Rental sector review – what have we learned in 2018?
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.
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.
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!