Year: 2020

A leading lettings agency has revealed how much landlords will pay if the Capital Gains Tax (CGT) changes proposed by the Office of Tax Simplification (OTS) last week are implemented by Chancellor Rishi Sunak.

These would bring CGT – currently 28% on residential property and 20% on other assets – into line with income tax so that higher rate taxpayers face a flat rate of 40% or more.

It also suggests reducing the annual CGT allowance threshold from £12,300 to £5,000 or less.
Hamptons International has crunched the data based on the average equity held by a landlord within a property of £69,000.

For a lower rate tax payer, this would mean paying an extra £1,130 in CGT (or a total of £11,300) but for higher rate tax payers it would mean an extra £6,800 (or a total of £22,680).

“If the annual CGT exemption is also reduced from £12,300 (2020/21) to £5,000, a higher tax rate landlord’s tax bill would rise to £25,600, nearly £10k or 61% more than the existing situation,” Aneisha Beveridge, Head of Research at Hamptons International tells LandlordZONE.

Allowable expenses
These figures exclude allowable expenses, which vary significantly depending on whether and how long a landlord lived in a property before renting it out and how much money was spent doing it up.

But Beveridge says that the OTS’s  proposals would force more landlords to put their properties within a limited company structure because they still able to offset mortgage interest, and their profit is taxed at corporation tax, currently 19%.

Mitch Young (pictured), co-founder of tax consultancy Fusion says the uproar about such radical changes caused by the proposals within the tax and property world might temper the Chancellor’s appetite for change.

“Nevertheless, there is no doubt that Sunak is going to execute some kind of tax raid in his next budget, so landlords need to get their houses in order before this happens next Spring.”

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Letting agents have written to the Home Office this morning to warn that its controversial Right to Rent scheme is likely to face a ‘widespread failure in compliance’ once the Covid pandemic ends.

ARLA Propertymark, which represents some 8,000 estate agents around the UK, has taken issue with the government’s temporary ‘adjusted checks’ system for Right to Rent during Covid.

This has enabled agents and landlords to complete checks without having to meet tenants in person.

But this temporary measure is now eight months old and ARLA says hundreds of thousands of tenancies have been secured using this system.

But the government’s Covid regulations stipulate that once the pandemic is over, these tenants will have to be re-checked for their Right to Rent within eight weeks.

“Recent sampling of our members has shown that almost all Right to Rent checks in that period have been carried out using the adjusted check method, in order to comply with public health guidance,” the letter days.

“Given the volume of checks that will now have built up, the majority of letting agents and landlords will undoubtedly fail to comply with the requirement to deliver retrospective checks.”

Digital storage
ARLA says tenants are unlikely to appreciate being checked twice and are less likely to co-operate a second time around, and that the need to check twice will cause a huge bureaucratic and digital storage problem for landlords and agents.

This, the organisation claims, will be on top of the huge expansion of the Right to Rent scheme which from next month onwards will include EU citizens who have not yet applied for Settled Status.

“In this context, and with the time that has now lapsed since the introduction of adjusted checks, it is essential that the Home Office moves to accept adjusted Right to Rent checks on tenancies that started during the period under which the public health crisis requires minimal face to face dealings,” says Timothy Douglas, Policy & Campaigns Manager at Propertymark (pictured).

“I ask that you consider the benefits to tenants, landlords and letting agents of removing the need for retrospective, duplicate checks in order to ensure that landlords and letting agents can meet their legal requirements and support moves to the new points based immigration system through the first half of 2021.”

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The government has finally laid its updated lockdown regulations in front of parliament to clarify when landlords with existing possession orders can move to evict, revealing that one of the exemptions will be ‘substantial’ rent arrears, now to be classed as those over nine months.

As expected these regulations, which will come into force today and only relate to England, enable bailiffs to attend properties to execute a warrant of possession if it concerns trespassers, the death of a tenant, an unoccupied property and tenants involved in anti-social behaviour or, crucially, those who have built up substantial rent arrears.

It is this last point that many landlords and solicitors have been waiting for clarification on; how long can a tenant have not paid their rent before an existing possession order can proceed during the lockdown.

