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It’s been another eventful year in the lettings industry, with new legislation to come to terms with – including new minimum energy efficiency standards, changes to HMO regulations and section 21 notices, and the next stage of the phasing out of mortgage interest tax relief – plus the ongoing division and controversy caused by the proposed ban on letting agent fees.

Here, we carry out a quick review of what happened to the rental sector in 2018 and what letting agents need to look out for in 2019.

Further regulation

Letting agents have had to ensure they are up to speed with a number of new pieces of legislation in the last year. In April, new minimum energy efficient standards (MEES) were introduced to improve the energy efficiency of homes in the private rented sector.

As a result of the changes, it’s now illegal for landlords to grant new tenancies or renew existing tenancies for properties with an Energy Performance Certificate (EPC) rating of E- or lower. From 2020, this will apply to all private rented properties in England and Wales – even if there’s been no change in tenancy.

There are exemptions for certain properties, and a landlord (or letting agent) can register for such an exemption if required. Landlords not complying could face fines of up to £50,000.

On the first day of October, meanwhile, two new pieces of legislation came into force. Firstly, new HMO rules were implemented in England to bring all properties where there are five or more people, forming two or more households, under the scope of mandatory licensing.

Previously, a landlord only needed a HMO license if a property was occupied by five or more people, forming two or more separate households and comprising three or more storeys.

Minimum space (and other) requirements were also introduced, prohibiting landlords from letting rooms to a single adult where the usable floor space is less than 6.51sqm. For a room occupied by two adults, this rises to 10.22sqm.

What’s more, the HMO license must also include a condition stating the maximum number of people who may occupy each specific room in a property as sleeping accommodation. Rooms under 4.64sqm cannot be used for sleeping, although rooms 4.64sqm in size can be used for children aged under 10.

The license also includes conditions surrounding storage facilities, waste disposal, fire and gas safety, electrical appliances and amenity standards. More information can be found here.

Introduced on the same day were changes to section 21 notices. Under the Deregulation Act 2015, introduced to prevent ‘revenge evictions’, all new tenancies starting on or after October 1 2015 were required to adhere to new guidelines as to how and when section 21 notices could be served by landlords.

From October 1 this year, all assured shorthold tenancies (ASTs) now had to adhere to the new rules as well, no matter what date they started on.

To serve a section 21 notice, landlords must now provide a number of up-to-date documents – including an EPC, a Gas Safety Certificate and Prescribed Information relating to deposit protection – for an eviction to be valid. They must also use a new form – Form 6a – which has merged the two former types of notice into one single notice for both fixed-term and periodic tenancies.

Phasing out continues

As part of the government’s ongoing (and unpopular) plans to remove mortgage interest tax relief for landlords, the interest relief that can be claimed against finance costs was reduced to 50% from April this year. From April 2019, it will be reduced to 25%, before falling again to 0% from April 2020.

At this point, landlords will be eligible for a 20% tax relief against the total mortgage interest payment, rather than being able to deduct mortgage interest payments from rental income before paying tax (which was the case before).

The removal is being phased in over a number of years to give landlords time to adjust, but many have criticised the measure for harming profits and causing some landlords to leave (or consider leaving) the private rented sector.

Lack of clarity over fees ban

Although the Tenant Fees Bill – the government’s controversial proposals to ban nearly all upfront tenant fees and place a cap on deposits – has been making steady progress through Parliament, we’re still no clearer on when the ban will actually come into force.

It recently passed the report stage in the House of Lords, and now heads for the third reading in that chamber before returning to the House of Commons for a consideration of amendments. Once this stage has been passed, it can receive Royal Assent and be enshrined in law.

For a while now, the government has been saying ‘spring 2019 at the earliest’ when asked about implementation. But, with Brexit proving such a distraction and strong opposition to the ban from letting agents, trade bodies and landlord groups, it cannot be determined at this point when the ban will be enforced.

Exactly what form the final Bill will take also remains unclear. The government recently performed an about-turn on its plan to cap tenants’ security deposits at six weeks’ rent – instead reducing this to five.

With both sides of the debate angling for amendments and sweeteners, there could be further changes still to come. For now, though, uncertainty reigns.

Looking forward to 2019

It’s set to be another busy year for letting agents, who are still being urged to plan ahead for the incoming ban on fees charged to letting agents.

Seeking alternative streams of revenue – such as management of short-term lets and offering expert advice to Build to Rent operators – is one way in which agents can offset the potential loss in earnings that the ban could bring about.

The Homes (Fit for Human Habitation) Bill is currently speeding through Parliament and (with government and cross-party support) is expected to become law at some point in 2019. There could also be new legislation regarding banning orders and electrical safety.

We’re also expected to hear the final proposals for the new code of practice for letting and management agents in England in early 2019, while the government will also carry out a consultation on its proposals to levy an additional tax on overseas buyers of UK property.

The government also promised back in October to make its database of rogue landlords public, but when this will actually happen is less clear-cut.

All in all, a lot to be aware of – and that’s before we even mention the fallout from Brexit!


Rental sector review – what have we learned in 2018?

