UK Finance 2019 statistics show resilience in buy to let

UK Finance 2019 statistics show resilience in buy to let, review Labour and Liberal Democrat manifesto's and their impact on landlords, Welsh landlords warned to be prepared for regulation changes on holding deposits.;
Terraced houses - to let sign

UK Finance has released its latest update on mortgage industry trends and statistics, for September 2019.

Contrary to a great deal of negativity voiced about buy to let, the reality is actually a picture of strong resilience, so far this year.

Remortgage activity has seen little fluctuation, and purchasing has been stronger for much of the year compared to 2018.

2018/19 buy to let trends

In September 2019, year on year remortgage activity within the buy to let industry was static. The number of new loans was exactly the same, as was the value of those loans:

UK Finance, BTL remortgages, number of new loans

UK Finance BTL remortgages, value of new lending (£m)

Source: UK Finance

Purchase activity differed. In September 2019 the number of new purchase loans in 2019 dropped by -8.3% month on month.

A year previously, there was still a drop in the number of loans from August to September, but to a lesser extent, at -5%.

UK Finance, BTL purchases, number of new loans

Source: UK Finance

Where the value of new purchase lending is concerned, August and September figures in 2019 (£900m/£800m) were the reverse of 2018 (August, £800m; September £900m), but the aggregate amount was the same across the two months in both years.

UK Finance, BTL purchase, value of new lending

September is the first time in 6 months, where the number of purchase loans have been lower year on year than in 2018. It is the first month this year where the value of purchase lending has dipped below 2018 figures.

All in all, remortgage activity has remained largely stable in the year to date. Purchase activity has been better than the headlines may have you imagine.

Whilst the industry is not seeing significant growth, it is holding steady as she goes for now, which is good news for buy to let landlords.

Welsh flag

Regulation changes imminent for rentals in Wales

The Welsh Government are moving quickly with proposals for new regulations on holding deposits.

The new regulations have been laid before the Welsh Assembly for consideration, you can read the document in full here.

Holding deposits are charged to a tenant to secure an available rental property in their name(s). The maximum amount that can be charged is one week’s rent.

Be prepared

Landlords with property in Wales must be ready to act quickly, as the changes will come into force from 13th December this year, unless they are annulled.

Prior to any holding deposit being taken, by a landlord or letting agent, it will be a requirement to provide the following information to a prospective tenant in writing by post.

It may only be supplied electronically if the tenant agrees that this is acceptable:

(a) amount of holding deposit(1);
(b) identify the dwelling in respect of which the deposit is paid;
(c) name, address, telephone number and any email address of the landlord (and if instructed, the letting agent);
(d) nature and duration of the contract;
(e) proposed occupation date;
(f) amount of rent or other consideration;
(g) rental period;
(h) any proposed additional contract terms or proposed modifications or exclusions to fundamental or supplementary terms;
(i) amount of any security deposit;
(j) whether a guarantor is required and, if so, any relevant conditions;
(k) reference checks the landlord (or letting agent) will undertake; and
(l) information the landlord or letting agent requires from the prospective contract-holder.

Source: 2019 No. 1466 (W. 258) HOUSING, WALES The Renting Homes (Fees etc.) (Specified Information) (Wales) Regulations 2019

What has not yet been addressed are fees that can be charged to a tenant, for being in default on payments; the second topic that is due for a more detailed review.

Houses of Parliament at dusk

The PRS in the hands of the Liberal Democrats

The Liberal Democrats have released their 2019 manifesto, within which they outline plans specific to the private rental sector, and many others which have an impact on landlords.

The party plans to take the following measures to reform the PRS:

  • Introduce tenancy deposit loans for all new renters aged under 30 years old

This bodes well for landlords, as it would enable more younger people to take on a private rental tenancy, without being challenged by the upfront cost of a deposit.

However, by taking on tenants where finances are tight, is there a risk that the ongoing cost of rent may overstretch tenants?

  • Promote tenancies of 3 years + with an inflation-linked rent increase built-in

David Smith, policy director at the Residential Landlords Association questioned the relevance of this manifesto point:

“It is bizarre to be proposing this when the average length tenants have been in their properties is over four years and when private rents are increasing by less than inflation according to the Office for National Statistics.”

  • Introduce mandatory licensing to tackle rogue landlords

There is widespread support for rooting out rogue landords, but the commonly held view from a number of viewpoints is that existing regulation is sufficient, but the resources to implement it are the challenge.

  • Introduce legislation for longer term tenancies and to limit rent increases

This point feeds into the second one on the list.By and large long standing tenancies are not opposed by landlords, assuming rent is forthcoming and maintains a reasonable level of profitability.

