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What are the top issues you should be aware of for buy-to-let in 2023?

The rental sector is likely to see some of the biggest changes since the 1980s, so do your homework and keep yourself up-to-date.

All the signs are that operating as a residential landlord in 2023 will be just as challenging as it was last year, if not more so – here are my top 10 priorities

1. The death of a young boy – Awaab Ishak in a Rochdale social housing flat – has highlighted the issue of damp and mould in rental properties, it rests heavily on the minds of landlords across the country: could this happen in one of your own properties?

With around 20 per cent of the private rented sector (PRS) rental housing stock, according to the English Housing Survey, below standard, and a high proportion of those with attics with no insulation at all, is it any wonder that tenants in these properties cannot afford to maintain their homes in a condition that would prevent condensation and mould.

Additionally, how many rental homes are fitted with modern high efficiency heating boilers or with automatic extractor fans in kitchens and bathrooms? These are two pre-requisites for combating condensation, but far too few rental homes have them.

You need to think about how you protect your tenants and yourself from this condensation menace as the cold weather yet to come this winter, and the energy price crises, will mean the problem will be worse than ever this year. A good starting point to safeguard yourself and your tenants is to tackle this issue head on: take the initiative and carry out a documented risk assessment inspection on all your rental properties now.

Identify any hazards and commit to tackling the worst examples of heath hazards. For example, fitting cooker hoods, and automatic extractor fans in those rooms where steam is likely to be generated most – kitchens and bathrooms. Upgrade old boilers and make sure the insulation is up to modern standards. And don’t forget to educate your tenants on how to avoid condensation and mould.

2. Directly connected with number one above, a well insulated home can make the difference between having tenants live in freezing conditions or feeling warm and comfortable this winter.

Tenants on low incomes in particular tend to suffer because the accommodation they are living in is poorly insulated, or the heating system is inefficient, and that means it’s too expensive for them to heat to an acceptable level. Quite simply too big a percentage of the money they spend on heating goes out through the roof, walls, windows and floor of their property.

Besides that, insufficient heating in a home leads to condensation and toxic mould. Landlords should be aware of these facts and tackle the energy efficiency of their properties starting with the easiest fixes first, the low hanging fruit, in order of priority:

1 – loft insulation is perhaps the easiest, cheapest and most effective fix

2 – upgrading the heating boiler – modern boilers are by far the most efficient

4 – fitting automatic extractor fans in bathrooms and kitchens to prevent condensation issues

Improving energy efficiency will be a Government priority in the future, along with improving the accuracy of the Energy Performance rating system. Currently, rented properties must have an Energy Performance Certificate (EPC) with a rating of “E” or above. But new rules are likely to be introduced in the near future which will mean a Government target of EPC rating “C”, proposed for new tenancies by 2025, and for existing tenancies by 2028.

New legislation is set to increase the capped amount landlords will be required to invest to achieve improved ratings, from £3,500 to £10,000. Lots of privately rented properties have an EPC rating below C, meaning their landlords will need to carry out upgrades over a relatively short period of time.

3. Connected with one and two above, as a landlord you should want to improve the lives of your tenants as well as the energy efficiency of your property. Indeed further down the line you are likely to be compelled to do so as you’ve seen above. Most properties will be targetted to reach EPC grade C by around 2025 when a new Act becomes law.

Government financial help or not, and an energy crisis or not, the objective is still to increase energy efficiency and achieve the Government’s committed net-zero carbon targets. A big part of that will be a drive for greater energy efficiency in peoples’ homes. All newly rented properties will require an EPC of at least Band “C” when the Minimum Energy Performance of Buildings (No. 2) Bill becomes law.

Then, the proposal is that all existing tenancies will have until 31st December 2028 to reach this new target. For most properties this target should be achievable by practical, affordable, and cost-effective upgrades that could if necessary be largely implemented by simple DIY improvements. The fines for not having a valid EPC will be increased from £5000 to £30,000.

