This year is looking like another 12 months of change for UK landlords, with several major legislative and compliance reforms set to come into force alongside an ever-changing economic picture.
“There are a whole host of changes coming that will affect landlords across the UK,” says Martin & Co Managing Director Ellie Hall.
“The most comprehensive way for landlords to guarantee they remain compliant is to use a letting agent’s management service.
“This also includes thorough referencing of potential tenants – something that’s even more important as the cost of living continues to rise.”
In this latest guide, you’ll find everything you need to know about the rules coming into force in 2023 and how you can mitigate against ongoing economic forces.
1. Rising interest rates
After many years of record low interest rates, the Bank of England started raising its base rate in December 2021 to combat rising inflation.
In January 2023, the base rate had risen to 3.5%, with a further rise in February taking it to 4%.
The base rate rise has seen mortgage rates go up, too, while the government’s mini-Budget also saw lender rates rise quickly.
If refinancing your buy-to-let is on your agenda in 2023, you’ll almost certainly find you’re paying more.
However, while the average buy-to-let two-year fixed rate was 6.5% in November, lender rates have been falling into 2023.
Seeking independent mortgage advice is recommended if you do need to refinance.
2. Landlord licensing
More local authorities are broadening their landlord licensing rules to include standard, single-tenancy buy-to-lets.
Traditionally, additional and selective licensing schemes have only applied to Houses in Multiple Occupation (HMOs).
However, with more councils widening their rules, you should check to see if you require a licence now or may do in the future.
3. Minimum Energy Efficiency and EPC changes
Part of the government’s push toward net zero by 2050 includes changes to rules on the Minimum Energy Efficiency Standard (MEES) for privately rented homes in England and Wales.
Currently, the MEES is an Energy Performance Certificate (EPC) rating of ‘E’.
That means properties with an ‘F’ or ‘G’ rating can’t legally be let.
However, from 2025, you’ll need to ensure your property has an EPC rating of ‘C’ to comply with MEES – with new tenancies affected right away and the rules applying to all tenancies from 2028.
While the rule change is two years away, if you’re currently letting a property with a ‘D’ or ‘E’ rating, you should start taking steps to improve this now, in time for 2025.
4. The Renters Reform Bill
The Renters (Reform) Bill is certainly the biggest potential legislative change in 2023 and has been labelled the biggest private rented sector shake-up in decades.
A government white paper in June 2022 outlined the contents of the Bill, which could become law this year:
The end of section 21 evictions
The main part of the Renters Reform Bill revolves around section 21 evictions and if the Bill becomes law, these would be banned.
This means a tenancy would only end with no reason if a tenant decided to do so.
Landlords, instead, would need to apply for possession of a property through section 8, citing a valid ground for possession.
The Bill also proposes to strengthen those grounds for possession, making it easier for landlords who wish to sell or move into their rental properties, those who are dealing with antisocial tenants or tenants in arrears.
All tenancies will be periodic
The Bill proposes to end fixed term tenancies – with all tenancies instead becoming periodic from day one.
Tenant notice periods of longer than two months would also be banned.
No blanket tenant bans
Blanket bans on tenants who claim benefits, or those wishing to rent with children, would be banned if the Bill becomes law.
A new landlord ombudsman and property portal
Another major proposal within the Bill is the creation of a mandatory Private Renters Ombudsman.
As it stands, letting agents are required to belong to one of two ombudsman schemes but landlord membership is voluntary.
The Bill proposes a single ombudsman for all landlords, whether they use an agent or self-manage, and membership would be mandatory.
A new property portal would also be created, aimed at giving tenants more detailed information about a property before they commit to a tenancy.
5. Rising rents and growing tenant demand
Rental prices across the UK continue to rise as demand from tenants is offset by a lack of available properties.
Indeed, Rightmove predicts rents will rise by a further 5% in 2023 unless there is a major addition of available homes.
The portal’s rental price tracker for Q4 2022 indicated rents had risen by 9.7% compared with the same period in 2021 – with rents inside London growing by 15.7%.
Should property prices fall in 2023, rising rents mean landlords could find some excellent yield opportunities.
6. Cost of living pressures
Ongoing pressures sparked by rising prices mean it’s never been more important to fully reference tenants and reduce the risk of rent arrears.
Letting agent referencing can help with this, alongside rent guarantee insurance, which will protect you should you tenants fall into arrears.
7. Making Tax Digital
Although Making Tax Digital for landlords was due to come into force from April 2023, this has now been put back until 2026.
Landlords with an annual rental income of more than £50,000 will need to use Making Tax Digital from that point.
This involves filing digital tax returns every quarter instead of annually.
8. Capital Gains Tax
Capital Gains Tax may be due if you decide to sell a rental property for more than you paid for it.
The current tax-free allowance for capital gains tax is £12,300 per person – but this is changing from April 2023.
Instead, the new allowance will be £6,000, before reducing to £3,000 from April 2024.
This could see some landlords paying more in capital gains tax if they decide to sell into the new tax year.