Key Questions for Landlords in 2023
Key questions for landlords in 2023?
Many landlords may be struggling to feel optimistic about the year ahead – after all, the cost of living crisis has impacted landlords and tenants alike, with landlords selling up, a jump in arrears for tenants and inflation sweeping the country. There will undoubtedly be further challenges ahead for everyone, but there is much for landlords to be comforted by too. Demand for rental properties is at an all-time high and shows few signs of slowing down – government figures reveal that almost 260,000 private rentals have disappeared from the rental market in the past four years and 230,000 more properties a year are required to keep up with rising demand.
While we cannot control the wider economic outlook and the current uncertainty is unsettling, a new year is traditionally a time to take stock of what we have and what we can control, and to set achievable and realistic goals.
Landlords should certainly, this year more than ever, be organised and planning ahead. Some of the biggest changes coming in the next two years will probably be linked to the Renters’ Reform Bill. So break down what you need to do to be in the best position once the details are ironed out, whether this is booking an EPC assessment, speaking to your mortgage broker, or carrying out essential maintenance and repairs. We maintain close dialogue with our landlord clients discussing all these elements of your business.
Landlord legislation is often difficult to navigate and can be dauting, especially when it is constantly changing. From MEES requirements and background checks, to property safety, private rented sector regulations are constantly in a state of flux. That is where landlords can run into trouble – if you miss something it could prove costly.
In a recent blog Paul Shamplina, property expert and CEO, focused in on four of the most common questions that landlords commonly ask!
Should landlords stick or twist in 2023?
It hasn’t been easy recently being a landlord but the fact is, there is a massive stock shortage in the private rental sector, with multiple tenants applying for the same property, so landlords have the best pick ever with fewer voids. Research from Aviva shows that up to a million people may rule themselves out of the first-time buyer market in the coming months due to pressures caused by the cost of living crisis. As a result, rental demand is likely to stay high throughout 2023.
Of course, we had the debacle with Liz Truss’s mini budget when the mortgage rates went sky high and landlords with mortgages were really worried about their rates going up and affordability. And we are seeing a lot of the smaller landlords exit the marketplace. But, if you look at it long term, rents are going up, the amount of tenants going for properties is unprecedented, the type of tenants too is changing, and you’re even actually getting tenants bidding against each other to secure a property. So, the reality is, if you don’t need to sell, don’t sell.
That said, we are going to be heading into even tougher times with the cost of living crisis, and so it is very important to make sure that you’ve got a really good tenant in your property. If you have a good reliable tenant who is financially stable, then continue building a strong relationship and hold onto them. Some landlords may be looking at the impending abolition of Section 21 and be tempted to remove existing tenants, who are perhaps resisting rent increases, in favour of remarketing to achieve a higher rental income. Be careful making this decision. You could end up losing good tenants in place of tenants who can afford a higher rent but do not respect your property or worse still, stop paying rent. It’s often the tenants you least expect that cause you the greatest problems!
Of course, buy to let is a business, so if a property isn’t financially successful, it’s probably best to sell it and re-invest somewhere else. Having a clear business plan, and setting out goals and strategies to achieve them, will help you focus on making a profit. The days of amateur landlords are potentially over, so those who approach ‘landlording’ as a job (or use an agent to manage their property if they can’t), conduct themselves professionally and do things the right way can still prosper. With such high demand for rental properties, those landlords who are in a position to remain in the market or have cash and wish to expand their portfolio, are in a favourable position.
What should I do if my tenant can’t pay the rent?
A good tenant doesn’t turn into a bad tenant overnight. But the reality is now that tenants are having it tough – they’re paying more rent than ever. The average property to rent in London is over £2k a month to rent alone, so we are going to see in 2023 an increase in tenants defaulting in rent payments, because rents have been going up at a significant pace and of course, the cost of living crisis is also having a huge impact on fuel prices and food prices, and wages aren’t matching inflation of 10-11%. If your tenant can’t pay the rent, you need to engage with them early and work through it, ideally. As I’ve said already, having a good tenant who looks after your property is more important than having the tenant who can pay the most rent, so it’s important to ascertain the extent of any financial struggles. Keeping things warm and friendly will make it easier to offer a more flexible payment arrangement for a limited period of time if needed. Any repayment agreement should be reasonable but firm, and captured in writing to make sure that both parties are clear on what has been agreed and how long for.