18 months’ wait

This may seem trivial when the lockdown is only a month long, but the way the law has been framed, landlords given the go-ahead to evict will now have been waiting at least 17/18 months before being able to deal with a tenant with substantial rent arrears.

This is because the eviction ban exemption only kicks in after nine or more months of unpaid rent, but any arrears accrued after March 23th are ignored – so another eight months on top of non-payment before an existing possession order can then proceed.

Today’s new regulations follow a sustained campaign by the industry to seek clarification, as well as efforts by leading PRS lawyer David Smith (pictured) who says his effort to point out that the the government ‘requesting’ bailiffs do not enforce legal evictions was in itself likely to be unlawful.

“This is a matter for Parliament and who gets evicted should not be at the whim of the Lord Chancellor,” he says.

Unfair

Ben Beadle, Chief Executive of the National Residential Landlords Association, says: “In trying to arrive at a compromise the Government has failed to help those in genuine need whilst rewarding those whose arrears have nothing to do with the pandemic, and in some cases are wilfully not paying their rent.

“This is doing nothing to help those tenants who are trying to do the right thing and seeking to pay off their debts.

“Instead of prolonging the problem with short-term fixes, the Government needs to urgently bring in a financial package to enable tenants to pay off rent arrears.”

Paul Shamplina of Landlord Action says: “Put simply, landlords are not banks or the welfare state.  In fact, banks get their money back, but landlords are expected to swallow these losses.

“How is it fair that a landlord should be covering the rent for someone who was already failing to pay rent long before the pandemic started? What’s more, the likelihood of landlords in a similar situation to her, being able to collect monies owed is very slim.

“Whilst this is a positive step forward, there is a long way to go in clearing the backlog of cases and my concern now is for those landlords who have cases with, for example, seven months of rent arrears prior to March.

With the current lockdown and then the Christmas amnesty, evictions will not be enforced by bailiffs until 11 January 2021 at the very earliest, so even in the best case scenario, those landlords will be facing more than 17 months without rent.”

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Boris Johnson has extended his government’s Green Homes Grant scheme for a further 12 months after complaints in recent weeks that a lack of Trustmark qualified builders meant completing projects by the original deadline of March next year would be difficult.

In some areas of the UK, landlords seeking Trustmark-registered builders have faced long waits to start work as qualified tradespeople have become booked up far in advance.

Instead, the Prime Minister has said today that home owners and landlords will have until March 2022 to get their projects completed through the Green Homes Grant voucher scheme, which was originally announced in September.

But although landlords now have more time to get the builders in, the original budget has not been extended, remaining at £1.5 billion with a cap of 600,000 properties.

The scheme funds up to two-thirds of the cost of property improvements with a cap of £5,000.

Work covered by the scheme includes insulation of walls, floors and roofs, upgrading single window glazing to triple, and installing low-carbon heating systems such as heat pumps.

The announcement was made by Johnson today during his ‘Ten point plan for a green industry revolution’ presentation.

“The Green Homes Grant scheme gives homeowners and landlords right across the country a cheaper way to make their homes more energy efficient and cut their bills – all while making their contribution to tackling climate change,” says climate change minister Lord Callanan.

“Today’s announcement means an extra year to take advantage of this new scheme, helping households and tradespeople who can plan their workload and create new jobs in their communities.”

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International investors dominate the high end London market says a new survey.

Aston’s, a residency and citizenship consultancy, has analysed sold price records across London’s prime postcodes so far this year and found that the average sold price is currently just over £1.19m.

Despite Coronavirus, some 6,438 transactions have completed this year, mostly for the investment market.

With foreign buyers accounting for 41 per cent of this market activity, London has seen a boost of £3.32 billion thanks to foreign interest in the UK rental market.

The French currently account for the largest number of sales, accounting for 11 per cent of prime transactions by foreign buyers so far in 2020.

Buyers from Hong Kong and the USA have also been busy, each accounting for 9.2 per cent; meanwhile China and India account for 8.3 and 7.3 per cent of this niche respectively.

“Despite the current pandemic, foreign buyers continue to see London as an attractive investment, and this is evident based on the healthy level of transactions taking place and the sold prices secured” explains Arthur Sarkisian, managing director of Astons.

