Changes BTL mortgage advisers need to be aware of in the Private Rented Sector for 2024

Labour's Renters' Rights Bill

One of the key pieces of legislation that the new government will introduce is the Renters' Rights Bill. This bill carries forward many of the provisions from the Conservative party's Renters Reform Bill, which was abandoned by Rishi Sunak before the general election. The Renters' Rights Bill aims to abolish Section 21, which currently allows landlords to evict tenants without a reason. In its place, new grounds for possession will be introduced under Section 8, although the specifics of these grounds have not yet been detailed.

Additionally, the bill seeks to empower tenants to challenge rent increases, ban "rental bidding wars," and provide tenants with an implied right to have pets. These measures reflect Labour's broader goal of creating a fairer rental market. For landlords, these changes can lead to more stable and predictable rental agreements, potentially reducing tenant turnover and associated costs. Mortgage advisers can highlight the long-term benefits of stable rental income and help landlords adjust their strategies accordingly.

Leasehold and Freehold Reform Act 2024

Another significant piece of legislation is the Leasehold and Freehold Reform Act 2024, which received Royal Assent on 24 May. This act, a commitment from the Conservative's 2019 election manifesto, allows leaseholders to extend their leases to up to 990 years, abolishes the marriage value, and limits ground rent. These changes are designed to make it more affordable and straightforward for leaseholders to extend their leases or purchase the freehold of their property. For landlords, this means increased property values and more attractive investments.

Mortgage advisers can assist landlords in understanding the financial benefits of extending leases or buying the freehold, and the options available to finance this.

Stamp Duty and Capital Gains Tax Changes

The landscape for property transactions and taxation is also shifting. The "permanent" increase in the residential nil-rate tax threshold for stamp duty, announced in the 2022 mini-budget, will end on 31 March 2025. This change, introduced by then-Chancellor Jeremy Hunt, is expected to lead to a surge in property transactions as buyers rush to benefit from the lower stamp duty rates before they expire.

For landlords and mortgage advisers, this presents an opportunity to capitalise on the increased activity in the property market. Advisers can help landlords plan their property transactions strategically to benefit from the current stamp duty rates before the rates change.

In terms of capital gains tax (CGT), landlords face a reduced tax-free allowance. From 6 April 2024, the annual exempt amount dropped from £6,000 to £3,000. This change means unincorporated landlords will pay more CGT on their capital gains. Although there was a modest reduction in the top rate of CGT from 28% to 24%, this benefit primarily affects top-rate taxpayers. Basic rate taxpayers continue to face an 18% CGT rate.

Advisers can help landlords make informed decisions that optimise their tax liabilities and investment returns by holding these conversations and signposting tax professionals to assist.

Summary

The new Labour government is introducing significant reforms to the private rented sector in England, aimed at creating a more balanced and fair rental market. These changes present both challenges and opportunities for landlords and mortgage advisers. By understanding and leveraging these reforms, mortgage advisers can continue to provide valuable guidance and services to landlords and help them through the changes.