11 things landlords need to know in 2023
Better protection for tenants and major capital tax changes are on the cards this year
Looming tenancy reforms, sky-high mortgage rates and increased tax bills are just a few of the key factors landlords are having to consider for 2023.
Even experienced buy-to-let investors are struggling to get their head around the complex market and upcoming changes, but with rental demand remaining strong, there is potential to sustain or boost returns.
This interesting article from the Which? publication delves into what landlords need to be aware of in the new year.
1. New rules will offer tenants better protection
A much-mooted shake-up to the rental system in England could come into force in 2023.
The government is aiming to 'redress the balance' between landlords and tenants and offer greater protection against eviction and rent rises.
No-fault evictions are due to be banned as part of the Renters' Reform Bill, and tenants will be given more power to challenge landlords who fail to meet their obligations.
Changes include landlords no longer being able to set blanket bans on families with children or those in receipt of benefits, and being more open to pet ownership among tenants. Notice periods for rent increases will double and tenants will have stronger powers to challenge unjustified hikes.
A long-awaited white paper was published in June, yet we are still no closer to finding out when the bill will become legislation. But we do know the government hopes to bring it into play in 2023, so watch this space.
In Wales, the government recently implemented a suite of new measures to better protect renters against eviction.
2. Capital gains tax allowance will be cut
As of April, the tax-free allowance for landlords selling a property will be drastically reduced - which could mean a higher capital gains tax (CGT) bill depending on when you sell in 2023.
Currently, sellers can earn a profit of £12,300 on an asset before having to pay CGT. But the government announced in the Autumn Statement that the threshold will be more than halved to £6,000 from 6 April. This comes before a further reduction in April 2024, when the allowance will be just £3,000.
Landlords will therefore be more likely to have to pay capital gains tax on the profit they make when they sell a buy-to-let property next year.
3. Buy-to-let mortgage rates may remain high
Mortgage rates were a hot topic in 2022, and they look set to remain that way for 2023.
The rates on mortgages soared in the last quarter of the year after lenders removed or repriced deals following the fallout from the mini-budget in September.
The choice on buy-to-let (BTL) mortgages has started to improve. According to Moneyfacts data there were 988 BTL mortgages on 1 October, but that has risen to 1,769 deals on 25 November.
Unfortunately, the increased availability of BTL products has not helped bring down rates across any loan-to-value ranges as you can see in the table below.
While residential mortgage rates have started to fall back to below 5%, BTL rates remain high with average rates near 6% or over.
Mortgage rates are heavily influenced by the Bank of England base rate which currently stands at 3.5%, and is expected to rise further in the new year, which could mean BTL mortgage rates jump even further.
So existing landlords, with expiring fixed-rate deals secured when rates were much lower, are in for a shock if needing to remortgage over the next few months.
Higher interest rates will mean bigger monthly repayments and reduced profits. And raising rents might not be a silver bullet given the wider cost of living crisis leaving households with little stretch in their budget.
4. Rental demand could grow stronger...
An increasing number of people simply cannot afford to get onto the property ladder and the number of transactions are predicted to drop by a fifth according to UK Finance - meaning the need for rented properties is as important as ever.
Higher mortgage rates and inflation will likely result in landlords pushing up prices as they cater for the demand and try to generate a higher rental yield.
The amount spent on rental payments increased by 9% during 2022, according to Nationwide. However, renters may not be able to afford the increases.
5. ....but missed rental payments could rise
In the last month, Which? found that renters were more likely to miss a housing payment (6.4%), than mortgage holders (2.5%).
With budgets squeezed further by the cost of living in the new year, tenants may struggle to meet their repayments. An increasing number could fall into arrears, meaning landlords will face a shortfall in the money owed to them.
6. Savvy landlords could land a bargain
House prices have continued to climb year-on-year but it's set to be a different story in 2023.
The market is already slowing as high mortgage rates and the cost of living lowers demand from buyers. As a result, professional landlords could utilise the slower market and may be able to pick up property bargains.
Data from Propertymark shows that 72% of agreed sales in November were below the asking price, while figures from Hamptons show 37% of offers made by landlords in the same month were on properties without any other offers.
7. Energy efficiency rule changes on the way...
Improving energy efficiency remains high on the government's agenda.
Currently, rented properties must have an Energy Performance Certificate with a rating of E or above.
But the government is planning to introduce new rules requiring all new tenancies to have a rating of C by 2025, with existing tenancies following suit by 2028.
The new legislation is also set to increase the capped amount landlords will be required to invest to achieve improved ratings, from £3,500 to £10,000.
Swathes of privately rented homes have an EPC rating below C, meaning landlords will need to carry out upgrades over the coming years.
8. ...so look out for financial support to help with efficiency upgrades
More than 50% of homes will require upgrades in order to meet the band C rating, and landlords could struggle to cover the costs.
The government has announced the £1bn ECO Plus scheme where up to £1,500 will be granted to homeowners needing to insulate their properties.
The scheme, which kickstarts in April and will run until 2026, aims to stop homes in lower council tax bands losing heat from poor insulation.
Landlords meeting certain criteria could be eligible for a share of the cash pot.
9. Local licensing schemes could apply in your area
Licensing schemes have been on the rise in recent years and that trend looks set to continue as more councils look to roll them out.
Mandatory and additional licensing schemes apply to landlords who let out Houses in Multiple Occupation (HMOs), but a growing number of councils require some or all landlords in an area to get a licence before they can let out a property.
The licensing schemes are designed to help councils regulate landlords in their borough/district and carry out enforcement if necessary. To find out if you'll need a license to let a property in your area, contact your local council.
10. Transfer to quarterly digital tax returns extended
Calls to push back the introduction of the compulsory HM Revenue & Customs’ Making Tax Digital scheme have been answered - giving landlords more time to adjust to a new method of reporting income tax.
The government wants to increase efficiency and cut fraud by making landlords with an income of £50,000 or more use new software to keep digital records. The digital tax scheme was due to be introduced in April but it has now been delayed until 2026.
Once introduced, HMRC will require returns to be submitted quarterly rather than annually.
11. A continued rise in short-term lets, or a crackdown?
Short-term lets continue to grow in popularity but a clampdown could be on the horizon. Critics argue short-term lets exacerbate a shortage of housing supply and increase rents.
The government, which launched a review into holiday rentals in the summer, has already announced it will establish a registration scheme for short-term lets in the soon-to-be-approved Levelling Up and Regeneration Bill.
Meanwhile, a letter to the government from the Built Environment Committee alludes to what could be on the cards in the future. MPs have called for local authorities to be given power to require planning permission for new short-term lettings in their area.
A short-term lets licensing scheme was made mandatory for all short-term let accommodation across Scotland this year.
