The Landscape for Landlords in 2023

It’s fair to say that it’s been something of a turbulent year so far for the estimated 2.7 million landlords in the UK. The rental property market is becoming more complex over time and the regulations and challenges that landlords face are increasing. There’s also significant uncertainty in the property market.

In this post we explore some of the issues that landlords are currently facing and how working with a landlord accountant can help ease the pressure.

Rents and Interest Rates Continue to Rise

Annual private rental prices continue to increase at pace across England, Scotland and Wales and are reaching historical highs. One driver of this is rising interest rates causing mortgage payments to increase, leaving landlords with variable rate buy-to-let mortgages, or those with fixed-rate mortgages that have expired, no choice but to raise rents to cover their costs and remain profitable.

Historically, buy-to-let mortgage rates are relatively low and as a landlord, you’ll hopefully be on a fixed rate mortgage. But any landlords looking to re-mortgage in the near future may find it difficult to obtain a mortgage at a competitive rate.

Market forces are also at play as demand for rental properties is outstripping supply. The demand for rental properties is increasing significantly and census data shows that there are more renters in the UK than homeowners or people paying off a mortgage.

Supply of rental properties continues to decline, however, due to landlords leaving the sector because of factors such as increasing costs and Government red tape. The number of landlords selling up has been relatively consistent for around 5 years.

This increase in rental prices is making tenants vulnerable, especially those on lower incomes with the squeeze being worse due to the cost-of-living crisis. The upshot of this is that an increasing number of tenants are falling behind with their rent which causes a headache for landlords as they attempt to manage the situation and chase arrears. The last thing a landlord wants to be doing is covering a buy-to-let mortgage and chasing rent.

Landlords More Likely to Sell than Buy Property

Recent research has shown that landlords are twice as likely to sell property than buy property which will further amplify the disparity between supply and demand for private rental accommodation.

There are various reasons why landlords are reducing their portfolios or selling up completely. Chief among those is what they perceive as an increasing amount of anti-landlord Government policies and legislation which has over time increased the cost, not to mention time, needed to own, maintain and manage rental properties.

Given the squeeze landlords are facing, many are choosing to cash in on the equity in their properties and use it for other purposes such as investments. Despite the average age of UK landlords decreasing, some are selling up to release equity as they plan ahead for retirement.

Costs are also increasing across the board with Letting Agents becoming more expensive. An increasing amount of maintenance is also required by law as the Government aims to increase standards for renters and increasing rates for contractors to carry out any maintenance and repairs needed is a contributing factor.

Many landlords are also choosing to sell up before April 2024 when the Capital Gains Tax Exemption Allowance reduces from £6,000 to £3,00. A downturn in property prices is also forcing their hands.

Renters Reform Legislation

The Renters Reform Bill was presented to Parliament on 17th May 2023 and readings will progress in due course as the bill works its way towards implementation. Although it’s not expected to receive Royal Assent and become law for some time, the Renters Reform Bill will have a substantial effect on UK landlords when it’s introduced.

The Government’s aim with the bill is to introduce significant ‘once-in-a-generation’ reform to the private rented sector to create “safer, fairer and higher quality homes” and “a better deal for renters” in the UK.

Although subject to change as readings continue, some of the key points in the Renters Reform Bill include:

Longer Notice Period to Increase Rent

The proposed bill will mandate that landlords must give a 2 month notice period for any change in rent and rent can only be increased once per year. This is to stop landlords tying tenants into automatic increases in rent as well as stopping them from forcing eviction by way of unfair or unsustainable rent increases.

Rent will be able to be increased in line with market rates once per annum provided 2 months’ notice is given. Tenants will be able to challenge rent increases that they feel are unjustified through a Tribunal.

Abolition of No Fault Evictions

The Renters Reform Bill will abolish Section 21 of the Housing Act 1988. Section 21 gives landlords the power to evict tenants on 2 months’ notice upon expiry of their fixed-term contract. Importantly, under Section 21 landlords don’t have to provide a reason for the eviction which is why it’s referred to as a ‘no fault’ eviction.

The abolition of Section 21 is intended to empower tenants to challenge unjust rent increases or low standards without fearing the risk of eviction. Once the Renters Reform Bill is introduced, to terminate a tenancy landlords must provide a reason for doing so. It will also empower tenants to end their tenancy at any time provided the landlord is given 2 months’ notice.

It’s likely that this change will likely cause landlords to gravitate towards short-term rather than long-term lets.

Applying the Decent Homes Standard

The Decent Homes Standard is currently only applicable to the social housing sector, but the Renters Reform Bill will likely apply it to the private rented sector as well. The Decent Homes Standard was introduced almost 20 years ago and aims to provide a common standard for housing providers to improve the quality of social housing so all renters have secure, healthy and safe accommodation to live in.

Landlords in the private housing sector already have to ensure that smoke and carbon monoxide detectors are fitted in all properties as well as ensuring electrical safety checks are completed every 5 years. Properties must also have an Energy Performance Certificate rating of E or better.

If the Decent Homes Standard is introduced to the private rental sector, it will take things a step further and mandate landlords to make further improvements to ensure that properties in their portfolio are compliant with the new standards.

How Working With an Accountant Can Ease the Pressure

Although there are currently various pressures on landlords, something you can do to ease this and get your business onto a better financial footing to tackle the challenges ahead is to work with an accountant.

An accountant can improve your tax-efficiency by helping you take full advantage of all available allowances, reliefs and deductions which ultimately can increase your profit. They will also help with maximising your expenses which again can contribute to increased overall profitability.

Gorilla Accounting are specialist Accountants for Landlords and the self-employed. We work with both residential and commercial landlords with varying portfolio sizes and will help you successfully manage your buy-to-let finances.

You’ll receive unlimited support and advice from your own dedicated accountant with a same day response guarantee so you’ll always get a quick turnaround on your queries. Full access to FreeAgent is included and we can offer landlord-specific advice on issues such as capital gains tax, land tax and stamp duty.

Our pricing structure is tiered depending on the size of your portfolio and for a great value fixed monthly fee with no hidden surprises, all your landlord accounting needs will be expertly handled saving you time so you can focus your time on managing your portfolio.

Call 0330 024 0406 to speak to an accountant to find out more about our landlord accounting service today or request a call back here.