The Highs and the Lows of 2017

As 2017 draws to a close, I thought I would reflect on the various events of 2017 from a property investor’s point of view. Perhaps we can learn a few lessons to improve our businesses, or perhaps the exercise will reveal a pattern to help us more accurately judge what the future may hold.

As well as analysis on a macro level, assessing your business on a more micro level is doubtless useful in highlighting your various successes, and also working out where improvements could be made.

Few sections of the property investor marketplace have been untouched in 2017. Those with tenanted investments will no doubt be aware of the introduction of the “new” Section 8 template, which is now required in the event that you need to evict your tenant for a breach of tenancy. The revised Section 21 notice was introduced last year, and so this area of legislation has seen a complete change in the paperwork required.

This year has also seen a greater focus on the HMO marketplace. Minimum room sizes in excess of 6.52 square metres were a focus following the case of Manchester Council
v Clark, and speculation about changes in Council Tax assessment continues for those involved in multi-lets. A huge increase in supply of HMOs appears to have been matched by similar growth in tenant demand; however, time will tell if this will continue to be sustainable.

Another focus this year appears to be compliance in this sector. Local authorities seem to be undertaking increasing numbers of prosecutions in respect of those who breach the HMO regulations and licence conditions.

Single lets have not escaped this regulatory focus, as more local authorities have implemented selective licensing schemes, and more seem keen to enforce the requirements through the Courts. Several local authorities have renewed their selective licensing schemes; therefore it appears this licensing is here to stay.

Pursuant to this, the new Rent Repayment Order regulations of 2017 are likely to be invoked with increasing frequency for those who fall foul of legislation.

Following the disaster at Grenfell Tower and the current review being undertaken, it is likely that building compliance, and in particular fire safety, will be a continued focus as we move through to next year.

You will no doubt also be aware of the proposed ban on letting agency fees, which is to be introduced as soon as parliamentary time allows.

Not only will this severely impact the profitability of letting agencies, but it will likely have an upwards impact on rents – certainly if the similar scheme undertaken in Ireland is anything to go by.

In the letting market, there appears to be a continued shift away from tenants who receive benefits. Many landlords have been scared off by the rolling out of Universal Credit, whilst others see no ongoing need to consider the LHA market given the enormous demand from other tenant sectors. A recent report suggested seven in ten landlords now decline to accept housing benefit tenants.

The continued uncertainty surrounding Brexit, the fall in the value of the pound, and the inevitability of rising interest rates have meant that property buying
behaviour has started to change. The London market appears to be cooling considerably in some areas and some other regions have reported that there is less excitement in the market than was the case earlier in the year.

This year has also seen the relaunch of the Green Deal, funded this time by private equity but, as before, with the aim to provide energy saving measures paid for by the savings that they create. A most timely introduction given the changes which take effect in 2018, meaning that homes with a Band F or G rating will no longer be permitted to be let. It would be sensible to revisit your portfolios’ EPCs to check the position, and also to check the issue date as the first of the EPCs, which lasted 10 years, expired in 2017.

A further change which has started to take effect is the so-called Clause 24 or ‘Tenant Tax’ to give it its media name. The concept of taxing landlords on turnover rather than profit has led to a sea change in our operations, with many looking to incorporate their businesses whilst others are seeking to de-leverage their portfolio in order to maintain a positive net cash flow. Such a move could have a profound impact on our industry, meaning new entrants may be deterred and existing landlords may be forced to exit.

As I write this, the government have just announced a further consultation on the housing market and we shall await with interest the results of that in due course.
There have been a myriad of changes to our environment over the last 12 months and I am sure there will be similar volumes of change over the next year. Armed with all this data and the continued need for us property folk to adapt and evolve, it does make a mockery of the comment that property is a passive investment!

Notwithstanding, I wish you all a pleasant and relaxing holiday season and trust that you will all return, suitably relaxed and ready to face the challenges and the opportunities of 2018.