Despite a testing time for the UK economy in 2023, with high inflation and even more interest rate rises, the property market continued to defy most forecasters. Average prices did dip slightly, but there was no sign of the crash many had predicted. Meanwhile rents increased and much of the legislative changes anticipated were either delayed or scrapped entirely. So, what does 2024 have in store for landlords? Let’s find out…
More money for lower income households - confirmed
In his Autumn Statement 2023, the Chancellor announced that the Local Housing Allowance will be increased to cover the lowest 30% of local rents. That will see around 1.6 million households receive an average of £800 per year from April.
At the same time, benefits in England and Wales are set to increase by 6.7%, whilst the minimum wage will rise from £10.42 to £11.44 per hour (a 9.8% increase).
This should therefore help tenants better afford their rental payments, especially towards the lower end of the market.
More taxation - confirmed
Someone has to pay for all the giveaways though! The Capital Gains Tax allowance is halving again to just £3,000 from April, along with Dividend allowances (halving to just £500). Meanwhile income tax thresholds have been frozen until 2028, meaning as incomes increase (due to inflation) more of it will be taxed at a higher rate.
The unfairness of how Section 24 changed mortgage relief for landlords will also become more notable as incomes rise, the bandings are frozen and mortgage payments increase (without being able to fully offset them, whilst first paying tax on income rather than profit).
Energy efficiency requirements scrapped - confirmed
For the past few years, the Government have stated their intention to raise the minimum EPC rating to legally let a home from an ‘E’ to a ‘C’ (widely expected to come into effect for new tenancies from 2025 and all tenancies from 2028).
So it came as a big surprise last September when Rishi Sunak announced that plans to increase the minimum energy efficiency standard for rental properties in England and Wales had been scrapped.
Whilst it would be naïve to assume the policy won’t be back in some form in the future, it means that there are no longer lots of landlords panicking about how quickly they need to make potentially expensive improvements (many of which can actually be detrimental to a property).
House prices to drop - likely
UK house prices ended 2023 down just 1.8%, which is a far cry from the house price crash many had expected in the face of an ongoing cost of living crisis and with interest rates at a 15-year high.
Nevertheless, further price falls are expected; albeit many now expect a more moderate fall that may last longer, before a recovery occurs.
Interest rates to fall, yet mortgage payments to rise - likely
Interest rates have climbed rapidly over the past couple of years; between December 2021 and August 2023 the base rate rose from a historic low of 0.1% to that 15-year high of 5.25%. However, thanks to the Bank of England’s decision not to raise the base rate further since then, lenders have started to bring their mortgage rates down.
With inflation expected to get back to its long-term target of around 2% in 2025-2026, we should see the Bank of England start to bring the base rate down in 2024, albeit perhaps only marginally. That should be enough though to encourage lenders that rates have peaked and to be able to offer more competitive deals this year; particularly to those seeking longer-term fixes.
Nevertheless, there are currently more than two million buy-to-let mortgages outstanding. Those on tracker mortgages will already have started feeling the pain of interest rate rises,
whilst those whose fixed-rate mortgages are set to expire will soon see a sharp rise in their monthly interest payments. It is anticipated that 144,000 landlords are set to come to the end of their five-year fixed deals in 2024. These landlords will have been on mortgages with rates of 2.5% or less, whereas the ‘new normal’ is set to see rates between 5% to 6%, meaning their interest payments will likely double overnight.
Landlords are also starting to realise that the past 15 years have been the exception rather than the norm and so higher mortgage rates (and higher monthly payments) are most likely here to stay.
Rents to increase even more - likely
Landlords have sold almost 300,000 more homes than they've bought since 2016. Renters therefore face the harsh reality of there being too few homes available to let for too many tenants seeking accommodation. This, along with rising costs and greater taxation for landlords, led to a 9% increase in rents last year.
In fact, over the past two years, the average rent on a newly-agreed tenancy has risen by more than 20%! Compare that to the period 2015 to 2019, whereby rents only increased by around 2.5% on average each year, and we can see the current trend is another exception rather than the norm.
So, whilst the period of extremely rapid rent rises is probably now behind us, that fundamental supply and demand imbalance suggests rent increases will continue, but perhaps at a more moderate rate. Zoopla is forecasting rental growth of around 5% in 2024.
Reduced profits - highly likely
According to Savills, landlord profits are at their lowest level since 2007 - a reflection of the fact that landlords are not profiteering by raising rents. Because, whilst rents have increased (and mortgage rates have fallen back in recent months), for those landlords with mortgages their payments are likely to become, if they haven’t already, far higher than in recent years.
And with the majority of mortgaged landlords operating on interest-only mortgages, the hike in rates will see profit margins erode. Consider that the rate of a £200,000 interest-only mortgage rising from 2% to 6% will see costs jump from £333 to £1,000 per month. It would take a huge level of rental growth to compensate for this, far more than even the rapid rises we’ve seen over the past two years.
A further sting in the tale for landlords are those Section 24 reforms, with some even finding they are making losses due to their tax bill being greater than their on-paper ‘profit’.
Renters Reform Bill to be implemented - likely
The long-awaited Renters Reform Bill is progressing through parliament, with expectations that it could pass law before the end of 2024. It is set to provide several key reforms for tenants, including periodic tenancies as standard, a new ombudsman to resolve disputes between landlords and tenants as well as penalties against landlords not adhering to a ‘Decent Homes Standard’.
One glaring omission though is the ban on Section 21 notices (so called ‘no fault’ evictions). This was originally proposed in the 2019 Conservative Manifesto and formed a central pillar of the bill. However, it has now been delayed indefinitely due to the need to make changes to the court system to be able to properly implement its removal.
A General Election - highly likely
A General Election must be called before the end of 2024 and held by the 28th January 2025. It is therefore highly likely it will occur this year, along with a lot of campaigning and political promises (most of which are likely to appeal to tenants as opposed to landlords).
This could lead to….
A change of Government - likely
The bookies put Keir Starmer as the clear favourite to be next Prime Minister and thus see Labour rise to power. That means all of the above could be amended in any which way they choose…and possibly for the worse.
Angela Rayner became shadow housing secretary last September. Since then, the party has not said much about its plans for the rental market, but its policies currently include introducing a new ‘decent homes standard’ for rental properties, the immediate end of Section 21 notices (without the court reforms that those currently assessing matters deem necessary) and looking at “further measures to support private tenants with unsustainable rent costs and give people more power in their own home”.
Labour has also committed to upgrading every home to an EPC standard C “within a decade”, which may mean requiring private landlords to meet that minimum rating sooner.
All of this is bound to lead to….
Uncertainty - definitely!
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