2020 has seen a raft of regulatory changes that have impacted landlords and left many wondering how viable their buy-to-let portfolios will continue to be and, whether they should still be considering expanding them.
Rex Ekaireb, established property investor and entrepreneur commented: “Although many may think that landlords have it relatively easy, this really isn’t the case.”
Ekaireb continues: “…there are knock on effects to consider. For example, if landlords’ cashflows are interrupted, there will be less money in the pot to service properties, ultimately affecting tenants.”
Then came the COVID-19 pandemic, which has not just left its mark on the buy-to-let sector but the entire UK economy. As the country begins to move forward however, there are green shoots appearing for the sector with reasons to be optimistic slowly returning for landlords.
Key Regulatory Changes
Rex Ekaireb Commented on the changeable property market in 2020 saying: “The property market is arguably more changeable than ever before. For both landlords and tenants, keeping abreast of regulatory and logistical changes is more important than ever…”
Rex Ekaireb also commented saying: “…it is crucial that tenants and landlords use the necessary rules and regulations alongside a good relationship [between each other] to ensure everyone benefits and the likes of property repossessions (further information) don’t occur at any point…”
Capital Gains Tax (CGT) changes are one of the largest affecting factors in the property industry. CGT is the tax paid when a property is sold based on its gain over the period of ownership. Up until April 2020 there were two key exemptions benefitting landlords which were significantly changed at the start of the tax year.
Private Residence Relief now gives landlords relief on gains made over the last 9 months of ownership, previously this was 18 months plus any other time the landlord lived at the property.
Letting Relief was effectively wiped out for the majority of landlords. This previously gave relief to landlords who had lived in a property at some point during their ownership and let it out for other periods. This was amended to stipulate that a landlord must have lived with the tenant(s) to qualify, which rules out the vast majority.
Both of these changes forced a lot of landlords out of the market in the first quarter of the year before the new regulations hit.
Stamp Duty Land Tax (SDLT) Changes
Stamp Duty rates for investors owning multiple residential properties shot up earlier this year in the form of a 3% surcharge on all additional properties. This put off a lot of new landlords entering the buy-to-let market and made experienced investors think twice before continuing to expand their portfolios, again negatively impacting the sector.
The pandemic has led to the government raising the SDLT threshold to £500,000 until March 2021, leading to significant savings for landlords making large purchases but the 3% surcharge is still payable.
Section 24 ‘Tenant Tax’
Section 24 stipulates that landlords can only claim basic rate tax relief – currently 20% — on their property finance. Previously, higher rate taxpaying landlords could claim 40%. This has therefore had a significant impact on heavily financed portfolios.
Tightened Energy Efficiency Standards
Since April 2020, all properties let out need to have an EPC rating of E or better. This has added extra costs for landlords who must now make sure all their properties meet this standard.
COVID-19 Pandemic taking Grip
The housing market was effectively put on hold during lockdown which meant landlords could not show prospective tenants’ available properties. Void periods went up putting landlords further out of pocket.
Many tenants struggled financially so landlords found it difficult to increase rents as they may have been planning and instead found themselves having to accommodate rent decreases, again impacting their income.
The good news for landlords is there is now pent-up demand for rental property, caused by the pandemic, which has given the sector a boost since the market re-opened. Landlords with good quality housing stock still available will be hoping that it won’t take long to attract new tenants as we work our way into this new normal.