The dust has settled on the election, and the Labour government is in. While many landlords might have breathed a sigh of relief when the Conservatives failed to pass their Renters’ Reform Bill, the new government is bringing its own plans to the table.
The Big Questions for Buy-to-Let
Labour’s manifesto was light on specifics about the future of the rental market, but two key promises have sent shivers down the spines of some landlords: the abolition of “no-fault” evictions and a commitment to achieving minimum energy efficiency standards for all rental properties by 2030.
No More “No-Fault” Evictions?
The Conservatives’ Renters’ Reform Bill also aimed to end “no-fault” evictions, but with a twist. The plan was to delay the implementation until the courts were reformed, making it easier for landlords to evict tenants with valid grounds. The National Residential Landlords Association (NRLA) and other industry groups wanted the government to stick with this plan.
Labour’s firm stance on abolishing “no-fault” evictions suggests they are likely to introduce their own legislation soon. Chris Norris, NRLA’s director of policy, expects the government to act quickly, but the process could still take months.
“You can’t just deal with ‘no-fault’ evictions in isolation,” he said. “Landlords need confidence that the system will work fairly.”
While some landlords are worried, Aneisha Beveridge, head of research at Hamptons, believes that most have already accepted the need for change. However, she warns that further regulations could discourage landlords from investing and even push some to leave the market.
Energy Efficiency Targets: A Ticking Time Bomb?
The Conservatives’ original target for rental properties to reach an Energy Performance Certificate (EPC) rating of C or above by 2025 was scrapped. Labour has set a new target of 2030, but the details are still unclear.
Norris argues that achieving the original target by 2030 is unrealistic. “There isn’t enough time to get 2 million properties up to a C standard. The finance is difficult with high interest rates, and the supply chain isn’t ready,” he explained. “I hope the government’s vagueness means they understand it’s a more complex issue than it seems at first.”
Rent Controls: A Looming Threat?
While rent controls don’t seem to be an immediate priority, Chancellor Rachel Reeves has hinted that they could be considered in certain areas.
Capital Gains Tax: A Taxing Headache
The Labour government might raise capital gains tax (CGT) to fund public services. While not explicitly mentioned in the manifesto, this possibility has left many landlords nervous.
A higher CGT could make selling properties less attractive, potentially discouraging new investments and driving some landlords to sell their properties sooner rather than later.
“Anyone who was planning to sell has probably already made their move,” says Tom Bill, head of UK residential research at Knight Frank. “But if the government signals a CGT hike in the Autumn Statement, we’ll see a flurry of sales.”
Norris warns that a CGT increase could further deter new landlords from entering the market or expanding their portfolios. This could also encourage landlords to incorporate their properties into limited companies for tax efficiency. While incorporation might not always be the best option, it can make sense for landlords who own multiple properties.
The Market: A Mixed Bag for Landlords
While buy-to-let mortgage rates have dropped since their peak last year, the progress has stalled. This means that landlords are facing a tough balancing act between rental income and mortgage costs.
On the bright side, rental growth has remained strong, although it has cooled from last year’s highs. Beveridge suggests that new lets are stabilising around a 6% annual growth rate, significantly higher than the pre-Covid average of 2.5%.
However, this high growth rate is needed to offset the increase in interest rates. Beveridge notes that landlords are starting to increase rents on existing tenancies more than on new ones, highlighting the pressure they are under.
House prices, while not crashing last year, are experiencing a slow and muted recovery. This means that rental growth has outpaced house price growth for the past two years, resulting in record yields for landlords.
The Bottom Line: Wait and See
With the market still uncertain and Labour’s plans unclear, the predominant attitude among landlords is “wait and see.” The summer months will be crucial for understanding how the new government will shape the future of the buy-to-let sector.
“We need to see what Labour says over the summer and then what they do in the Budget,” says Bill. “That will give us a clearer picture of what to expect.”