He says this demand is being driven on two fronts. “First of all, by the current stamp duty saving on offer, but also in advance of the additional two per cent surcharge for non-UK buyers which is due to be implemented in April of next year. We should see this demand remain strong right up until these deadlines at which point the market will return to a more recognisable level of normality.”

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ARLA Propertymark is warning government that the majority of letting agents and landlords won’t be able to conduct retrospective full-scale Right To Rent checks once temporary Coronavirus changes to the system end.

Temporary changes to Right To Rent, instigated in March by the Home Office in the light of the pandemic, were thought to be short-lived; however they have now been in place for eight months and are ongoing.

The government now says that within eight weeks of the temporary Right to Rent measures being lifted – at an unspecified date when the virus subsides – agents “will also need to carry out full retrospective checks on tenants who started their tenancy during this period.”

In a letter to MP Kevin Foster – the Parliamentary Under Secretary of State Minister for Future Borders and Immigration, based at the Home Office – ARLA warns the sheer scale of this work is impossible to be undertaken by agents within the government’s timescale.

The association points out that in the near future agents will also have to adopt new digital checks for overseas applicants while also accommodating full in person checks including those for overseas nationals who elect to use other forms of identity documents.

Additionally, agents and landlords will be managing the transition between December 2020 and June 2021 of applicants who have not yet applied to the EU Settlement Scheme. “Previous acceptance of freedom of movement means that letting agents will not have records of the nationality of existing tenants who have been cleared for a permanent Right to Rent” ARLA warns in the letter.

You can see the full text of the letter below.

 “I am writing to express Propertymark’s concerns about anticipated and widespread failure in compliance with Right to Rent checks in the coming months. 

“To this end, we wish to highlight the practical arrangements for the return of in-person Right to Rent checks and the need for clear acceptance of adjusted checks on tenancies that were signed since the start of the pandemic. 

“Propertymark represents nearly 8,000 letting agents in England and is a member of the Home Office’s Right to Rent Consultative Panel. Letting agents have worked hard to support tenants and manage tenancies safely throughout the public health crisis. 

“When guidance on adjusted checks was introduced, all parties expected the measure to be temporary and understood that checks would need to be repeated in-person when temporary guidance was revoked. However, temporary guidance has now been in place for eight months and in that time, thousands of tenancies have been set up using adjusted checks. 

“Within eight weeks of the temporary Right to Rent measures being lifted, the guidance states that letting agents ‘will also need to carry out full retrospective checks on tenants who started their tenancy during this period’. 

“Recent sampling of our members has shown that almost all Right to Rent checks in that period have been carried out using the adjusted check method, in order to comply with public health guidance. Given the volume of checks that will now have built up, the majority of letting agents and landlords will undoubtedly fail to comply with the requirement to deliver retrospective checks. 

There are a number of reasons for this: 

    •    Tenants will not understand the importance of complying with a repeat check (despite the efforts of letting agents), they will believe they have already provided documents for a check and will not invest time in attending a branch for a retrospective, duplicate check. Letting agents report that even prior to Covid-19, tenants resented attending a branch for a repeat Right to Rent check and did not understand the rationale.

    •    A widespread education campaign will be needed to highlight the need for retrospective checks to reach landlords whose properties are not managed by a professional letting agent.

    •    Additionally, each check requires images to be stored and if the number of checks is doubled, the cumulative effect on file storage for corporate agencies is unmanageable.

“If letting agents and landlords are required to generate in person Right to Rent checks and maintain an audit trail of activity alongside adjusted checks for the same tenancies, this will coincide with a number of other developments in Right to Rent. For instance, letting agents will be adopting new digital checks for overseas applicants while also accommodating full in person checks including those for overseas nationals who elect to use other forms of identity documents. 

“Additionally, letting agents and landlords will be managing the transition between December 2020 and June 2021 of applicants who have not yet applied to the EU Settlement Scheme. While we understand that EU Citizens will have until 30 June to apply to the EU Settlement Scheme, there is likely to be some confusion that renting to (and renewing a tenancy for) an EU citizen could lead to a civil penalty. Previous acceptance of freedom of movement means that letting agents will not have records of the nationality of existing tenants who have been cleared for a permanent Right to Rent. 

