Blog: Looking ahead to 2021
In his latest blog Paul Shamplina, Head of Property for Hamilton Fraser and Founder of Landlord Action, shares his views on the next 12 months and what they will hold for landlords.
For some landlords, the unprecedented circumstances of this last year were the final straw following a raft of measures which have seen landlords’ finances heavily impacted.
Yet, despite the continued ‘doom and gloom’, it is important to try and remember a couple of things: this situation will not last forever, brighter and more prosperous days will return.
In addition, the rental market remains in robust health with more people renting than ever before (an estimated 4.5 million families), which means there is still very much a place in the market for landlords. Finally, landlords own an appreciating asset and as such, a buy-to-let business.
Businesses go through tough times, and they have to learn to adapt to survive.
Although we cannot predict the future, landlords must always try to look ahead to what they already know is going to happen and plan accordingly.
It is always a good idea to take some time to review what you have, be that one or 100 properties, and make sure you are running them in the most compliant and cost-effective way. A business review, if you like.
Here are a few things landlords might want to consider in 2021:
Tax
With the exception of those who are organised, many landlords will be filing their tax return in January.
Of course, it is likely to look a little different to the ones filed in previous years thanks to the Government’s changes on mortgage interest tax relief.
The reality of having tax applied to rental income rather than the profit after mortgage will hit hard this coming year, particularly for those whose mortgage interest represents more than 75% of their rental income, meaning the tax is likely to pretty much wipe out the income.
With the grim possibility that Chancellor Rishi Sunak’s Spring Budget could bring a potential hike to capital gains tax, landlords may consider that now is a good time to seek some expert advice about whether there is a way to run their buy to let business more tax efficiently.
Green Homes Grant
We know that over the next five years there is going to be big push towards improving the energy efficiency of homes.
For those who did not already know, landlords in England can currently get vouchers worth up to £5,000 to help with the cost of renovating their rental property to make it more energy efficient, as part of the Green Homes Grant announced by the Government in September.
The grant is non-repayable and covers labour, materials and VAT. The deadline to redeem vouchers has also been extended by one year to March 2022.
Client Money Protection
Recently, I was staggered to see the results of a poll run by Client Money Protect, which found that 77% of respondents did not know what client money protection was. Of those that did, only 35% asked their letting agent if they had it.
When booking a holiday, most people know what ATOL protected means.
For clarification, it means that if the travel firm you booked it through goes bust you are not stranded abroad or left out of pocket.
Yet so many landlords still use a letting agent without checking that their agent has client money protection. It is a legal requirement for letting agents to have this, so if the agent does not, then please do not use them.
The reason I raise this important point now, is because when comparing the eight months prior to the pandemic with the eight months following the pandemic (pre and post March 2020), the Property Redress Scheme saw a significant rise (66%) in letting agents ending their redress membership because they had ceased trading.
So, as more agents go insolvent, more landlords are at risk of losing thousands of pounds if that agent does not have client money protection.
Keep your tenants
We often talk about having to evict tenants for non-payment of rent, anti-social behaviour or other reasons.
However, I think it is important to make a point that the vast majority of tenants are very reliable, and landlords should do their best to keep hold of good tenants.
It might be tempting to hike rents to claw back some of the losses from the last year, but if you have a tenant that is taking good care of your property and you have a good relationship with them, then an offer of holding rents or doing some improvements in the new year may be a good incentive to convince them to stay.
Landlords should prioritise longer reliable lets over higher rents with someone that could be less reliable.
Mortgages
As a result of COVID-19, lenders are being more stringent in their data gathering as part of the application process so that they can better understand how landlords have been impacted by the pandemic.
In addition, due to the surge in demand from buyers taking advantage of the stamp duty holiday, the mortgage process is taking longer.
Therefore, whether you are looking for a new buy-to-let mortgage or due to re-mortgage soon, now is a good time to make sure you have all the information to hand, including whether you took a mortgage holiday, were temporarily furloughed, or accepted one of the Government grants.
This will prevent any unnecessary delays to your application which could see your current payments go up if you do not manage to arrange a new mortgage before your current deal ends.
It is understandable that many landlords are feeling frustrated and apprehensive about what 2021 will bring.
My advice is take care of things you can control, such as making sure you are compliant, keeping your property is well maintained, making improvements if you can afford to so, and ensuring the safety of your tenants.
All these things will stand you in good stead for whatever the future of buy to let holds.
