This year is looking like another big 12 months of change for London landlords – and we’re here to help you through it.
While buy-to-let in London remains a good investment, being aware of legislative changes is crucial.
“Legislation is tightening all the time and staying on top of all the changes can be difficult for London landlords who self-manage,” says Rob Smith, Managing Director of Ellis & Co.
“With the increasing cost of living, it’s also never been more important to fully reference and assess tenants – something which can be done through a local letting agent.”
This guide outlines all the important changes being made for landlords in 2023, from capital gains tax to ongoing rental reform proposals…
1. Higher buy-to-let mortgage rates in London
Bank of England interest rates sat below 1% from February 2009 to June 2022.
But the days of ultra-cheap borrowing now appear to be over after the Bank increased its base interest rate from 0.1% to 3.5% between December 2021 and January 2023.
The government’s disastrous mini-Budget also caused lenders to rapidly increase mortgage interest rates late in 2022.
According to Moneyfacts, the average two-year fixed rate buy-to-let mortgage increased by almost 1% between October 2022 and November 2022, from 5.57% to 6.5%.
Rates did start to fall at the end of the year and were continuing to do so at the time of writing, while the number of buy-to-let mortgages available was also increasing.
However, London landlords looking to invest or refinance should expect higher buy-to-let mortgage rates than at the same time last year.
2. Landlord licensing in London
Additional and selective licensing schemes have been on the rise in recent years and this could continue in 2023.
In most cases, additional and selective licensing schemes only apply to Houses in Multiple Occupation that aren’t already subjected to mandatory licensing.
In London, however, the borough of Greenwich introduced mandatory licensing for all private landlords in certain wards late in 2022.
Wandsworth borough could follow suit this year.
3. Energy efficiency changes
The current Minimum Energy Efficiency Standard (MEES) in the private rented sector is ‘E’.
This means you can’t legally let a property with an Energy Performance Certificate (EPC) rating below this.
However, as the government drives to improve energy efficiency, the minimum ‘E’ rating is set to become ‘C’ for new tenancies from 2025.
All tenancies would need to hit the required ‘C’ standard by 2028.
This means if your rental property currently has a rating below ‘C’, you should start to think about potential improvements this year.
4. The Renters Reform Bill
The Renters Reform Bill has been on the agenda for some time and was initially delayed because of the Covid-19 pandemic.
A whitepaper detailing the Bill’s proposals was released in June 2022, but it’s still unknown when it will become law.
It could happen in 2023, though, and the Bill heralds one of the biggest private rented sector shake-ups for decades.
Here are the main elements of the Bill you need to be aware of…
The end of section 21 evictions
Under the Renters Reform Bill, section 21 ‘no fault’ evictions would be banned.
This means tenancies will only come to an end when the tenant decides – unless you have grounds for possession under a revised section 8 process.
The Bill proposes to strengthen landlord grounds for possession to balance the lack of section 21, while only deposit protection would need to be proven to use revised section 8 grounds.
No more fixed term tenancies
The Renters Reform Bill would also abolish fixed term tenancies – with all tenancies being periodic from day one.
This is intended to give tenants freedom to give notice at any stage.
Tenant notice periods of longer than two months would also be banned, although if you wish to sell or move into your rental property, you can give your tenant two months’ notice under a revised section 8 procedure.
No blanket bans on tenants
You’ll no longer be able to issue a blanket ban on tenants with children or those on benefits should the Renters Reform Bill become law.
A landlord portal and ombudsman
A Private Renters’ Ombudsman would be created under the Renters Reform Bill to help ease pressure on the court system.
Under current rules, all letting agents must be part of a mandatory ombudsman – but for landlords, this is voluntary.
The Bill, however, proposes a single ombudsman for all landlords, with mandatory membership required.
This, the government says, will help to streamline the service for landlords and tenants and reduce confusion caused by multiple schemes.
A landlord property portal would also be introduced as part of the Bill, with all landlords required to register their properties.
5. Growing rental demand and rising rents
With rising interest rates and the cost-of-living squeeze continuing to bite, many first-time buyers have ruled out purchasing in 2023.
This means London rental demand is continuing to rise and looks unlikely to slow down as we move through the year.
Rents are on the rise, too.
According to Rightmove’s Rental Price Tracker, the average London rent rose to £2,343 at the end of the third quarter of 2022.
That equates to an annual rise of 16.1%, while inner London rents were up by 19.3%.
With rents rising and London property prices projected to fall during 2023, there’s potential for capital-based landlords to enjoy rental yield increases.
6. Cost of living pressures
Inflation and cost of living rises have put household budgets under more pressure – including tenants.
As such, 2023 could see an increased risk of tenants falling into rent arrears.
Effective and thorough referencing can help to mitigate this, alongside good property and tenant management and rent guarantee insurance.
7. Making Tax Digital in London
Mandatory quarterly digital tax returns were due to be introduced in April 2023 for landlords with rental incomes of £50,000 or more.
However, the Making Tax Digital scheme has now been pushed back to 2026.
8. Capital gains tax allowances are changing
From April 2023, the annual capital gains tax-free allowance is reducing.
This means if you plan to sell a rental property after April, you could pay more in capital gains tax.
Until April, the tax-free allowance is £12,300 per person – the amount of ‘gain’ you can make when you sell an asset that will never be taxed.
From April 6, 2023, however, the tax-free allowance will reduce to £6,000, before reducing further to £3,000 in April 2024.
For London landlords, this could see their capital gains tax liability rise significantly.
