A number of rule changes have come into force for landlords and tenants in the private rented sector in the UK. Our recent webinar aimed to help address the uncertainty landlords may be facing and explain what to expect in the coming months. Here is a summary of the key questions asked and the replies from our experts.

Will the capital gains tax (CGT) be addressed on Tax Day (23 March) and what effect may changes have on landlords?

In November last year, the Office of Tax Simplification published a report that looked at the options for getting the rate of capital gains tax aligned with the rate of personal tax. For someone who owns property in their own name, this would increase the rate of tax from 28 per cent to 40 per cent (or in some cases 45 per cent) for a higher rate tax payer. A suggested indexation allowance adds further complexity to what tax would be payable. Our in-depth insight into the report can be found here.

With speculation that an increase to capital gains tax may be announced, many buy-to-let landlords will question whether it is the right time either to exit the sector, rationalise their portfolio or incorporate their business. Before making a decision, landlords should speak to their accountant or financial advisor to see what is at stake, depending on a variety of scenarios.

Is there any new guidance on cladding for the lettings market?

Estate Agents and landlords must comply with the Consumer Protection from Unfair Trading Regulations (CPRs). Although there hasn’t been a change to the regulations, the National Trading Standards Estate and Lettings Agency Team (NTSELAT), which is responsible for the regulation of estate and lettings agency work, recently updated its CPR guidance to include the word ‘cladding’ to ensure that it is now classed as material information.

This means that when an applicant is looking to rent a property, or a tenant is currently renting a property that is affected by flammable cladding, they must be told about this material information so that they can make an informed decision.

Can the private rented sector hit energy efficiency targets on time?

The Government appears committed to its current targets, based on consultation meetings, and to the private rental sector leading the UK forward into the Green Industrial Revolution. As part of its 10-point plan, the Government has proposed that by 2025 every privately rented property with new or renewed tenancies must have a minimum EPC rating of C or an exemption, and by 2028 all tenancies must meet this EPC rating.

While we welcome these targets, the timescale is probably too ambitious. Landlords who have concerns about meeting the current targets should raise them with their local MP so that they can be debated in Parliament, in the hope of creating extensions.

Are there any classes of landlords who are finding it hard to secure loans in the current climate? Are mortgage rates expected to move lower?

Not that we have seen. Each lender will have its own set of criteria, but there will usually be a lender for every situation. An experienced broker can help landlords manage this process and avoid wasting time approaching lenders who would not lend to them because, for example, their property has a flat roof.

In terms of a further decrease in rates, they are already highly competitive and will probably not decrease further especially for the buy-to-let market. Considering that buy-to-let mortgages are fairly new (even the UK’s fifth biggest lender, HSBC, does not have an offering for buy-to-let mortgages), we imagine that they will exercise caution. Lenders may lower their rates slightly if this is reflected in the residential market.

Do students want to return to campus teaching and how will this affect the corporate market?

From a social point of view, if nothing else, the desire to return remains. Students want to be together for what is a very formative time. The only thing holding them back would be any changes related to Covid-19, and which countries are on the red list for international students.  

With over 5 million households in the private rental sector, is the Government investing enough in the sector?

The current Government has placed a lot of political weight on trying to increase levels of home ownership. In the most recent Budget, for the private sector the focus was largely on protecting the rights of tenants. We will continue to see a relatively high regulatory environment, which has caused some landlords to exit.

Fundamentally, however, the cost of accessing home ownership remains high for a first-time buyer and demand is expected to remain strong in the private rental market, which is broadly under supplied. For landlords, this means there are still some very good investment prospects, particularly because interest rates are expected to stay low for longer.

• Watch the recording of our landlord compliance webinar. 
  
  
• For further insight into the UK lettings market, see our latest report on rental values or subscribe to our newsletter for regular updates.

Further information

Contact Sapna Fraser or Lucian Cook

Contact Savills Research