If you can come up with a payment plan that’s great, but of course landlords are also under pressure, especially if their mortgage rates are going up. If your tenant hasn’t paid and is in two to three months of rent arrears, and it appears that they just can’t keep up with the rent payments, then you may have to make the difficult decision to serve an eviction notice and then possibly have to go to court to issue court proceedings. And that can take the best part of six months. Evicting a tenant is a last resort, and only a small minority of tenancies go wrong. But, if you are in that position, then make sure that you seek professional help.
Obviously, rising interest rates are going to be a big challenge for landlords on variable rates in the next year, with the base rate reaching 3.5 per cent at the end of last year and further increases likely throughout 2023. It’s unlikely landlords will be able to raise rents to cover these increases so it’s important to get professional advice on the best way forward.
In these financially challenging times, and with the likely possibility of a recession which will hurt businesses and cool the job market, it’s more important than ever to communicate with your tenants. Find out what their plans and desires are – do they want to stay, or do they plan to move on? Keep checking in on your tenants and if necessary, work together with them to find a solution that works for you both.
What can landlords do to best prepare for the Renters’ Reform Bill?
While no firm decision has yet been made on the final detail of the Renters’ Reform Bill, and it is not likely to come into force for a couple of years, it does now look like the reform agenda will be implemented.
As most landlords will now be aware, under the Renters’ Reform Bill there has been a raft of 12 points put forward, such as: the abolishment of Section 21, that current fixed term tenancies are going to be replaced with periodic ones, that a Decent Homes Standard is introduced to the private rented sector with regard to the quality of the property, that tenants can request they have pets at the property, and that you cannot advertise that you can’t have ‘DSS’ tenants. There’s also likely to be a property portal, effectively a landlord register, where all the compliance information can be uploaded, so you know that a property is compliant. And of course, landlords will most likely have to belong to a redress scheme in the form of a property ombudsman in the future.
There will probably be a lot of points in those reforms that won’t make it through parliament to become law – but of course many will make it through, and both agents and landlords can and should be keeping a close eye on what is happening, and planning and preparing for the future now.
Although any changes will have a transition period, some could come in quicker than people anticipate, and landlords will need to be agile and able to adapt.
As a professional landlord, the whole aim is to make sure you have a really good tenant paying the rent, and that they treat your property like it is your home, so it pays to be ahead of the game.
We also all know that the Government plans to raise the Energy Performance Certificate (EPC) rating to a C or above for all newly rented properties from 2025 so if you start now, you won’t feel the cost all in one hit nearer the time. Whilst I know this is a daunting task and expense for some landlords, making improvements to your property’s energy efficiency should be high on the agenda.
You can start off with smaller improvements such as insulation, LED lighting, draught-proofing and then consider what the next improvement would be when you can afford it. Perhaps a new boiler, better windows etc.
There are also some great initiatives out there where the Government is paying, under the green deal, for free installation of central heating for tenants who are on benefits.
Property management now is becoming more and more difficult, especially with so much regulation. If you have been a self-managed landlord, maybe now is the time to consider using a letting agent to fully manage that property for you. Remember, rents are going up, and that means landlords, technically, are making more profit. Depending, of course, what your mortgage rate is.
Is the Government likely to introduce rent freezes in England, like what’s happened in Scotland?
This might depend on how bad the cost of living crisis is going to be. If it becomes even worse and inflation keeps on rising and, unfortunately it gets to the stage where tenants are struggling even more than they are already, I’m sure that there will be more conversations that will happen in government and parliament when it comes to rent freezes. In Scotland they’ve brought that emergency regulation in, and I know the Mayor of London has talked about rent freezes and rent caps. We just have to wait and see to see what happens. The reality is now that tenants are paying more rent than ever before.
In summary…
2023 will be challenging for a lot of landlords. The uncertainty on mortgage rate rises will be the greatest issue, Section 24 having a real long-term impact on profitability, with further future changes in legislation to EPCs and the Renters’ Reform Bill. But the huge positives are that, because of a lack of rental stock, landlords have never been able to choose from so many tenants battling it out, meaning lesser void periods and a better pool of tenants to pick from, with higher rents achieved. The key is to remember that buy to let is a long term business, and you need to treat it as a business to succeed.
HsH are committed to guide our client landlords through these challenging times, our care, personal approach and professionalism in managing your property and tenants eliminate many of the stresses of being a landlord. For details of our services, including our fully managed service or let only services, why not visit the Landlords section of our website. https://www.hshlettings.co.uk/landlords/
We are here to help!
