Landlords guide to making the right decisions in 2023

02 June 2023 6829 Views

This year is set to bring sweeping rental reforms that will change the face of lettings forever. Landlords should be following the introduction of the Renters’ Reform Bill, which is due to be implemented before the current session of parliament ends in autumn 2023.

“The changes due this year will be seismic,” comments Jason Harris at Open Property Group. “Many investors will need to call the viability of their buy-to-lets into question. We suggest landlords consider the following as part of an urgent property portfolio review.”

Decide whether you’re in it for the long haul

Being able to regain a property without having a detailed reason has been an attractive buy-to-let facet but landlords need to be fully aware of the implication when Section 21 evictions are banned.

“The end of so-called ‘no fault’ evictions – described this way because landlords can ask well-behaved tenants to leave, should they wish to sell their buy-to-let or live in the property themselves – are set to be outlawed as part of the pending Renters’ Reform Bill, which is concerning,” adds Jason.

“As well as regaining a property for personal reasons, Section 21s are a useful tool when tenants start displaying unfavourable behaviour. This was highlighted in a recent survey by Landlord Action in 2022, which found 33% of Section 21 evictions were due to rent arrears, with anti-social behaviour, just behind at 22%.”

Worryingly, analysis by Crisis revealed rental evictions were up 98% year-on-year between 2021 and 2022, with soaring mortgage rates and slim profit margins also behind the reasons for landlords regaining possession and selling up. In fact, Goodlord's State of the Lettings Industry Survey 2022 found 54% of landlords said the banning of Section 21 was a reason for them to leave the buy-to-let market.

While how Section 8 evictions will be reformed in light of the forthcoming ban remains to be seen, we do know the Bill is designed to protect tenants and give them extra security. Landlords may find it increasingly difficult to regain their property and they’ll have to give an ‘acceptable reason’ to evict – the definition of which is yet unknown.

Still intent on keeping your buy-to-let in 2023 and beyond? You’ll have to be comfortable with tenants really getting their feet under the table. Experts agree the current Section 8 process is long-winded and frighteningly expensive. With no plans to bolster the court system in the immediate future, we are facing a situation where a landlord’s sole channel of regaining property will be overburdened, mired in red tape and detrimentally slow.

Decide whether you’re ready for the flighty tenant

While the banning of Section 21s is designed to give tenants more security in their rented home, the Government has also acknowledged that some tenants can become trapped in substandard properties or in precarious situations.

As such, fixed term tenancies will be abolished as part of the Renters’ Reform Bill. Instead, all renters will eventually transfer to periodic tenancies. Tenants will only have to give two months’ notice if they want to leave, rather than have to wait for a break clause or a fixed period to end, allowing them more freedom to move if and when circumstances change.

“Landlords who look to long-term tenancies for security – and to keep the cost of finding new tenants, referencing and compiling inventories down – may be burned by the migration to periodic tenancies,” comments Jason. “It’s not unjust to suggest tenants may use this change to their advantage, choosing to move on more frequently and increasing the ‘churn’ for landlords.”

Decide whether you’re happy to become a licensed landlord or join a register

Also detailed in the Renters’ Reform Bill is a new legal requirement for landlords in the private rented sector to register their properties on a new property portal. “While this is being billed by the Government as a single source of useful information for landlords, many opposers see it as a ‘back door’ way of creating a landlords’ register,” comments Jason.

Another watch point is increased selective licensing in the private rented sector. An increasing number of local authorities are introducing selective licensing schemes, which require landlords to apply for a licence and to operate within set conditions.

All authorities in England and Wales are able to establish selective licensing schemes and they can encompass all private landlords, not just those with houses in multiple occupation. Landlords looking in areas with selective licensing schemes – and those mindful of what might be introduced in the future – should note it can cost up to £1,000 per property to obtain a license.

Decide whether EPC changes are worth the effort

The clock is ticking when it comes to meeting new energy efficiency requirements in privately rented properties. While rumour suggests the 2025 deadline for new and renewing buy-to-let properties to bear a minimum EPC of C will be abandoned, in favour of a universal 2028 deadline, the Government has remained silent on the matter.

Energy efficiency is weighing heavily on the minds of landlords. Almost two-thirds admit they might have to sell their buy-to-lets if they were forced to make EPC upgrades, reveals fresh research from Mortgage Advice Bureau.

Of those questioned, 28% of landlords said they were extremely concerned about the costs of upgrading their property, with the cost of retrofitting the average property to obtain a C EPC expected to be £4,700. As a result, 25% of landlords said it was likely they wouldn’t be able to afford the changes, while 34% said it was quite likely they would sell their property instead of upgrading it.

It appears some landlords are already taking evasive action. Property data company Propalt is seeing landlords with portfolios of 10-20 properties selling those with EPCs of D and below, as they want to exit the market quickly rather than upgrade.

“The challenge for landlords will be recouping any investment in energy efficient measures,” highlights Jason. “Those most exposed will be investors whose upgrade spend is top level, and who are already charging the ceiling rent for their local area. Also affected will be landlords in markets where there is an improving supply of rentals and, therefore, little room to increase rents.”

Decide whether you can still turn a profit

New research from Cornerstone Tax found only 1 in 5 landlords say their property investment has been a profitable one in 2023, with a further 1 in 5 claiming they’d become landlords without sufficient knowledge and lost thousands as a result.

Whether it’s the expense of installing a new boiler, the cost of evicting tenants under a surviving Section 8 framework, applying for a license, having to absorb higher mortgage rates or the realisation that you’ll have to pay a property management fee to keep on top of compliance and ensure your let is legal, balancing money in versus money out will undoubtedly be tricky in 2023.

Next steps

For many landlords, the days of healthy profits are over. For others, the stress of keeping up with compliance is simply not worth the hassle. Open Property Group is here to help you crunch the numbers and assess the profitability of any buy-to-lets you own. If you’re in loss-leading territory, we can offer you a quick cash sale so you can limit financial damage and exit the market. Opt for a free cash offer or contact the team for sales advice.