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UK Rental Market: What Landlords Need to Look Out For in 2023

UK Rental Market in 2023

Soaring mortgage costs, higher taxes and increasingly stringent legislation are just some of the things set to affect landlords in the year ahead.

But it’s not all doom and gloom, with rental demand remaining strong and the easing of property prices offering some great opportunities for investors who are looking to expand their property portfolios.

Whether you’re an existing landlord looking to stay ahead of the game or a would-be investor considering new investment options, we take a look at the UK rental market in 2023 and some of the key things landlords need to look out for.

Rental reforms set to shake up private rented sector

Last year, the government finally announced its long-awaited Rental Reform White Paper, outlining sweeping plans for the private rented sector that aim to create a fairer deal for tenants. 

Amongst other things, the plans include the abolishing of section 21 ‘no-fault’ evictions, along with the application of the Decent Homes Standard to the private sector for the first time. Other changes include the doubling of notice periods for rent increases and the outlawing of blanket bans on tenants with children and those receiving benefits. 

While we still don’t know when the bill will be made into law, it’s expected to be some time this year, so be sure to keep your eyes peeled for further announcements. 

A slower market could allow savvy landlords to snap up bargains

While house prices have climbed significantly year-on-year, a slowing of the market over the last few months means there could be opportunities to snap up properties at more favourable prices.

With lower demand thanks to market uncertainty, rising mortgage costs and soaring inflation, many sellers are keen to strike deals, meaning this year could be a good time to buy for investors who are looking to expand their portfolios.

Mortgage costs are likely to remain high

Mortgage costs have soared in recent times, especially so following last autumn’s disastrous mini-budget which plunged the markets into chaos.

While things have improved slightly since then, the cost of buy-to-let mortgages remains high, with rates of over 6% not being uncommon.

Given that the Bank of England interest rate is expected to rise again this year as it grapples to keep inflation under control, it’s likely that mortgage costs will continue to rise, creating even higher repayments that are already having a significant impact on the profitability of buy-to-let.

Demand in UK rental market expected to remain strong

Demand for rental properties remains exceptionally high, with few signs of things slowing down any time soon.

Thanks to a severe shortage of affordable housing, this unprecedented demand has pushed up rents to record levels in many areas. Although more properties are coming onto the market, they are not doing so in enough numbers to keep up with the demand.

More tenants could fall into arrears

As tenants struggle with the rising cost of living, it’s likely that more tenants will miss payments and fall into arrears.

With this in mind, it is important for landlords to keep accurate records and receipts of payment. Should a problem occur, contact the tenant right away, making sure to remain polite and courteous and keeping a record of communication. In many cases, it’s often possible to resolve the issue before any further steps are necessary.

Incoming energy efficiency rules

The government is introducing new rules on energy efficiency. By 2025, all newly rented properties will need an EPC rating of C or above. For existing tenancies, they will be required to meet this standard from 2028. 

To help homeowners get ready for this, the government has announced an ECO Plus scheme which grants up to £1,500 towards the cost of insulation. The scheme is expected to run until 2026, with landlords who meet certain criteria being eligible for it.

Reduction of tax-free allowance for capital gains tax

Announced in the Autumn Statement, the tax-free allowance for capital gains tax will reduce in April 2023 from £12,300 to £6,000, and then fall again to £3,000 in April 2024.

For landlords selling up, this means they will have to pay significantly more tax, with the expected bill for a typical landlord expected to increase by £2,610 in 2024, according to estate agents Hamptons.

New and expanded landlord licensing schemes

More councils look set to introduce landlord licensing schemes, which allow councils to regulate landlords and carry out enforcements when necessary.

If such a scheme applies in your area, you’ll need to firstly apply for a licence before you can rent out a property. With a number of new schemes set to launch this year, this is something else landlords need to be aware of.

Landlords facing challenges – but many opportunities out there

Despite many landlords struggling in the face of rising costs and increased legislation, there are many opportunities out there to make money from property – including more hands-off alternatives to traditional buy-to-let investments.

If you’re interested in discussing property investment and the UK rental market in 2023, give our expert team a call on +44 (0)1708 922 222 or fill in our contact form. We will be happy to talk you through the different options that may be available to you.

Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.