With 2017 fast approaching, it's time to look ahead to the next 12 months and the upcoming events letting agents need to look out for.
Here’s our round-up of some of the market changes that could take place next year, detailing what's happening, when it's happening and what it could mean for agents...
Event: Proposed introduction of compulsory Client Money Protection (CMP) for letting agents
When’s it happening and what's its current status? It could be introduced any time during 2017. The Department for Communities and Local Government (DCLG) is currently reviewing a public consultation which closed on October 3.
What’s being proposed and what could it mean for agents? The DCLG's review focuses on whether measures introduced as part of the Housing and Planning Bill 2016 should be used to make it a mandatory requirement for letting agents to offer CMP.
According to the DCLG's consultation, approximately 60-80% of letting agents already voluntarily offer CMP. If mandatory CMP is introduced, while it may not affect the majority of the industry, it’ll force agents who don't comply to get on board and contribute towards flushing the market of rogue or illegal operators. We've previously covered the consultation in more detail, which you can read on our blog.
Event: Buy-to-let mortgage lending restrictions
When’s it happening and what's its current status? These restrictions have been on the table for quite some time now, although they haven't yet been officially ratified by the Bank of England's Prudential Regulation Authority. There’s a strong likelihood that these measures will be introduced at some point during 2017.
What’s being proposed and what could it mean for agents? The Bank of England’s proposed that lenders increase stress tests on consumers borrowing to fund a buy-to-let purchase. This means that anyone seeking a buy-to-let mortgage will need to prove that they can afford their mortgage payments in the event that interest rates increased by 5% for a full five years.
It’s thought these regulations could have a cooling effect on the buy-to-let market. However, a number of high profile lenders – including Barclays and Nationwide – have already voluntarily amended their lending criteria to fit a similar framework meaning that, should these changes be introduced, their impact on the market may not be as significant as originally anticipated.
Event: Restriction of buy-to-let mortgage interest tax relief
When’s it happening and what's its current status? The overhaul of the way landlords can claim tax relief on their buy-to-let mortgages begins in April 2017. Despite a legal challenge and consistent lobbying from landlord groups, the Government’s made it clear it intends to go ahead with the new tax system.
What’s being proposed and what could it mean for agents? Between April 2017 and April 2020, landlords with residential properties will have their ability to claim tax relief against their buy-to-let mortgage restricted to the basic rate of income tax.
The controversial system, which was initially outlined by George Osborne in summer 2014, is likely to have an effect on the market, with some landlords exiting the sector for good due to reduced profitability. However, in many cases, it’s simply encouraged landlords to incorporate their portfolios – the act of transferring ownership of properties to a limited company.
Event: Introduction of the letting agent and landlord 'blacklist'
When’s it happening and what's its current status? This policy was passed as part of the Housing and Planning Act 2016 and is highly likely to be introduced in 2017, although no specific date has been given.
What’s being proposed and what could it mean for agents? The so-called 'blacklist' is a database which will allow local authorities to keep track of landlords and agents who’ve been convicted of certain offences or received civil penalties for breaching housing legislation. The new regulations mean that letting agents can be banned from operating – something which isn’t currently possible. It appears, though, that banned letting agents will still be able to work as sales agents for the time being.
These measures, while not directly affecting the vast majority of compliant and law-abiding agents, will hopefully help to bring up standards in the industry, while improving the general reputation of letting agents and discouraging the remainder of criminal operators.
Event: The Renters' Rights Bill
When’s it happening and what's its current status? The Bill’s currently passing through Parliament. Its next stage is the Committee stage, in the House of Lords, for which a date has yet to be set. There are still another seven stages before the Bill could reach Royal Assent (when it would become law) so if it’s passed, it’s likely to come into force later in 2017.
What’s being proposed and what could it mean for agents? The Renters' Rights Bill aims to ban letting agents from charging fees to tenants. It’s received a lot of publicity, and has been running alongside a petition which has received in excess of 250,000 signatures.
Should the Bill become law, many in the lettings industry believe that agents will have to pass the costs on to landlords, who’ll then require tenants to pay them in the form of higher rents. We’ve covered the Renters' Rights Bill, and its possible implications, on our blog.
Event: Extension of HMO licensing and introduction of minimum room sizes
When’s it happening and what's its current status? The Government’s currently consulting on the measures, which – if passed – could be introduced early to mid-2017.
What’s being proposed and what could it mean for agents? This is a policy which the Government initially tried to introduce last year. In its latest form, the minimum room size in HMOs and some other shared homes will be required to be 6.52m2 (approximately 70ft2) for one tenant and 10.23m2 (roughly 110 ft2) for two renters. The minimum space standard is being proposed with the aim of prohibiting landlords from cramming tenants into rental properties.
Also in the consultation is a proposed measure to extend mandatory licensing of Houses in Multiple Occupation (HMOs). Under current regulations, mandatory licensing only applies to HMOs with three or more floors. However, the DCLG is proposing that licensing applies to all shared homes with five or more people from two or more households, as well as flats above and below shops and other business premises. It’s estimated that if this policy’s introduced an additional 174,000 rental properties would need to be licensed.
With the aim of minimising overcrowding, this regulation would require letting agents to help their landlords to make sure rental properties are compliant. The consultation – which includes several other proposals for the rental sector – can be viewed on the Government’s website.
Some of these events have been confirmed, while others remain at proposal or consultation stage. As we move closer to the new year, it's important for letting agents to keep up to date with industry bodies and news outlets for any changes to these measures.