Why are UK landlords struggling to keep pace with PRS reform?


Paresh Raja Market Financial Solutions

The UK’s private rental sector (PRS) has grown considerably over the past 20 years. In the last year alone, the value of the PRS increased by £6 billion and it’s now estimated to be worth £1.3 trillion in total.

Occupying a central role within the PRS are buy-to-let (BTL) landlords. Indeed, there are now over 2.5 million individuals across the UK for whom a rental property forms part of their portfolio. Of course, property has always been a popular asset class but a combination of long-term capital growth and regular rental yields make property an alluring asset class in this low interest-rate environment.

At Market Financial Solutions (MFS) we’ve seen firsthand the significant impact that notable changes to stamp duty and housing regulations have had on UK BTL landlords. With the legal framework governing the PRS constantly evolving, it’s more important than ever for landlords to ensure they are compliant with the latest policies, particularly as they might be subject to financial penalties if they fail to do so.

Landlords are falling behind on the latest legislative reforms

At MFS, a key part of our business is arranging bridging loans for landlords expanding their BTL portfolio. Based on our conversations with brokers and borrowers, it’s become readily apparent that many are struggling to stay on top of the policy changes that determine just how a landlord can manage their rental property.

Consequently, MFS commissioned an independent study intended to discover just how landlords are struggling to keep on top of the latest reforms to the PRS. The findings were eye-opening. We found that 30% of landlords do not understand changes made to House in Multiple Occupation (HMO) licensing. The changes, which came into effect in October 2018 make it mandatory for landlords who manage a property with five or more inhabitants to first obtain a license. The new regulatory regime also includes a minimum size for a room that is being let out; bedrooms used by one adult must be no smaller than 6.51 square metres, or 70 square feet while bedrooms used by two adults will have to be at least 10.22 square metres, or 110 square feet.

Moreover, 27% said they didn’t understand the tenant fees ban (June 2019) while one in five said that while they understood the reform they did not know how it will affect them or their portfolio.

Moving away from reforms specifically concerned with the PRS, landlords were also largely ignorant of the recent reforms to inheritance tax; thanks to an extra allowance introduced in April 2017, couples can soon leave property worth up to £1 million before paying any tax, depending on when they pass away, potentially saving £160,000 in inheritance tax. However, 28% of the UK landlords surveyed admitted they didn’t know how this would affect them. Similarly, a quarter of landlords said they weren’t aware of the more recent reforms to tax relief on mortgage repayments which were implemented in April 2019.

What does this mean for the PRS?

Our findings present a few interesting questions, both to policy-makers and the sector more generally. Of course, it’s incumbent on landlords to stay on top of the latest reforms to the housing market but the general ignorance is also reflective of a lack of consistency or communication on the part of the government.

However, this does not mean I am an opponent of the recent reforms. Indeed, as someone who’s all too aware of the prevailing problems in the property markets, most notably lack of supply in the PRS, I’m generally enthused about the direction of travel if not the coherence or commitment with which the changes have been implemented.

For now, its left to lettings agencies and housing advisors to offer the much-needed advice landlords need to ensure they are compliant with the ever-changing regulatory regime.

Paresh Raja, CEO, Market Finance Solutions