Landlords must ‘go in with eyes open’ under new rental reforms, warns expert accountant

The new Renters’ Rights Act is expected to bring major improvements for tenants, but experts believe it will also leave landlords questioning whether staying in the market is worth the cost.

Clare Bowen, a Partner at Monahans, part of the Sumer group, says the reforms around rent controls, deposits and property standards will hit landlords unevenly.

“Larger landlords have more scope to spread costs and can offset one property against another,” she says.

“For someone with one or two rentals, there isn’t that flexibility. They don’t have the same access to trade support or professional management and every new rule adds to the strain.”

She notes that accidental landlords, people who didn’t set out to build a portfolio but found themselves letting a property after a change in circumstance, are likely to feel the pressure most.

“We often see couples later in life who’ve moved in together and decided to rent one of their homes rather than sell it.

“They’re not doing it to make money, they're just trying to cover the costs of the property. The new Renters' Rights Bill will make that much harder. I think we’ll see some be pushed to decide it’s simply not worth it.”

Clare says the one-year limit on rent increases, tighter controls on deposits and the inability to request rent in advance will reduce the financial buffer landlords rely on when things go wrong.

“If a tenant stops paying, the impact will be felt much faster. Combine that with the tougher eviction rules, and it could leave landlords in a difficult position.

“There needs to be some balance between protecting tenants and recognising that landlords have financial responsibilities too.

“You can’t keep piling on costs without expecting rents to rise. For some, the maths just doesn’t work anymore,” she said.

“It’s good to see tenants’ rights being strengthened, but landlords will need clear guidance on what to do when a tenant stops paying, or when they’re stuck in months of court delays.”

Clare also believes that the new Ombudsman and Private Rented Sector Database could be beneficial if implemented effectively, especially if it improves education and accountability on both sides.

“Some landlords don’t even realise they should be paying tax because their mortgage repayments match their rent. They don’t understand that only the interest is deductible, not the repayment element.

“Before we bring in more penalties, there needs to be more education. The database could help with that, but it needs to support landlords as well as monitor them.”

When it comes to larger investors, Clare believes that they will be able to find new opportunities as others leave the market.

“We’ll probably see institutional investors stepping in where smaller landlords leave. There’s strong demand for rental property, especially in the big cities, and investors with cash will take advantage of that.”

Clare is unconvinced that the Renters’ Rights Bill will be the end of property reform.

“It feels like the start of a longer process. Standards will keep rising, and that’s a good thing, but costs will keep rising too.

“The Government is clearly pushing for higher quality in the private sector, and that means landlords have to plan carefully and make tough decisions on whether they want to stay in the industry or sell up.”

Her advice to clients is to not make any rash decisions and seek professional guidance on the best course of action under their specific circumstances.

“Review your portfolio regularly. Look at each property on its own merits and check whether it’s still worth holding.

“Some landlords will find they’re better off selling one or two and improving the rest. It’s about going in with your eyes open and keeping a close watch on what each change means for your finances.

“With the Autumn Budget now just weeks away, it’s worth keeping an eye on what further changes the Labour Government may bring forward during their time in Parliament.”

Monahans offers accountancy and tax advice for landlords across the South West. To explore the firm's services, please visit the www.monahans.co.uk or contact 01793 818300.