The buy-to-let (BTL) market is an attractive destination for investors seeking to reap the full financial benefits that come from property investment. The combination of long-term capital growth and regular rental yields is an enticing proposition, particularly when compared to the performance of other assets in this low interest-rate environment.

The UK’s private rental sector (PRS) has expanded at a phenomenal rate over the last two decades. Recent figures put the value of PRS at £1.3 trillion, with a £6 billion increase in the past 12 months alone. As a result, there are estimated to be over 2,500,000 landlords in the UK.

At Market Financial Solutions, we regularly arrange bridging loans for landlords expanding their BTL portfolio. And as part of our dealings with them and their brokers, it has become apparent to us that an increasing number are struggling when it comes to staying abreast of the latest legislative reforms governing the PRS.

Landlords are struggling to stay on top new legislative reforms

Over the past 12 months alone, we’ve seen a number of notable legislative and regulatory changes that have impacted the way UK landlords are able to manage their rental properties. This onset of new regulations has made it extremely important for investors to ensure they are compliant with the latest policies, or risk facing financial penalties.

Recent research by Market Financial Solutions has revealed just how much of an issue landlord awareness towards the latest round of legislative reforms really is. Having commissioned an independent survey of more than 400 UK landlords, we sought to uncover how many landlords are confused or simply unaware of these reforms.

The findings were eye-opening. It was revealed that 30% of landlords don’t understand the changes to House in Multiple Occupation (HMO) licensing, which came into effect in October 2018. Under this new regime, a license is now mandatory for any landlord managing a property which has five or more inhabitants, while new minimum standards have been set for the size of rooms that can be let out.

What’s more, 28% of landlords are not aware of the abolition of Section 21 which was announced at the start of June 2019 to prevent unfair evictions. Over a quarter (27%) also admitted they are unsure about the tenant fees ban, while one in five admitted they understand the reform but do not know how it will affect them.

Moving away from the policy specific to the PRS, there is also a general ignorance towards tax reforms affecting property ownership. When asked about changes to inheritance tax, namely the tax-free allowance on properties being passed down, 28% admitted to not understanding what this meant for them. Similarly, a quarter of landlords said they don’t know about recent reforms affecting tax relief on mortgage repayments, which were implemented in April 2019.

Promoting awareness and better practices in the PRS

There are plenty of interesting arguments to make based on the findings from Market Financial Solutions’ research. Staying on top of new policy reforms is a difficult thing to do across any industry or sector, yet the property market has become marred with regulation in a bid to address the systematic challenges facing the real estate market.

So, are these new reforms justified? Theoretically, yes. The housing crisis is one of the biggest issues currently facing the UK, and the lack of creative action taken to address the imbalance between housing supply and demand risks deterring investment into real estate, be it from first-time homebuyers or seasoned investors. Nonetheless, one cannot help but think the recent round of reforms have been implemented somewhat haphazardly.

Of course, policy which strengthens the relationship between landlords and tenants is something we should be actively encouraging, not to mention reforms that promote transparent practices in the property market. However, the lack of leadership from Westminster, coupled with the overbearing dominance of Brexit means a clear strategy has yet to be implemented.

In the short-term, agencies, advisors and service providers must offer the advice and expertise needed for landlords to ensure they are compliant with the latest requirements and regulations. At the same time, it is also essential that anyone renting out a property – even if they would not consider themselves a landlord – understands all the new reforms and takes action to ensure their properties meet the necessary standards and their finances are structured in line with the new reforms.

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Paresh Raja, CEO, Market Financial Solutions

Paresh Raja is the founder and CEO of Market Financial Solutions (MFS) – a London-based bridging loan provider. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.

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