4. The Renters’ Reform Bill scheduled for implementation this year will be the biggest change in residential letting laws for a quarter of a century, with new rules affording tenants a higher level of protection, security of tenure, restrictions on rent increases and stricter housing standards. The government says it’s going to “redress the balance” between landlords and tenants and offer greater protection against eviction and rent rises.

Secretary of State for Levelling Up, Housing and Communities, and Minister for Intergovernmental Relations, Michael Gove, has reaffirmed his department’s commitment to reforming the private rented sector (PRS). It will follow closely the recommendations in the Government’s policy paper “A fairer private rented sector” which was followed by a consultation process and was updated 2 August 2022.

As a landlord you need to be aware of the coming changes: no-fault evictions will be banned and tenants will be given more power to challenge landlords who fail to meet their obligations, including fines and rent clawbacks.

Other changes include the end of fixed term tenancies presenting particular difficulties for student landlords, landlords will no longer be able to set blanket bans on families with children or those in receipt of benefits, and must be open to pet ownership among tenants. Notice periods for rent increases will double and tenants will have much more power to challenge rent rises.

Keep a watchful eye out for these developments because although the white paper was published last June, and the Bill will progress through Parliament this year, we are still not clear when this legislation will come into force and what amendments may occur in the meantime.

Along similar lines to the reforms in England, the Welsh Government introduced in December last The Renting Homes (Amendment) (Wales) Bill which means that from Spring 2022 there will be major changes to tenancies – a “simplified” and standardised rental contract, available for a minimum of 12 months and a suite of new measures to better protect renters against eviction. Similar changes to renting laws were brought in in Scotland a couple of years ago.

5. As part of the major legislative changes to be introduced in the Renters’ Reform Bill, The Decent Homes Standard will apply to private rentals for the first time. This measure is intended to give tenants “safer, better value homes and remove the blight of poor-quality homes in local communities.”

The private rented sector is already obliged to meet challenging safety standards under the The Housing Health and Safety Rating System (HHSRS), a risk-assessment-based evaluation tool used by local authorities identify and protect against potential risks and hazards to health and safety from any deficiencies identified in dwellings. This system was introduced under the Housing Act 2004 and applies to residential properties in England and Wales, though many experts are critical of how thorough local authorities are to implement these rules, hence some scepticism of how much of a difference the new rules will make?

When introduced the Decent House Standard aims to improve parity with the social rented sector where there has been a decent homes standard in place since 2001. The system, it is claimed, will be fairer for good landlords by making sure those who do not treat their tenants fairly are no longer able to get away with it, prevented from tarnishing the reputation of the sector as a whole. Under the new legislation tenants will be in a position to claw back rents from landlords who fail to meet the new home safety standards, which could in theory make a real difference.

6. Following the Truss/Kwartang mini budget last year there’s been a spike in mortgage rates for buy-to-lets, though this trend was already in train with the rise of inflation. Landlords have been warned to prepare themselves for a sharp rise in buy-to-let mortgage rates when they come to remortgage. Most lenders are now charging upwards of 4.25 to 6 per cent for a 2 year fixed buy-to-let mortgage, while just one year ago it was possible to get a buy-to-let mortgage between 1 and 2 per cent.

If you’re on a variable rate buy-to-let mortgage you may already be feeling the pinch due to increases to the base rate over the last year. The Bank of England increased these rates from 0.1 per cent in December 2021 to 3 per cent in November 2022, and now it’s 3.5 per cent. These changes will be felt most acutely by those on interest only mortgages, said to account for around 90 per cent of all buy-to-let mortgages.

It’s more important than ever to make sure you’re on the right mortgage, so speak to your mortgage broker now. It’s been widely predicted that interest rates will rise even further perhaps hitting 4.25 per cent or more in 2023, so available mortgage rates may get even more expensive than they are right now. Remortgaging and fixing, even at a rate that’s higher than you would like, could maintain the profitability of your buy-to-let in the future.

It’s going to be a tough time for landlords with mortgages over the next year or so, so if you’re going to stay in the game you’ve go no choice but to sit it out. Part of the process of investing is about seeing through the bad times as well as the good, so try to build-up your cash reserves as much as is possible before your mortgage deal comes to an end.