The Rentshield Rental Index provides you with a monthly update on rental values, variance levels and income to rent figures broken down by UK region.

Key headlines from the November Index
  • Rents in the UK rose by 1.5% in November compared to the same month a year ago; the average monthly rent now stands at £918 a month
  • Rents in London increased by 4.4% in November this year compared to November 2017; the average monthly rent in the capital now stands at £1,597 a month
  • When London is excluded, the average UK rental value was £760 in November 2018, this is up 0.9% on last year
  • Rentshield’s November Rental Index reveals that rents rose in 9 of the 12 regions of the UK

Click here for the full November 2018 Rental Index


The November Rentshield Rental Index

The party conferences of the two main political parties threw up some interesting developments with regards to housing and the rental market. Here, we take a closer look at what went on and what might be announced in this month’s early Budget…

Conservative Party conference: Extra stamp duty
Theresa May’s speech might be better remembered for her dancing onto the stage to Abba’s Dancing Queen, but it also contained some major policy announcements on housing.

The biggest of these was the borrowing cap on local councils being lifted, with May revealing that town halls will be able to borrow billions more for housebuilding.

The other major housing announcement came at the start of the conference in Birmingham, with May outlining plans for a controversial tax on foreign buyers. Overseas investors will be faced with a higher rate of stamp duty – expected to be between 1% and 3% – when they buy a home, on top of the existing stamp duty surcharge (introduced in April 2016) on second and buy-to-let homes. The extra money raised will go towards supporting the government’s rough sleeping strategy.

A consultation will take place later this year on the plans, which have been met with fury by buying agents and those operating in prime sectors of the market. The Prime Minister, though, insists it should not be as easy for foreign buyers to purchase property as it is for people who live and work in Britain.

Some have argued that domestic landlords could benefit from this extra tax, with less competition for homes from overseas investors. In recent years, it’s not just been the super-rich who have been buying up homes in the UK; increasingly, middle income earners from Asia see British homes as attractive propositions. If property becomes less attractive to these investors, domestic investors could benefit.

Labour Party conference: strong focus on the rental market

At the Labour event in Liverpool, meanwhile, the focus was mostly on transforming the private rented sector to ensure it better protects tenants. Shadow Housing Secretary John Healey said the party would abolish Section 21 evictions if it came to power. It would also introduce three-year tenancies and create renters’ unions to offer tenants greater powers.

During his speech, Healey unveiled ‘radical’ plans to solve the housing crisis, including controlling rent, putting a stop to the ‘tyranny’ of rogue landlords, ending rough sleeping within a Parliament, setting up a fully-fledged housing department to drive work on fixing the broken housing market, and building a million new ‘truly’ affordable council and housing association homes.

A Labour government would also seek to stem the holiday market by introducing a levy on second homes used as holiday properties (to the tune of an average of more than £3,200 in England), while first-time buyers on ordinary incomes would be offered more opportunities to purchase a home.

Budget expected to reveal more
We’re expected to learn more about the government’s housing policies at this month’s Budget, which has been brought forward to October 29 to give the government more time to focus on Brexit negotiations.

While the Tory Party conference focused more on wider housing issues than the rental market, the upcoming Budget could place more of a spotlight on the lettings sector.

In recent years, it’s been the platform for some major property-based surprises. Last year, for example, the Chancellor Philip Hammond announced the scrapping of stamp duty for nearly all first-time buyers. In the years before that, we saw the unveiling of the proposed ban on letting agent fees charged to tenants, the additional 3% stamp duty surcharge on second and buy-to-let homes and the phasing out of mortgage interest tax relief.

Rumours have been circulating and speculation has been rife about what the Chancellor might have in store for housing this time, with landlords receiving capital gains tax relief if they sell a rental property to a sitting tenant who has been living in the property for at least three years one measure that has been mooted. The possible tax break for landlords was reported on the front page of The Sunday Times a few weeks ago, with ministers considering the scheme to encourage private landlords to sell properties to long-term tenants.

The proposal would also incentivise landlords to offer longer tenancies, because the exemption on capital gains tax would only be valid once the tenant has been in the home for three years.

The additional surcharge for foreign buyers of UK property is expected to be fleshed out further, while there could also be an update on the fees ban – and a timescale for its implementation. On top of this, a recent article in The Sunday Times suggested that Airbnb landlords could be in the firing line in the latest Budget.

Amateur landlords can currently claim up to £7,500 tax free per year through the Rent a Room scheme, which allows people to let spare rooms in the properties where they live. However, the government suspects that some may be ‘gaming’ the system by using Airbnb and other short-let platforms to claim the allowance on income derived from properties used solely for letting purposes, where the landlords themselves do not actually reside.

The Sunday Times claims new occupancy rules, established following a formal consultation held by the government earlier this year, will be included in a Finance Bill to be published after the Budget. It is thought this will require those letting out a spare room and using the Rent a Room allowance to prove they live in the property on which they are claiming the tax relief.

Whatever Philip Hammond delivers later this month, there are sure to be some property proposals. We’ll be analysing the Budget and what it means for lettings agents in more detail next month.


Party conference season – what was said about the rental market?