Other manifesto matters which may affect landlords

There were an number of other issues addressed in the Liberal Democrat manifesto which may affect landlords:

Housing

If the Liberal Democrats were to succeed to power and achieve their target for house building, this may dampen house prices. However, given the struggles of all parties to fulfil housebuilding to meet demand the risk of this may be miitigated in many people’s eyes.

Landlords who house tenants in receipt of benefits

Mrs Swinson’s plans to speed up the turnaround time for first benefits payments to be issued would be likely to help the payment of rent.

Furthermore, the party’s plan to align Local Housing Allowance with local rents could make private rental property more accessible for tenants on benefits, which is again positive for landlords.

Tax

Limited companies would be impacted if the Lib Dems were to reverse the reduction of corporation tax and put it back to 20%. However, this is still lower than higher rate personal income tax.

The party has plans to restructure tax on income from capital and tax on income from work, to include changes to Capital Gains Tax. Capital Gains Tax impacts landlords if and when they decide to sell property,so any change here would be relevant to property investors.

Mrs Swinson’s party also plan to take measures to suppress property investment from some niches, by giving local authorites the ability to charge much higher council taxes (up to 500% more) on second homes and imposing surcharges on second homes for foreign investor.
Whilst neither directly impacts UK property investors, there may be an impact upon the overall housing market as a result.

Commercial property investors

Depending upon how it was implemented, the Democrats plans to replace Business Rates with a Commercial Landowner Levy, could be favourable for the sector.

The intent of the party is to stimulate investment and this may make commercial property far more affordable. Clarification on the impact upon the value of owned property would make the picture far clearer.

Property energy efficiency in the PRS

The party plan to further increase minimum energy efficiency standards (MEES) in the PRS.

Under existing legislation, these were set at a minimum rating of “E” – unless an exemption applied – on tenancy renewals and new tenancies from April 2018 and will affect all tenancies from April 2020.

The Liberal Democrats also plan to remove the £3500 cost cap on improvements, meaning landlords may be subject to significant costs to make necessary improvements.

Labour party

Labour’s manifesto and impact on the PRS

One piece of good news from the Labour manifesto, is that their plans for Right to Buy within the private rental sector (PRS) have been dropped.

Other key pledges from Labour, with mixed implications for landlords, are to introduce:

  • Rent controls
  • Open-ended tenancies to stop ‘no-fault’ Section 21 evictions
  • New, binding minimum property standards
  • Nationwide licensing
  • Tougher penalties for landlords flouting the rules
  • Funding of renter’s unions to allow tenants to ‘organise and defend their rights’

Right to Rent

Labour intend to scrap ‘Right to Rent’ rules, which require landlords to check a tenant’s right to reside in the UK.

The Labour view is that this requirement is discriminatory. Certainly the penalty of getting the checks wrong are understandably something landlords are fearful of, so understandably avoiding the matter altogether may feel like the safest option.

Tenants in receipt of benefits and Universal Credit

In the party’s efforts to quash discrimination from the PRS, landlords will be prevented from actively excluding tenants in receipt of benefits from applying for a tenancy.

A key issue here is that failings surrounding Universal Credit have meant delays in benefit payments, causing rent arrears.

Labour intend to scrap Universal Credit and develop an alternative immediately. The good news for landlords and potentially tenants alike, is that the replacement will pay the housing benefit straight to the landlord.

Holiday lets

Labour intends to introduce new regulatory powers for councils, over short terms lets, specifically mentioning ‘companies such as AirBnB’.

Much has been spoken of in the PRS, around council powers. A good deal of the debate has questioned whether councils may be struggling to act on the powers they already have, rather requiring more powers.

Tax

Limited company investors should note that Labour intend to reverse cuts to corporation tax, but intend to keep the rate lower than in 2010, when it was 28% (currently 19%).

The party are also looking to increase income tax on those who earn in excess of £80,000.

Labour also intend to make widespread changes to tax reliefs.

However, landlords investing in commercial property may be pleased to see that Mr Corbyn intends to look into the possibility of applying a land tax value. He is also seeking to reinvigorate the retail sector.

Housing

On wider housing issues, Labour pledges to fix the housing crisis by:

  • Creating a Department for Housing
  • Secure more accountability from Homes England, the public body responsible for funding new homes
  • Set up “English Sovereign Land Trust” who will be able to buy public land more cheaply for low-cost housing
  • Taxing housing developers, under a ‘use it or lose it’ dynamic, for failing to complete developments
  • Focus developing brownfield sites, but protect the green belt.
  • Build publicly funded social housing
  • Building low-cost homes restricted to first time buyer ownership
  • Charging overseas companies a levy on property investment
  • Charging a levy on second homes used as holiday homes

The party also intends to facilitate councils, with both powers and funding, to buy back property from private landlords.

Other powers given to councils will enable properties standing empty for over a year to be taxed.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.