With Labour now in power, private rental sector (PRS) landlords are weighing up what might be coming over the horizon for them and their investments, and whether it will be a positive for their continued involvement, or if it might follow a lot of the changes they have had to endure over the last decade or so, and present even more challenges to overcome.
With that mind, Foundation wanted to ask landlords what they anticipated the next few years might bring for them politically, and indeed what they felt was required.
Our Q2 2024 Landlord Trends report, conducted by Pegasus Insight, provided critical insights into landlords’ priorities and concerns in light of Labour’s new policy directions.
This survey, which included 799 online interviews conducted between June and July, highlights the key issues landlords hope the new Government will address.
In that regard, landlords are primarily concerned about three areas: tax reforms, retaining Section 21 evictions, and avoiding the introduction of rent controls or caps.
These preferences highlight the challenges and opportunities landlords perceive under the new Government.
First, and understandably, taxation remains a significant concern for landlords, many of whom feel burdened by recent changes. The introduction of policies like the phased reduction of mortgage interest tax relief has put pressure on landlords’ profitability.
One landlord expressed frustration, wanting the Government to “remove the interest relief rules where I have to pay tax on profits that actually don’t exist.”
Another emphasised the importance of tax relief on interest, and no doubt wanted it reinstated to previous levels in order to increase their financial viability.
There is also a strong desire to simplify the regulatory environment, with landlords pointing out that “setting so many hoops for landlords to jump through” increases costs, which are almost always passed on to tenants. This underscores the need for a balanced approach that ensures sustainability in the rental market.
Second, the ability to evict tenants using Section 21 notices remains a critical issue for landlords. They argue retaining this tool is essential for managing risk and maintaining flexibility in the rental market.
One landlord noted the importance of “easier eviction processes for tenants who refuse to pay rent,” highlighting concerns about managing tenant-related risks effectively.
Many landlords view Section 21 as a necessary mechanism for dealing with problematic tenants, and fear removing this option could lead to increased risks and discourage investment in the rental sector.
Additionally, they advocate for faster court hearings for existing problems which could streamline processes and reduce the burden on both landlords and the judicial system.
Finally, rent controls and caps are high on the agenda for landlords. 55% of landlords stated that rent controls would greatly impact their commitment to renting out property, and one in three would consider selling their properties if such controls were introduced. This underscores the potential for significant market shifts if rent controls are implemented.
Foundation Home Loans has previously pointed out that rent controls could severely exacerbate housing shortages and drive up rents if landlords decide to exit the market.
We – and I suspect many landlords – believe market forces should determine rental levels rather than Government-imposed restrictions, and worry that the availability of properties might be severely restricted if landlords lose control of such a key aspect of their investment, namely setting the rent.
However, what landlords want and what a new Labour Government which has been vocal in its support for tenant rights, might differ considerably.
A recent article in The Daily Telegraph entitled, ‘Labour plots fresh war on landlords’ suggests Labour are actively looking at policies such as ‘hardship tests’ that ‘would have to be carried out before landlords could evict tenants’, plus as widely anticipated, it is bringing back minimum Energy Performance Certificate (EPC) levels for PRS properties by 2030.
It is of course too early to say what the impact might be of this – many landlords have been seeking to raise the energy-efficiency of their properties for some time anyway, looking to benefit from Green mortgages which rewards owners of properties with an EPC level of C and above, with better mortgage rates.
We have also just launched new EPC Saver products, in partnership with Vibrant Energy Matters, which will support those landlord borrowers who wish to improve the energy efficiency of their properties, and offer a bespoke report outlining the steps needed to be taken, plus £1,000 cashback to put towards the work.
Overall, however, you can understand why some landlords are nervous about what the new requirements will be for them in the years ahead.
Of course, they would like a return to mortgage interest tax relief at previous levels, a cut in the Stamp Duty surcharge, and an end to potentially costly mandatory upgrades, but we sense none of this is likely.
In that sense, landlords will need to budget accordingly and effectively for this, and any further increase in cost that will come with future changes.
The likelihood is that tenants will end up having to pay for these extra costs in some way, and the saving grace is that mortgage rates have been falling, which may help mitigate against some of these growing financial responsibilities.
We wait to see how this will come out in the wash, but it seems unlikely that the overall cost and responsibilities of being a landlord are going to diminish anytime soon.
Grant Hendry is director of sales at Foundation Home Loans
