Without wanting to sound like a broken record, 2021 has been another year of uncertainty for all of us, owners included. However, amidst the closures and the alarming rate of inflation, there was something to celebrate for real estate investors!
Helped in part by demand initially sparked by the stamp duty holiday, house prices have risen at an incredible pace. During the year, the average house price in the UK broke its own record eight times. Hopefully, many investors will have taken advantage of the remarkable average increase of 9.8% and will now be busy planning what to do with all that extra capital.
Before we get to that, though, I’m here to remind you of three important changes coming in the not-too-distant future that the Buy-to-Let (BTL) community should be aware of.
First, and most imminent, are changes to dividend tax rates. On April 6, 2022, rates will increase by 1.25%, which means you will likely see an increase in your tax bill over the next tax year.
This could be a substantial legislative overhaul
Of course, this will not necessarily affect owners investing on their own behalf; However, according to our figures, more than half of BTL mortgage applications are now for limited companies. Thus, it applies to an increasing number.
Whether the impact is so significant that they have to reconsider investment structures is a conversation to have with a professional tax advisor, as soon as possible. Nonetheless, as advisors, we need to keep this in mind when talking to clients over the next few months.
Tenant Reform Bill
Turning then to the “mid-term future”, there is something on the horizon, but no one knows exactly when it will happen. Of course, I’m talking about the now twice delayed tenant reform bill. A pledge from the Conservative Party’s manifesto of 2019 (or what seems like a lifetime ago), this bill appears to have been knocked off the government’s priority list amid the pandemic response.
The bill will likely feature significant changes to Section 21 “no-fault” evictions and “lifetime deposits” for tenants; it may also introduce a national database of owners.
I still think 2022 presents fantastic opportunities for our industry to support owners returning to the market after the turmoil of the past two years.
This could be a substantial legislative overhaul for the industry and understandably patience is running out among tenants and landlords. It certainly cannot be delayed for a year.
Finally, while these latest changes may seem distant, planning is key. From 2025, BTL properties beginning new rentals will require a minimum Energy Performance Certificate (EPC) rating of C, extending to all rentals in 2028.
If you roll your eyes and think, “Everyone knows that, Jeni,” apparently not!
According to a study conducted by Shawbrook, 15% of owners have no idea of these changes, and a further 25% have little or no awareness. As 40% of rental properties have an EPC rating of D or less, this is not a minor issue.
The estimates I’ve seen for the average cost of bringing properties below a D up to the standard range of £6,000 to £10,000 per property, so owners are going to have to find those funds somewhere.
We have a responsibility to help our clients navigate these changes and find solutions that work for their long-term plans.
A recent survey suggests the majority of landlords will use savings to cover costs, with others turning to the government for help or raising rent to raise the cash.
Given his track record, I’m not holding my breath for the government to come up with a replacement for the abandoned green home grant program, although I’m sure it would be greatly appreciated.
As mortgage professionals, we have a responsibility to help our clients navigate these changes and find solutions that suit their long-term real estate investment plans. We all know that leaving this to the last minute will lead to higher costs and potentially non-mortgage, non-rentable properties – a situation I’m sure we would all like to avoid.
Owners are going to have to find those funds somewhere
I’m not bringing you these reminders to be an angel of gloom, far from it. I still think 2022 presents fantastic opportunities for our industry to support owners returning to the market after the turmoil of the past two years.
Of course, inflation and rising interest rates still loom large in the landscape, but I’m not too worried. Also, and I say this tentatively, the impact of Omicron does not appear to be as large as initially feared, so hopefully things will continue on the current trajectory back to “normal”.
Ultimately, we knew this year would be all about remortgage in the BTL sphere, and that still holds.
Jeni Browne is Director of Sales at Mortgages for Business