28th May 2020

Coronavirus; Next in a Long Line of Difficulties Facing Residential Landlords in Wales?

Article by Ceris Clift from Greenaway Scott

According to the Office for National Statistics in 2018 the percentage of people living in private-rental properties in Wales was lower than the UK average. There was a reported increase from 9% in 2007 to 13% in 2017, however constantly evolving laws together with recent tax changes may now be putting some individuals off from becoming residential landlords.

Private tenancies in Wales have historically been governed by legislation from Westminster; however in September 2014 the Welsh Assembly introduced the Housing (Wales) Act 2014 (“HWA 2014”) which established the first set of rules applying exclusively to private landlords in Wales. Part 1 of the HWA 2014 made it compulsory for all landlords in Wales to be registered with the Rent Smart Wales scheme, as well as becoming licenced in order to carry out property management services.

All landlords in Wales must now be registered, however they can avoid the time and costs incurred in becoming licensed by employing agents to carry out the property management services on their behalf; although this comes at a cost to the landlord. Landlords who fail to register with the Rent Smart Wales scheme or who carry out property managing services without a valid licence can be brought before the Magistrates Court and face various penalties including fines in excess of £1,000. Whilst these penalties are imperative for rogue landlords; some landlords are at risk of operating illegally without even realising it.

Less than two years after the enactment of the Housing (Wales) Act 2014, the Welsh Assembly passed an even more ambitious pieces of legislation: the Renting Homes (Wales) Act 2016 (“RHWA 2016”). The statute was intended to amalgamate the existing variegated laws surrounding residential tenancies by creating a completely new framework in Wales. The Act provides for two types of residential tenancy agreements; secure and standard. Whilst the Act will also introduce various other obligations on landlords (which could alone have their own blog), it must also be noted that the Act is still undergoing amendments before it has even been largely implemented.

In February 2020 the Welsh Assembly proposed a Bill to amend the RHWA 2016 which would extend the notice period under s.173 RHWA 2016 (like the s.21 notices landlords currently use to serve two months’ notice on tenants) from two months to six months. This would effectively give tenants a minimum of 12 months in any property before a landlord can remove them. Landlords in Wales must therefore remain vigilant and up to date with current changes as these laws will have a substantial impact on their obligations to tenants.

Whilst the legislative landscape in relation to private lettings might be steadily evolving, nothing has brought faster change than the coronavirus pandemic. The pandemic has seen unprecedented moves by institutional lenders to provide mortgage holidays to borrowers facing financial hardship during lockdown. Whilst welcomed by many homeowners, it was clear that private tenants would not be automatically entitled to the same relief, despite the fact that their landlords may well be benefitting from a mortgage holiday.

The Coronavirus Act 2020 was passed on 25 March and Schedule 29 is intended to protect private tenants during these times by extending notice periods for evictions. Whilst this has come as a huge relief to many private tenants, some landlords have been left with concerns about giving rent holidays. When the landlord’s mortgage holiday comes to an end and the landlord is required to repay those months with interest, some landlords are concerned about whether they will be able to recover the lost rent from their tenants, or whether they will they be picking up the bill themselves.

One final and perhaps most important consideration for any person considering becoming a private landlord, is the recent changes to tax. From 2016 the purchase of any secondary property which is not your main residence has attracted a starting Land Transaction Tax (previously Stamp Duty Land Tax) band rate of 3% for properties with a value up to £180,000 and increasing up to 15% for a property with a value over £1,500,000. This can therefore see substantial costs up-front when purchasing buy-to-let properties. In addition to this, and as announced in the 2018 Budget, “lettings relief” was also abolished on the 6th April 2020 resulting in an increase of tax at the time of sale of a secondary property. It is therefore imperative that landlords take comprehensive financial advice as well as legal advice when venturing into the world of private lettings.