“In this context, and with the time that has now lapsed since the introduction of adjusted checks, it is essential that the Home Office moves to accept adjusted Right to Rent checks on tenancies that started during the period under which the public health crisis requires minimal face to face dealings. 

“On behalf of our members, I ask that you consider the benefits to tenants, landlords and letting agents of removing the need for retrospective, duplicate checks in order to ensure that landlords and letting agents can meet their legal requirements and support moves to the new points based immigration system through the first half of 2021. 

“I look forward to hearing from you.” 

Best Wishes, 

Timothy Douglas
Policy & Campaigns Manager, Propertymark

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The average cost of renting in England is almost unchanged from five years ago – although that masks significant localised variations.

The latest research from international rental marketplace Spotahome reveals which areas of the UK have seen the highest rate of rental increase in the last five years.

Spotahome analysed data on average monthly rental costs across the UK since 2015 and the figures show the average tenant in England now paying a mere seven per cent more at £843 a month, compared to £788 five years ago.

However, in the East Midlands and East of England, the average rent has climbed by 15 per cent in the last five years, also up 14 per cent in the South West. While London remains the most expensive for flat out rental costs, it is the only region to have seen the cost of renting decline – down two per cent.

Exeter has seen the largest uplift in the cost of renting of all areas in England with a huge 39 per cent increase since 2015. Oxford and Newcastle-under-Lyme have also seen some of the largest increases at 32 and 31 per cent respectively.

Bristol, Newcastle upon Tyne, Leicester and Norwich are all up 28 per cent since 2015.

Amongst the fallers, Hounslow in London tops the table with the current average monthly rent of £1,352 coming in 13 per cent lower than the average cost of renting five years ago.

Richmond and Kingston also rank in the top 10 fallers along with Windsor and Maidenhead, Elmbridge, Canterbury, Three Rivers, Runnymede, Sevenoaks and Bracknell Forest.  In London itself, the City, Kensington and Chelsea, Barnet, Camden, Hillingdon and Westminster have all seen the cost of renting decline.

Spotahome’s Nadia Butt says: “While London remains the most expensive place to rent in the UK this causes many tenants to automatically assume that this cost has continued to increase over the last few years and this simply isn’t the case.

“When you consider the higher cost of renting within the capital is partially offset by the higher wages on offer, and that this wage growth has remained fairly consistent, it means that London tenants are actually much better off now than when compared to five years ago.”

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A PropTech lettings platform is reporting that the level of income required to cover the cost of renting has increased across five regions in England.

Howsy analysed the current average cost of renting and what percentage of the average monthly net income was required to cover this cost, using data from government sources.

The research shows the South West has seen the biggest reduction in rental affordability year on year. While the average net wage in the region has increased 1.7 per cent to £1,890 in the last year, the average monthly rent has also jumped 6.1 per cent to £892 today; the largest increase of all regions.

As a result, the cost of renting now requires 47.2 per cent of the average monthly earnings in the South West, up from 45.2 per cent last year.

The North West has seen the next largest reduction in rental affordability. The average rent in the region now requires 39.7 per cent of the net monthly income, up from 38.7 per cent a year ago.

The East Midlands and the South East (both up 0.7 per cent) and the East of England (up 0.4 per cent) have also seen an increase in the level of monthly income required to cover the cost of renting.

London is still home to the highest rent-to-income ratio, with 58.9 per cent of net monthly income required to cover the average rent, although this has fallen 4.3 per cent in the last year; the biggest drop of all regions.

“The current impact of the pandemic is perhaps clearest within the capital where a severe fall in demand levels has seen rents tumble” explains Howsy chief executive Calum Brannan.

“However, while the topline figures show that London’s tenants are now paying less of their income on rent, this won’t be the reality for many who find themselves out of work or on furlough as a result of the current landscape.”

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The Resolution Foundation has added its voice to that of many charities and other think tanks demanding more government support for families hit by the economic fallout from the pandemic.

A new report from the foundation says those on benefits may be particularly hit by the economic consequences – and many of those may well be in the private rental sector.

The report – Caugh In A Covid Trap – claims that three-in-10 working age adults who have faced a sustained income hit during the pandemic are now unable to afford some basic household costs such as heating and fresh fruit and vegetables.

