As a letting agent, you'll be well aware of the significant change that has been happening in the Private Rented Sector (PRS) in recent times - with plenty more to come in the future.
The remarkable growth of the PRS is particularly well-demonstrated by the latest English Housing Survey (EHS), released in January 2018.
In 2016-17, the PRS accounted for 20% of all households and also became the biggest housing tenure in London. At the same time, 24% of tenants had been renting privately for up to ten years and 27% had been renting for longer than a decade. What’s more, 860,000 households moved within the PRS in 2016-17, while an additional 149,000 PRS households were created during this time.
The rise of private renting as a tenure of choice has led to increased Government involvement and regulation affecting letting agents, landlords and tenants.
There have been new tax measures introduced, a range of health and safety updates and an increased focus on reducing criminal activity in the sector.
To show just how much the market has changed, we've put together a timeline which details the evolution of the PRS and looks at what is still to come.
What's happened so far?
- October 2014 - Mandatory redress scheme membership
What happened? All letting agents were required to join one of three Government-approved redress schemes by October 1st.
Impact: A largely successful measure, helping to provide consumers with impartial redress and advice.
Further reading: Is it the right time for redress scheme reform?
- May 2015 - Compulsory fee disclosure
What happened? It became a legal requirement for letting agents to prominently display a list of fees at each of their offices and on their website as well as display whether or not they were members of a Client Money Protection scheme.
Impact: A move to try and increase transparency and help consumers when moving. It’s since widely been reported that enforcement of these measures has been relatively low.
Further reading: Compulsory fee disclosure should be enforced
- October 2015 - Carbon Monoxide detectors and smoke alarms
What happened? It became the law for all rental properties to have smoke alarms on each floor as well as Carbon Monoxide detectors on every floor where there is a solid fuel-burning appliance.
Impact: Increased safety for tenants, but an additional responsibility for agents and landlords to consider.
Further reading: Carbon monoxide and smoke alarm regulations
- February 2016 - Right to Rent
What happened? It became a legal requirement for landlords to ensure that all prospective tenants have the legal right to rent in the UK.
Impact: Landlords can instruct their letting agent to carry out Right to Rent checks, so the system has increased administration for many agents.
Further reading: MPs urge home secretary to review 'right to rent' policy
- April 2016 - Stamp duty surcharge
What happened? A 3% stamp duty surcharge on the purchase of buy-to-let and second homes was introduced.
Impact: There was a rush of buy-to-let purchases in the first few months of 2016, but it is widely accepted that some landlords have since been put off further investment due to the additional tax.
Further reading: Q&A: The 3% stamp duty surcharge on second homes
- April 2016 - Wear and Tear Allowance abolished
What happened? The system which allowed landlords to write-off 10% of rental profits for notional wear and tear each year was abolished and replaced with one where landlords could only claim for actual costs.
Impact: A financial deterrent for landlords and a change which required letting agents to communicate the details and consequences to their clients.
Further reading: Wear and Tear rules explained
- January 2017 - Tightening of buy-to-let mortgage criteria
What happened? The Bank of England's Prudential Regulation Authority introduced stress tests which require borrowers to show they could meet payments if the base interest rate increased significantly.
Impact: It is likely to have stopped some landlords from gaining mortgage finance. However, the tighter criteria ensure more financial stability among landlord borrowers
Further reading: Guide to buy-to-let mortgages
- April 2017 - Reduction of buy-to-let mortgage interest tax relief
What happened? The buy-to-let mortgage interest tax relief that landlords can claim is being reduced by 25% each year until it reaches the basic rate of income tax (20%) in the 2020/21 tax year.
Impact: A financial disincentive for landlords, causing some to sell up and leave the PRS and discouraging others from expanding their portfolios.
Further reading: One year on: how has the market fared since BTL tax changes?
- April 2018 - Introduction of banning orders
What happened? Agents subject to banning orders - handed out for operating illegally - are not able to earn income renting out housing or engaging in letting agency or property management work.
Impact: Part of the Government's crackdown on 'rogue' agents - could discourage agents from breaking the law or taking advantage of tenants.
Further reading: Banning Order Offences under the Housing and Planning Act 2016
- April 2018 - Minimum Energy Efficiency Standards
What happened? Legislation introduced to ensure that no new tenancy is granted unless a property has a minimum Energy Performance Certificate Rating of E-.
Impact: It will now be illegal to let some landlords' properties, but the energy efficiency standard of rental stock will be vastly improved.
Further reading: New energy efficiency rules - advice for landlords
What’s still to come?
- October 2018 – Extended HMO landlord licensing
- October 2018 - Introduction of minimum bedroom sizes
- April 2019 – Mandatory Client Money Protection scheme membership
- Spring 2019 – Ban on upfront letting agent fees
- Spring 2019 – Cap on security and holding deposits
The above list of existing and future market changes is by no means exhaustive, but these are arguably the most high-profile.
To remain successful and stay ahead of the competition, letting agents must adapt to a PRS which is becoming more regulated and professional. It's also crucial that you have all the necessary knowledge so you can offer landlords valuable and timely advice.