7. Passing on the increasing costs. One way to remain solvent in the face of rising costs it to pass some of them on to your tenants by way of rent increases. But you need to consider the implications of this strategy carefully: Your tenants may also be struggling with increasing energy costs and below inflation wage settlements.

It may be that for a period of time you decide you can afford to take the hit on rising mortgage costs and protect your tenants from increased rents, ultimately they are your customers and good tenants – if you have them – are hard to come by. It often costs more in the long run if you lose a good tenant and then have to go through a period of vacancy, plus the re-letting costs, not to mention the risks involved with an unknown tenant.

8. As the market starts to settle down – and the predictions are that inflation is coming down into the New Year – there will be other opportunities arising for landlords. You may find properties selling at a discount that could make a good-long term investment. An increasing number of unprofitable landlords have been selling-up and more and more young people simply cannot afford to get onto the housing ladder.

In 2023 the number of housing transactions could easily drop by 20 per cent and prices are predicted to fall by 10 to 15 per cent. So, the demand for rental properties is likely to be stronger than ever, meaning those landlord who can successfully navigate the new regulations and housing standards, stay the course financially, and take advantage of lower prices, could easily reap big rewards long-term.

9. From this coming April the changes to Capital Gains Tax (CGT) Allowances will have implications for landlords who decide to dispose of their properties. Currently, and for any assets sold before April, sellers can make a capital gain of £12,300 before having to pay CGT, that’s £24,600 for a couple owning jointly. But as announced in the Chancellor’s Autumn Statement that threshold reduces to £6,000, and from April 2024 to just £3,000.

Another tax issue is the extension of the requirement to use the Making Tax Digital (MTD) system, a digital self assessment tax reporting system estimated to affect another 4.2m taxpayers. It applies to those with business and/or property income over £10,000, including landlords, sole traders and partnerships, for their Income Tax obligations.

The changes will apply to businesses, self-employed individuals and landlords who are chargeable to Income Tax, so it’s a good idea to start planning now if you fall into this category.

10. For those landlords who do decide enough-is-enough, or perhaps you’re retiring, whether you consider yourself a professional landlord with a portfolio or an “accidental landlord” with one or two properties, you may decide to sell all or a small number of properties to keep your repayments across the remaining ones to a manageable level.

If property prices are dropping, selling sooner rather than later and gauging when demand is still high, you may get the best going price. If you do decide to sell your buy-to-let property, you basically have two options:

1 – You can give your tenants’ notice, currently using Section 21, in order to sell your property with vacant possession. A vacant property is generally easier to sell than a tenanted one, depending on its type and location, but some landlords will struggle with this as they will need to keep up mortgage payments with no rent coming in until the property is sold.

2 – You can try to sell the property with a tenant in situ. It will limit your potential market because only landlords would be willing to buy in these circumstances and it could limit the price you are likely to achieve. Conversely if you are a landlord looking to buy in these circumstances, bargains are around.

If you are going to make a success of your landlord business in 2023 and beyond then you know its going to be tough for a while. However, if you have the will and the ability to stay the course then there could be greater rewards in the future.

Given the scarcity of good rental property, tenant demand is likely to remain high for the foreseeable future and house prices, although they may dip in the short-term, are likely to continue to rise in the future.

Renting out property, providing you are willing to keep up with the latest developments and trends is likely to be a profitable business for those lucky enough to be able to call themselves landlords.

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Nope, I didnt make it to the end of the article – 2024 would have been fast approaching.

NO it is not my job as a Landlord to “improve the lives of my Tenants” – I offer an EPC C property and they either accept it or they dont. If they believe an EPC B property will “improve their lives” they are welcome to go and find one.

AND actually quite insulting to Tenants, the article states “Landlords should consider lower returns to keep good tenants “as they are hard to find”. Actually, 95% of Tenants are great and only a very small minority need to be avoided.

Finally, all decent Landlords aim to provide decent homes and to maintain them. Its time legislation chased the rogues instead of penalising the whole sector

You have made me want to give up being a LL completely! Too much responsibility with not enough return.