The report finds that working-age adults have only marginally seen incomes improve as the economy reopened over the summer, with the proportion of adults reporting a drop in incomes falling from 27 to 23 per cent since the first lockdown period which ended in June.

Some 70 per cent of households who experienced an income fall during the initial lockdown were still reporting an income drop in September.

The Resolution Foundation claims that this reflects the fact that while economic activity resumed over the summer and furlough rates fell, unemployment has risen while significant income hits for the self-employed have persisted, says the Foundation.

During the reopening period, high-income adults were more likely to have seen their family budgets improve than deteriorate compared to their pre-pandemic position.

The report finds that 35 per cent have seen their income rise relative to spending, compared to 24 per cent who have seen their income fall relative to spending.

In contrast, low-income households were more than twice as likely to have seen their budgets deteriorate, with 32 per cent seeing their income fall relative to spending, compared to just 13 per cent seeing it rise.

The foundation says that the contrast in how low- and high-income households have coped financially with the crisis, is demonstrated by greater savings among better-off working age adults (with 37 actually saving more – three times the rate for the poorest households) and rising material deprivation for poorer individuals.

The report finds that the duration, not just the depth, of the crisis is affecting household finances.

This has meant around three-in-10 adults who have seen their income fall throughout the crisis are now experiencing material deprivation in some form – where they are unable to afford basic household costs such as heating, saving £10 a month, fresh fruit and vegetables, or being able to replace a fridge or washing machine.

Over half of those who have seen a sustained income fall since the crisis began are also relying on borrowing or help from family or friends to pay for everyday living.

The foundation says that with the crisis lasting far longer than many first thought, and with unemployment rising, government support will be just as vital in the coming months as it was during the initial lockdown – particularly for the growing number of households who are going to rely on Universal Credit.

Karl Handscomb, the foundation’s senior economist, says: “Government support has played a vital role in protecting family incomes during the initial economic shock from lockdown. But as the crisis has persisted, new divides have emerged in how families are coping financially with the crisis.

“For high-income adults, spending reductions have in many cases left family budgets in a better place overall. But that has not been the case for low-income adults, who have instead experienced deteriorating finances. Those that have faced persistent income falls are now facing increasing deprivation.

“With the crisis set to continue for many more months at least, the government should strengthen the social safety net that more families are coming to rely upon by extending the boost to Universal Credit, rather than withdrawing it before the crisis is over.”

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London lettings agency Benham and Reeves has drawn up a league table of which boroughs in the capital have had their rental markets hit most heavily.

It says the pandemic and a move towards working from home have combined to make many professionals think twice before moving to the capital, prompting a fall in both demand and rents.

Benham and Reeves says the figures show that while house prices have climbed since December, the average London rent has fallen 3.1 per cent from £1,697 per month to £1,644.

As a result, the average landlord has also seen their rental yield decline by 0.2 per cent.

Camden has seen the largest decline in the average rent, down 9.2 per cent, along with the City of London (down 7.0 per cent), Kingston (down 6.0 per cent), Hounslow (falling 5.6 per cent) and Hillingdon (down 5.5 per cent).

The average rental yield has also dropped in 19 boroughs with the City of London, Brent and Camden seeing the largest declines.

But it’s not all bad news for London landlords as some boroughs have provided a glimmer of hope for an otherwise weary buy to let sector in the capital.

The average rent in Lambeth has jumped 8.8 per cent so far this year, with Ealing and Merton (both 7.2 per cent), Haringey (7.1 per cent) and Greenwich (5.1 per cent) seeing particularly strong growth.

Director of Benham and Reeves, Marc von Grundherr, says: “It’s an incredibly tough time for the London rental sector at present with the pandemic bringing a notable decline in the otherwise consistently high levels of rental demand seen in the capital. As a result, many landlords are having to reduce their rental income expectations in an attempt to secure some form of income.

“This comes on top of a string of government changes to the sector in recent years that had already dented the profitability of investing in London bricks and mortar. With London’s landlords already forced to operate with extremely fine margins, this latest decline could spur many to reevaluate their buy-to-let activity.

“Yes, the declines in rent and yields may seem marginal, but they certainly aren’t in the context of a buy-to-let and it’s imperative that the government does more to help landlords and to support the backbone of the London rental sector.”

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