It’s been another eventful year in the lettings industry, with new legislation to come to terms with – including new minimum energy efficiency standards, changes to HMO regulations and section 21 notices, and the next stage of the phasing out of mortgage interest tax relief – plus the ongoing division and controversy caused by the proposed ban on letting agent fees.

Here, we carry out a quick review of what happened to the rental sector in 2018 and what letting agents need to look out for in 2019.

Further regulation

Letting agents have had to ensure they are up to speed with a number of new pieces of legislation in the last year. In April, new minimum energy efficient standards (MEES) were introduced to improve the energy efficiency of homes in the private rented sector.

As a result of the changes, it’s now illegal for landlords to grant new tenancies or renew existing tenancies for properties with an Energy Performance Certificate (EPC) rating of E- or lower. From 2020, this will apply to all private rented properties in England and Wales – even if there’s been no change in tenancy.

There are exemptions for certain properties, and a landlord (or letting agent) can register for such an exemption if required. Landlords not complying could face fines of up to £50,000.

On the first day of October, meanwhile, two new pieces of legislation came into force. Firstly, new HMO rules were implemented in England to bring all properties where there are five or more people, forming two or more households, under the scope of mandatory licensing.

Previously, a landlord only needed a HMO license if a property was occupied by five or more people, forming two or more separate households and comprising three or more storeys.

Minimum space (and other) requirements were also introduced, prohibiting landlords from letting rooms to a single adult where the usable floor space is less than 6.51sqm. For a room occupied by two adults, this rises to 10.22sqm.

What’s more, the HMO license must also include a condition stating the maximum number of people who may occupy each specific room in a property as sleeping accommodation. Rooms under 4.64sqm cannot be used for sleeping, although rooms 4.64sqm in size can be used for children aged under 10.

The license also includes conditions surrounding storage facilities, waste disposal, fire and gas safety, electrical appliances and amenity standards. More information can be found here.

Introduced on the same day were changes to section 21 notices. Under the Deregulation Act 2015, introduced to prevent ‘revenge evictions’, all new tenancies starting on or after October 1 2015 were required to adhere to new guidelines as to how and when section 21 notices could be served by landlords.

From October 1 this year, all assured shorthold tenancies (ASTs) now had to adhere to the new rules as well, no matter what date they started on.

To serve a section 21 notice, landlords must now provide a number of up-to-date documents – including an EPC, a Gas Safety Certificate and Prescribed Information relating to deposit protection – for an eviction to be valid. They must also use a new form – Form 6a – which has merged the two former types of notice into one single notice for both fixed-term and periodic tenancies.

Phasing out continues

As part of the government’s ongoing (and unpopular) plans to remove mortgage interest tax relief for landlords, the interest relief that can be claimed against finance costs was reduced to 50% from April this year. From April 2019, it will be reduced to 25%, before falling again to 0% from April 2020.

At this point, landlords will be eligible for a 20% tax relief against the total mortgage interest payment, rather than being able to deduct mortgage interest payments from rental income before paying tax (which was the case before).

The removal is being phased in over a number of years to give landlords time to adjust, but many have criticised the measure for harming profits and causing some landlords to leave (or consider leaving) the private rented sector.

Lack of clarity over fees ban

Although the Tenant Fees Bill – the government’s controversial proposals to ban nearly all upfront tenant fees and place a cap on deposits – has been making steady progress through Parliament, we’re still no clearer on when the ban will actually come into force.

It recently passed the report stage in the House of Lords, and now heads for the third reading in that chamber before returning to the House of Commons for a consideration of amendments. Once this stage has been passed, it can receive Royal Assent and be enshrined in law.

For a while now, the government has been saying ‘spring 2019 at the earliest’ when asked about implementation. But, with Brexit proving such a distraction and strong opposition to the ban from letting agents, trade bodies and landlord groups, it seems more likely that the ban will be enforced towards the end of next year.

Exactly what form the final Bill will take also remains unclear. The government recently performed an about-turn on its plan to cap tenants’ security deposits at six weeks’ rent – instead reducing this to five.

With both sides of the debate angling for amendments and sweeteners, there could be further changes still to come. For now, though, uncertainty reigns.

Looking forward to 2019

It’s set to be another busy year for letting agents, who are still being urged to plan ahead for the incoming ban on fees charged to letting agents.

Seeking alternative streams of revenue – such as management of short-term lets and offering expert advice to Build to Rent operators – is one way in which agents can offset the potential loss in earnings that the ban could bring about.

The Homes (Fit for Human Habitation) Bill is currently speeding through Parliament and (with government and cross-party support) is expected to become law at some point in 2019. There could also be new legislation regarding banning orders and electrical safety.

We’re also expected to hear the final proposals for the new code of practice for letting and management agents in England in early 2019, while the government will also carry out a consultation on its proposals to levy an additional tax on overseas buyers of UK property.

The government also promised back in October to make its database of rogue landlords public, but when this will actually happen is less clear-cut.

All in all, a lot to be aware of – and that’s before we even mention the fallout from Brexit!


Rental sector review – what have we learned in 2018?