What has been happening in the private rented sector (PRS)
Over the last two decades or so the number of privately rented properties has grown quite significantly" for a number of reasons:
- legislation introduced tenancy agreements which made investing in residential property more attractive to landlords
- the introduction of Buy-to-Let mortgages during the mid-1990s brought down the cost of borrowing. Following that low interest rates made mortgages even more affordable
- renting has become more acceptable as landlords have become more professional and manage their properties to a higher standard. Many local authorities set up voluntary landlord accreditation schemes
- increased job mobility and short work contracts have encouraged people to rent rather than buy
- high property prices have made it impossible for first-time buyers to get on the property ladder in some areas
- student numbers have grown increasing demand for student accommodation
- continuing housing shortages boosted demand for rental properties
- there has been a significant influx of migrant workers - such as Poles - who need accommodation
- public sector housing has declined so that more low income groups are looking for private rentals
- low interest rates and an unpredictable stock market encouraged investors to put their money in property rather than in building societies pensions or shares
- the 'credit crunch' and the slump in the property market in the late 2000s and early 2010s prompted more people to let their properties instead of selling them
- pension reforms during the mid-2010s enabled older people to use their pension funds to invest in property rather than having to buy an annuity
During the recent property slump rents in some areas fell considerably because there were so many properties available to rent but with the recovery in the property market average rents in most parts of the UK have risen once again. Landlords have also benefited from the availability of low interest buy-to-let mortgages as well as from government initiatives like the Funding for Lending Scheme. In fact the buy-to-let market became so buoyant during the mid 2010s that banks tightened up their buy-to-let mortgage criteria to cool things down.
Although demand for rented property and the financial returns for buy-to-let landlords are currently strong anyone thinking of investing in the rental market is well advised to look on it as a long term venture and expect good years and bad. Remember that stamp duty on buy-to-let property rose by 3% from April 2016 and also that from April 2017 tax relief on buy-to-let finance costs such as mortgage interest will be restricted to the basic rate of income tax. The restriction is being phased in over four years. From April 2016 the 10% 'wear and tear' tax relief allowance available on fully furnished residential lettings has been replaced by tax relief on only those costs that have actually been incurred. The relief applies to all landlords.
If you are planning to rent to tenants receiving housing benefit bear in mind that in most circumstances Local Housing Allowance (LHA) is paid directly to tenants instead of to their landlords. Think about whether this might lead to problems collecting the rents due to you. Remember too that the July 2015 Budget froze Local Housing Allowance for four years.
To maximise your chances of success make sure that your properties are managed to a high standard so that you reduce 'void' periods when the property is empty between lets. You are also likely to attract good quality tenants who will respect your property.
Key legislation
The Housing Act 2004 introduced a number of measures that affect residential landlords. These include:
- improved powers for local authorities to take action against unfit properties
- a mandatory licensing scheme for Houses in Multiple Occupation (HMOs) in England and Wales (a Statutory Registration Scheme applies in Northern Ireland. In Scotland HMOs must have a licence from their local authority)
- powers for local authorities to introduce licensing of any privately rented accommodation. New legislation implemented by the Welsh Government - the Wales (Housing) Act 2014 - introduced a registration and licensing regime for all private sector landlords in 2015. (All landlords must register both themselves and their properties and if they want to self-manage their properties they must also be licensed. Registration and licensing is carried out by Rent Smart Wales)
- measures to protect tenants' deposits. Tenancy deposits relating to all new Assured Shorthold Tenancies (ASTs) in England and Wales must be covered by one of the three tenancy deposit protection schemes authorised by the government. Similar schemes apply in Scotland and in Northern Ireland
From October 2014 all letting agents must be a member of a property ombudsman scheme giving landlords in England and Wales some protection from unscrupulous agents.
From February 2016 landlords in England must carry out new 'right to rent' checks to prevent illegal immigration including taking copies of all adult tenants' passports or residence permits.
Energy Performance Certificates
Landlords must get an Energy Performance Certificate (EPC) for each residential property before it's let out. EPC assessments must be done by an accredited energy assessor. From 2018 landlords must upgrade any vacant property to EPC band E before it's re-let. From 2020 all private rented properties must be upgraded to at least band E even if there is a tenant in place.
Landlords are not able to refuse a tenant's reasonable request for improvements to be made to the property's energy efficiency.
Keeping up to date with developments
Information about buying and letting a residential property is available from many different sources such as:
- the National Landlords Association. The Association can put you in touch with your local landlords' association
- the Council of Mortgage Lenders
- the Residential Landlords Association
- the Association of Residential Letting Agents (ARLA). ARLA produces a range of publications of interest to private landlords
- the landlordZONE website which contains a wealth of information of interest to landlords
- the Royal Institution of Chartered Surveyors (RICS). Visit the RICS online bookshop to purchase Being a Landlord and other helpful publications
- the Northern Ireland Housing Executive (NIHE)
- Renting Scotland - information for tenants and landlords about private renting
- the Northern Ireland Department for Communities which offers comprehensive guidance for the private rented sector
- the Scottish Government website " which has full details of legislation and issues affecting the private rented sector