The third quarter of the year was a busy and historic one for landlords, with the first Conservative budget for nearly 20 years leading to controversial plans which have forced many to react.
The Chancellor announced in July’s Summer Budget that tax relief on buy-to-let mortgages would be limited to the basic rate of income tax (currently 20%), with the changes being phased in over the next four years.
It didn’t take long for the industry to voice their concerns, with many predicting that rents would rise as a result of the planned cuts.
In more positive Budget news it was revealed that the Rent-a-Room allowance would rise from £4,250 to £7,500, music to the ears of homeowners letting rooms to lodgers. “There are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just 5% of those rooms would accommodate almost a million people – the equivalent of a city the size of Birmingham,” Matt Hutchinson, director of flat and house share website SpareRoom.co.uk, commented at the time.
In other news, Channel Five’s Nightmare Tenants, Slum Landlords was commissioned for a second series. The show, which offered viewers an 'eye-opening' insight into what happens when the landlord/tenant relationship breaks down, has been a big success, with viewing figures reaching 1.5 million in the series’ first run.
Moving into August, one of the most eye-catching stories came courtesy of research by the National Landlords Association (NLA). It revealed that nearly half of landlords (47%) will be affected by the removal of the annual wear and tear allowance, which is only reserved for furnished properties.
The government announced in the Budget that the wear and tear allowance will be scrapped in favour of a new tax relief system that allows every landlord to deduct the outgoings they incur on replacing furnishings in their property. The new system is set to come into force on 6 April 2016 for income tax purposes and 1 April 2016 for corporation tax. We've blogged about it in detail here.
While the NLA said they understood the frustration of those landlords who let exclusively on a furnished basis, they also said that those letting a mixed portfolio or those renting out unfurnished or part-furnished properties would be much happier with the news as it “will allow them to deduct legitimate revenue expenses in the future”.
August also saw the number of available buy to let mortgages hit a seven year-high. Financial information company Moneyfacts reported that product numbers soared to 1,000 for the first time since April 2008 (shortly before the global financial crisis really took hold). The increase in numbers was largely attributed to fresh demand from thousands of pensioners set free by the new pension freedoms announced in April this year.
Towards the end of the month the Association of Independent Inventory Clerks (AIIC) called on UK landlords to encourage their tenants to attend a check-out at the end of a tenancy. If more tenants attended checkouts, they insisted, there would be fewer disagreements between landlords and tenants. The AIIC acted after research by the Deposit Protection Service highlighted that 48% of tenants had not attended their check-out, while 46% said they either hadn’t been invited or were not told the date or time.
The AIIC urged landlords and letting agents to either invite or remind their tenants about the check-out, citing that it is an absolutely vital part of the inventory process and that a successful inventory could really help to limit the probability of a dispute at the end of a tenancy.
In early September, Generation Rent’s future was secured for the foreseeable. The campaign group raised almost 18,000 in donations to continue to fight for the rights of renters across the UK. The organisation’s existence was put in jeopardy at the end of July when its grant funding was abruptly slashed. Cue an emergency crowdfunding initiative and donations from 371 people totalling £17,982, with the majority coming from individual donors.
Generation Rent was also awarded a grant of £45,000 from the Joseph Rowntree Reform Trust to aid the group’s work in London. Remarkably, Generation Rent operates in the capital and on a national basis with a team of just two: director Betsy Dillner and communications manager Dan Wilson Craw.
There was good news for landlords later in the month when a Paragon Mortgages’ report revealed that void periods remain at record lows. Average yields, too, had grown in Q3 from 6.3% to 6.4%. The survey also found that over half of landlords believe tenant demand is ‘stable’, while more than 40% said that demand is either ‘growing’ or ‘booming’.
Bringing things full circle, we head back to the world of politics for our last landlord-related story. Labour’s new Shadow Chancellor, John McDonnell, was criticised by the Residential Landlords Association (RLA) for his comments on the private rented sector. At the Labour Party’s Conference in Brighton, McDonnell said extortionate rents should be controlled and billion pound tax breaks given to buy-to-let landlords should be significantly reduced.
However, the RLA weren’t on the same page. Shortly after McDonnell’s speech, the RLA released a statement that said he had failed to tell delegates that 'rental property is taxed more heavily than owner occupied property’. They also pointed out his omission of remarks made by some of Labour’s own ministers in the Welsh government – in particular Lesley Griffiths AM, Minister for Communities and Tackling Poverty – who have argued strongly against rent controls.
That's it for Q3, the final three months of the year look set to be equally as busy as the industry reacts and the dust settles on new Section 21 and fire safety regulations.