Without wanting to sound like a broken record, 2021 was another year of uncertainty for us all, landlords included. However, among the lockdowns and alarming inflation rate, there was something for property investors to celebrate!
Helped in part by the demand initially stirred by the stamp duty holiday, property prices increased at an incredible rate. Across the year, the average UK house price broke its own record eight times. Hopefully, many investors will have benefited from the remarkable average increase of 9.8% and will now be busy planning what to do with all that extra equity.
Before we get to that, however, I’m here to remind you about three significant changes happening in the not-too-distant future of which the buy-to-let (BTL) community needs to be aware.
First, and most imminently, are the changes to dividend tax rates. On 6 April 2022, the rates will increase by 1.25%, meaning you’re likely to see an increase in your tax bill in the next tax year.
This could be a substantial legislation shake-up
Of course, this won’t necessarily affect those landlords who invest in their personal name; however, according to our figures, over half of BTL mortgage applications are now for limited companies. So, it applies to a growing number.
Whether the impact will be so great that they need to reconsider investment structures is a conversation to have with a professional tax adviser, sooner rather than later. Still, as advisers, we need to keep it in our minds when talking to clients over the next few months.
Renters’ reform bill
Looking next at the ‘middle-distance future’, there’s something on the horizon but no one’s quite sure when it’ll hit. Of course, I am talking about the now twice-delayed Renters’ Reform Bill. A Conservative Party manifesto pledge from 2019 (or what seems like a lifetime ago), this bill appears to have been bumped down the government’s priority list amid the pandemic response.
The bill is likely to feature significant changes to ‘no fault’ Section 21 evictions, and ‘lifetime deposits’ for tenants; it will possibly also introduce a national landlord database.
I still think 2022 presents some fantastic opportunities for our industry to support landlords coming back to the market after the turbulence of the past two years
This could be a substantial legislation shake-up for the industry and, understandably, patience is wearing thin among tenants and landlords alike. Surely it cannot be delayed another year.
Finally, while these latter changes may seem some way off, planning is everything. As of 2025, BTL properties starting new tenancies will require a minimum energy performance certificate (EPC) rating of C, extending to all tenancies in 2028.
If you are rolling your eyes and thinking, ‘Everyone knows this, Jeni,’ apparently not!
Little awareness
According to research conducted by Shawbrook, a staggering 15% of landlords have no idea about these changes, and a further 25% have little to no awareness. As 40% of rental properties have an EPC rating of D or lower, this is not a minor issue.
Estimates I’ve seen for the average cost of bringing properties below a D up to standard range from £6,000 to £10,000 per property, so landlords are going to need to find these funds from somewhere.
We have a responsibility to help our clients negotiate these changes and find solutions that work for their long-term plans
A recent survey suggests the majority of landlords will use their savings to cover the costs, with others either looking to the government for assistance or increasing rent to raise the cash.
Given its record, I’m not holding my breath for the government to come up with a replacement for the scrapped Green Homes Grant scheme, although it would be greatly appreciated, I’m sure.
As mortgage professionals, we have a responsibility to help our clients negotiate these changes and find solutions that work for their long-term property investment plans. We all know that leaving this to the last minute will result in higher costs and potentially unmortgageable and unrentable property — a situation I’m sure we’d all like to avoid.
Landlords are going to need to find these funds from somewhere
I don’t bring you these reminders to be an angel of gloom — far from it. I still think 2022 presents some fantastic opportunities for our industry to support landlords coming back to the market after the turbulence of the past two years.
Of course, inflation and interest rate rises still loom large over the landscape, but I’m not too concerned. Furthermore, and I say this tentatively, the impact of Omicron doesn’t appear to be as great as first feared so, hopefully, things will continue on the current trajectory of returning to ‘normal’.
At the end of the day, we knew this year would be about remortgaging in the BTL sphere, and that still stands.
Jeni Browne is sales director at Mortgages for Business
