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Who’d be a landlord? Letting a rental property in the UK has become a far trickier business since the heady days of soaring property prices and profit-boosting tax reliefs.
Readers have told the FT they are selling their rental homes and industry groups have complained of a “war on landlords”. One reader said: “It’s hard not to conclude that the government is hitting landlords with extra rules because it thinks it can.”
So the latest murmurings from the government, yet to be officially confirmed, of a postponement of the energy efficiency measures for private rented homes will be welcomed by many of these property owners.
The delay will be decidedly less popular among tenants already facing higher utility bills, not to mention the ecosystem of installation companies and their suppliers in the business of making energy-saving improvements to homes. Nor will it do anything to help the government to hit its pledge to reach net zero by 2050. Postponement without a new deadline will leave renters, the industry — and landlords too — in a state of chronic uncertainty over the costs homeowners face and when they might fall due.
Under existing proposals on energy efficiency, residential landlords in England and Wales would have to ensure a minimum level of efficiency in their properties for new tenants by 2025; and for all tenants by 2028. From then, they could only let homes rated “C” or above, on a scale of energy performance certificates (EPCs) running from “A”, the most efficient, to “G”, the least.
Raising a private rented property to a “C” level can come with a hefty price tag, averaging at £7,430 in England, according to official estimates.
This plan was originally set out in a consultation that ended in January 2021. Since then, landlords have been in limbo as they wait for the government to make its decision and fix the timetable for action.
Now, more than two and a half years later, housing secretary Michael Gove believes the proposed timetable on energy efficiency is “asking too much too quickly” of landlords, he told the Telegraph. A Whitehall official separately told the FT that the EPC system itself needed “fundamental reform”. The comments have thrown into doubt not only the timing of any measures, but also the EPC regime that has guided purchasers’ and commercial decisions since 2007.
Bear in mind the broader context of this debate: political concern over hard-pressed voters, weighed down by inflation in the run-up to a general election next year. Prime minister Rishi Sunak has signalled a softening of the pace of green policies, saying that progress would have to be “proportionate and pragmatic” and not unnecessarily introduce “more costs” into people’s lives.
But England’s 4.4mn renters can plausibly argue that “more costs” will be a certain consequence of delaying action to keep their homes warmer in coming winters. For most properties — student flats or build-to-rent schemes being an occasional exception — tenants are expected to pay utility bills on top of the rent.
They already face sharp rent rises, and demand shows no sign of slackening: the supply of new listings continued to fall in the monthly survey of agents by the Royal Institution of Chartered Surveyors, while a record high balance of 63 per cent of respondents expected rents to rise over the next three months.
It is clear that landlords face a chillier business climate, with new taxes and tightened regulations raising their costs over the past seven years. Those holding a property in their own name can no longer claim full tax relief on mortgage interest payments; buy-to-let purchasers must pay extra stamp duty or a transaction surcharge; and landlords in England are facing landmark changes to tenancy laws — complete with extra costs for property owners.
That is before you consider the big jump in interest costs since mortgaged landlords secured their last fixed rate deal. Rates on two-year buy-to-let fixes are now running at 6.67 per cent, according to Moneyfacts, up from 2.9 per cent in December 2021. Data published this week showed a strong uptick in buy-to-let mortgage arrears in the second quarter of this year.
Landlords have not been sitting on their hands when it comes to “retrofitting” — not least since it became mandatory for rental properties to have a minimum “E” level for all tenancies from 2020. But the pace of change is slow. Property site Rightmove estimates that at the current rate it would take 31 years for all rented houses to reach the more efficient level “C”. Seven out of 10 UK landlords own rental homes with a rating of “D” or below, according to lender Shawbrook.
Are there other good reasons to ease the regulatory timetable, such as to prevent a mass sell-off of rental properties and thereby limit further pressure on rents?
As rates have risen, mortgaged landlords with one or two properties held in their own name are in a worse tax position than limited company investors. Like the FT reader, some have sold, with suggestions of up to 100,000 buy- to-let sales in 2022, according to the Bank of England.
But at 8 per cent of total house sales that year, this is far from an opening of the floodgates. There are safety valves in the make-up of the landlord population: nearly half of English landlords are mortgage-free, putting them in a better position to invest in their portfolio for improvements such as energy efficiency. And more than half of investors have been landlords for 11 years or more, so are likely to have accumulated a cushion of equity during the years of strong house price growth.
Is it fair to say the fault lies with an EPC system in need of a complete overhaul, as Whitehall argues? Even its supporters admit to flaws in its design, as it is increasingly used in ways it was never intended to serve. Many people assume an EPC allows them to gauge their future energy costs, yet it aims only to measure the efficiency of a building, with no allowance for the way it is used — whether fully occupied or empty for much of the year. Landlords complain of a lack of consistency between assessments and problems getting councils to agree to major improvements such as solar panels.
But in spite of misgivings about the methodology of EPCs, it is clear to experts and homeowners alike that the simple expedients of insulating roofs, attics or walls, or putting in double or triple-glazed windows can help cut heating bills. By waiting more than two years to confirm its proposals on a 2025 deadline, ministers have left it too late to stick to the original timing.
Lenders had warned of the prospect of a “rush-to-improve” in 2024, which would overwhelm installers and assessors, and risked encouraging “cowboy” builders to fill the gap. A later deadline might put paid to that problem. But it would be unwise for landlords to rest easy.
If they leave improvements too close to a new deadline (if and when this is confirmed) they will find price tags for doing the work will have jumped after years of high inflation. In the intervening period, it is tenants who stand to lose most from the uncertainty hanging over the issue.
James Pickford is deputy editor of FT Money. james.pickford@ft.com
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