The PRS in 2017 1st Jan 2017
The Private Rented Sector (PRS) in Scotland now represents 14% (350,000) of all households, and it is set to keep on growing. However it doesn’t come without its challenges, and landlords and investors need to think ahead and plan how to manage their rental properties. We take a look at forthcoming changes in 2017 and beyond.
Private Housing (Tenancies) (Scotland) Bill
The Private Housing (Tenancies) (Scotland) Bill was passed by Scottish Parliament on 17th March 2016, although will not come into effect until 2018, or possibly 2019. It aims to protect tenants from the prospect of unfair eviction, and rent increases. It is claimed that the Bill will ‘provide security and stability to tenants while ensuring the sector is attractive to landlords and investors’.
Proposals in the Bill include:
• Improve security for tenants, which means that they cannot be asked to leave their home simply because the tenancy agreement has reached its end date. Essentially this makes most tenancies indefinite, and the tenant will be in control of when they want the tenancy to end.
• Comprehensive and robust repossession grounds which will enable a landlord to regain possession of their property in reasonable circumstances. The 16 new grounds for repossession must provide an appropriate and proportionate balance between tenants and landlords.
• The opportunity for local authorities to implement rent caps in areas where there are excessive increases.
• A more streamlined system with no confusing pre-tenancy notices and easier-to-understand model tenancy agreement.
Regarding rent rises, the Bill limits rent rises to a maximum of once per year. Tenants will need to have 3 months written notice and if they object then the case can be referred to a rent officer who will review the rent in comparison to market rents. This could lead to either an increase or a decrease in rent. If there are further objections by either the landlord or tenant, the case will be referred to the First-tier Tribunal (see last month’s newsletter article for a full explanation of this).
A number of campaign groups were set up to lobby parliament regarding contentious issues included in the Bill. The Key Place continues to be active within these groups and will keep landlords fully informed of forthcoming changes.
Changes to mortgage tax relief
At the moment, landlords are able to claim tax relief on their mortgage interest payments at the rate of tax they pay. Therefore if they are a higher-rate taxpayer, they are currently able to get 40% or even 45% tax relief on their mortgage interest. From April 2020 this will be capped at 20% – the equivalent of the basic rate tax – regardless of what rate of tax they are paying with this change being tapered in between April 2017 and April 2020.
Currently landlords are able to deduct the cost of their mortgage interest from their rental income when they work out the profit on which they have to pay tax. If landlords are no longer able to do this in full, they face an increase in the amount of tax they have to pay. Landlords who pay higher rate tax on rental properties with a mortgage will pay more tax. In saying that, some basic rate tax payers may also be affected as the changes might push them into the higher rate bracket.
The changes do not come fully into force until 2020 and so good forward planning is the key.
Buy to let property investors will have to factor the new rules into their calculations, and this could affect what they choose to buy, the offers they are willing to make and who buys a property, for example, the investor as an individual or a limited company owned by the investor. It is likely rents will be driven up to compensate.
The Key Place can advise on how best to handle your investment, please contact us now if you would like further information.
Changes to Universal Credit
In 2019 Universal Credit will be brought under the new Local Housing Allowance (LHA) cap, which will affect all Housing Benefit tenants in Scotland.
The only tenants who are to be exempt are those who started a tenancy before April 2016 and will still be in receipt of Housing Benefit in 2019. The DWP plan to transfer everyone of working age in receipt of Housing Benefit to Universal Credit from July 2019.
Universal credit combines benefits into one monthly payment which goes straight into the recipient’s bank account. The recipient will then need to budget accordingly in order to pay rent directly to the landlord / letting agent.
Universal credit will replace:
• housing benefit
• income-based jobseeker's allowance
• income-related employment and support allowance
• income support
• child tax credits
• working tax credits.
The Key Place has robust procedures in place for dealing with late or non-payment of rents. We proactively chase late rents and keep landlords fully informed at all stages.
Calls for Reinforcement of Legislation
Industry standards have been driven up over the last few years by the increase in regulatory requirements. Recent research by the Scottish Association of Landlords (SAL) has revealed that 69% of Scottish people believe local authorities should do more to ensure the existing laws (including requirement for landlord registration, gas & electrical safety checks and lodging deposits with one of the Government approved schemes) are being obeyed.
SAL is therefore calling for this to happen, starting with enforcement of landlord registration. It is essential that landlords are aware of and adhere to all regulatory requirements. There are severe penalties for non-compliance, including a criminal record. The Key Place ensures all our fully managed landlords are kept up to date with requirements and will deal with these on your behalf.