudes towards being a Landlord as Section 21 provides an incentive for tenants to act a certain way. Its abolition could change tenant behaviour and leave Landlords in a sticky situation.
8. Possible changes to deposits
From 2007 every property rented under an Assured Shorthold Tenancy (AST) requires that any deposit taken is held in a registered scheme. However, coming up with that deposit every time can be a stretch for many tenants. The basic concept proposed by the government is that deposits can be moved from one tenancy to another. This way, the tenant doesn’t need to save for a new deposit every time they move, making the process more efficient and affordable.
If the government implements this new concept, they must introduce a financial bridging mechanism to ensure that tenants have a full deposit in place to provide security for the Landlord. The NRLA are lobbying for this to be optional as most members are happy with the current system.
Whilst nothing has been confirmed yet, the rental reform white paper will address this issue, so keep an eye out later this year for updates.
9. Changes to pet-friendly tenancies
The Pandemic illuminated the number of people who are isolated in their homes, and unfortunately, these are the people most likely to suffer from depression and other mental health issues. Pets are one way to alleviate this loneliness, and at the beginning of this year, the government published a new Model Tenancy Agreement, which makes it easier for tenants with pets to find rented accommodation.
Currently, only 7% of private Landlords advertise pet-friendly properties, but this change means Landlords can no longer issue a blanket ban on pets. Instead, Landlord’s must now object in writing and should only reject tenants with pets if there is a ‘fair reason’, such as if the size of the property makes owning a pet impractical.
10. More time to report and pay capital gains tax
In the Autumn Budget, the Chancellor, Rishi Sunak, announced changes for reporting and paying capital gains tax (CGT) on the sale of properties. Landlords now have 60 days to report and pay their CGT bill when selling a Buy to Let property, rather than the 30 days previously imposed.
How much CGT you will pay is dependent on if you pay a higher rate of Income tax or not. If you are a higher or additional rate taxpayer, you will pay 28% on your gains from residential property, whereas if you pay basic rate Income tax, you will likely pay 18% on your gains.
Are you looking to build a BTL portfolio without having to do the heavy lifting?
It’s no secret that being a Landlord is becoming increasingly challenging, but it needn’t take up all your spare time. At Lifestyle Property People, we specialise in providing a fully managed, end-to-end service to help you source, purchase, refurbish, and rent Buy to Let properties in the North.
To see how we can help you get started on your BTL journey, get in touch.