Pretty sure the Government have back peddled on the Self Assessment Making Tax Digital requirement. From 2026, self employed individuals and landlords with income of more than £50K will have to join the system not £10K. Those with income between £30K and £50K will need to join in April 2027 and the Government will review the needs of smaller businesses under the £30K threshold before making any decision. MTD for Income Tax Self Assessment will not be extended to general partnerships in 2025 as originally planned.

1) It is not my responsibility to improve a tenant’s life. 2) Damp and mould in properties is a result of lack of ventilation. If a tenant cooks, showers and dries their laundry without opening a window then of course the house will be damp and mould will grow – tenant’s responsibility. 3) Why do automatic extractor fans have to be fitted when opening a window is more efficient practically and in terms of tenant’s running costs. 4) People of my age were brought up in houses without central heating, and we didn’t have mould problems. We wore proper winter clothes to keep warm.

I do agree that ventilation is key, however, opening a window results in significant and abrupt heat loss in winter and you have to keep doing it regularly to control humidity. You end up having to put the heating on to counteract the heat that you have lost, which is counter productive and more expensive. In comparison, an extractor fan has less heat loss and it is gradual over time, thereby the heat loss is managable. Using an extractor fan has minimal cost in electricity (which should be explained, so that it is not turned off). eg. a modern low energy 5W extractor fan running 6 hours a day at current electricity prices costs approximately £5 per year to run. You have to get good powerful extractor fans, specified for the size of the room and the ducting. Think about backdraughts from the ducting. The ducting also needs fitting correctly. All needs to be correct, otherwise the fans don’t extract properly. The advice at the moment is to go for constantly running DMEV extractor fans with humidistat. Taking this a step further, the best system of all would be a heat recovery unit (eg. single room heat recovery unit), which brings constant fresh air in and extracts, but you don’t lose heat from the extraction. It brings the best of all worlds, ventilation and extraction without heat loss. Reaching out to a specialist ventilation specifier and installer is key. An electrician with a BPEC ventilation qualification is a start if you cannot find a specialist ventilation company.

In houses without central heating, there were airbricks and draughty windows. These provided natural ventilation at all times without thought or action. Over the years, these have been removed, sealed up or houses built without them. Lots of houses that once had draughty wooden windows were retrofitted with double glazing, sealing them up, but at the time, no one realised about the consequences for ventilation. Now trickle vents are mandatory, but we already have thousands of double glazing units out there without them.

This article makes a superb business case to NOT be a LL and to sell up if you are!

All this before you throw in the worse thing that is likely to occur and that is a Labour Govt.

That situation will render being a leveraged LL a waste of time.

Even being a mortgage free LL will be a tenuous business model.

Irrespective of demand there is no way I would even contemplate being a LL.

I would consider being a LODGER LL which would essentially mean dealing with single occupants.

So no children or families or pets etc.

It is perfectly possible to obtain a large mult-roomed property and operate a lodging business.

There are many downsides to this as CGT would be payable even though it is the PPR of the OO.

But all occupants would be LODGERS and therefore NOT subject to tenant conditions.

I worked out that with 3 single LODGERS I would have the same net income as from 4 properties.

Obviously without 4 properties one would be missing out on potential CG on each property.

But the risks involved of tenanting them would mean that not doing so would be a better business risk.

For this and many other reasons I sold up.

I now aspire to buy a 3/4 bed home

Then to take in at least two lodgers and consider a third though I would need to game the system and not declare a third lodger as HMRC would consider 3 lodgers as a lodging business.

That means no PPRR for the time there are 3 lodgers.

Invariably 2 lodgers should be the maximum.

This lodger strategy is a far safer business model.

I predict many LL will convert to lodger LL

The standard tenancy business model is a busted flush.

You’d be mad to become one now. To stay is equally mad unless RGI is achievable which it rarely is.

Sane people will leave the tenanted PRS!

Business people working away from home from 1 month to 3 years.

As long as main home elsewhere then a Contractual Tenancy and outside most of the housing act restrictions.

A huge, lucrative market in the right location.

Yes I gave up reading the article and started playing Leonard Cohen records – to cheer me up.

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