How are landlords managing with rental sector changes?

Latest industry data indicates that the private rental sector (PRS) is still going strong, despite adversity from controversial new policies, economic shifts, and high-profile political scandals.

High yields

Although many landlords are anxious about the many changes currently underway in the PRS, data from Aldermore Bank shows that property yields are increasing.

In their poll, 89% of landlord respondents said that they were profiting from their letting activities, which was the highest percentage Aldermore had seen since 2019. The average yield this year is 6.6%, which is the best figure in a decade. 

The bank found that landlords with property in the North West of England and Yorkshire experienced the greatest rental yields. 

Aldermore’s director of mortgages, Jon Cooper, said this of the poll’s findings:

While the average landlord is seemingly doing the best since pre-pandemic days when it comes to profits and yields, what’s increasingly obvious is that many landlords still feel jittery about what the next few years will bring.

Cooper refers to the widespread anxiety surrounding the Renters’ Rights Bill and other reforms to the sector, but regardless, news of landlords enjoying greater profits is a positive takeaway.

Base Rate held

The Base Rate has just been held at 4%, meeting lenders’ expectations. This shows stability in the mortgage market.

The Base Rate was a divisive topic among economists as the outcome of this month’s Monetary Policy Committee (MPC) meeting was less certain than it had been all year. 

Some predicted a cut, matching the aggressive cutting strategy the MPC used for most of the year. 

Others believed the MPC would hold it at 4% in response to the cooling of the UK economy. Holding it would also minimise risk ahead of the Autumn Budget announcement – more on that below. 

Lenders take many factors into account when pricing their products. Swap Rates are directly influential, as these already reflect banks’ predictions of where interest rates are headed, long before the actual Base Rate decision is announced. 

There have been some reports of lenders releasing new lines of competitive products, but this has been more in response to the Renters’ Rights Act than the Base Rate.

Renters’ Rights Act

This year’s Autumn Budget is set to be announced on 26th November, leaving the whole nation on tenterhooks.

While nothing is finalised until Chancellor Rachel Reeves makes the announcement, several reports have primed the country to expect significant tax shake-ups.

Of particular interest are the reports that landlords may be charged National Insurance (NI) on rental income. 

Currently, NI only applies to employees and self-employed workers earning over £12,570 annually. Any earnings from buy to let properties are largely exempt from NI charges. 

There are no reports that definitively state whether landlords would be expected to pay the same rates as employees and the self-employed.

Covering landlords with the NI blanket would be motivated, naturally, by the potential revenue that could be generated from taxing their rental income. The Office for National Statistics (ONS) calculated that landlords collectively earned £27 billion in net property income from 2022 to 2023. 

If landlords had to pay an 8% NI levy on their rental earnings (the same rate employees earning over £12,570 currently have to pay), then they could generate approximately £2.2 billion in revenue for HMRC.

Broader overhauls of property taxation, as well as other areas of tax, are on the cards for the Autumn Budget, but there are no concrete details about the Chancellor’s plans as of yet. 

Reeves under the microscope

In addition to speculation surrounding the Autumn Budget, Rachel Reeves has been fiercely criticised by many voices in the property industry, after she avoided a fine for property mismanagement.

Reeves was found to be in breach of Section 95 of the Housing Act 2004, which mandates that certain types of rental properties must be licensed by local councils. While Reeves claims she intended to secure selective licensing through a letting agency, this plan was not completed, leaving her in violation of the law.

Many landlords are heavily fined for this relatively common pitfall. Councils regularly fine landlords up to £20,000 if they are found to have committed the same offence as Reeves. 

This is not the first time that a high-ranking Labour MP has been embroiled in a property-related scandal in the past six months. Angela Rayner paying the wrong amount of stamp duty on a rental property in Hove led to her resignation as Deputy PM and Housing Secretary. 

Similarly, Rushanara Ali resigned from her position as homelessness minister, after she chose not to renew some tenancies in London, then put her property back on the market for an increased rent. This move was scrutinised, more on ethical grounds than legal ones, as this kind of behaviour was meant to be discouraged via Labour’s Renters’ Rights Bill. 

Landlords are facing even stricter rules and penalties after the Renters’ Rights Act. It remains to be seen if the Labour leaders will continue to struggle with compliance to their own laws, and if they will be held to the same standards as average landlords. 

Commercial Trust will continue to monitor the situation and keep you updated on any significant movement in the industry.