Every new year brings with it changes to legislation and updates in guidance relating to Britain’s property market. In this respect, 2021 is no different – of course, against the backdrop of a global health crisis and our recent departure from the EU, the coming year will undoubtedly see a little more change than usual. Already, the housing market has become difficult to navigate under the shadow of the COVID-19 pandemic.
Many landlords have brought rent down to accommodate for the financial difficulties felt by tenants, while others have grappled with the challenge of evicting non-paying tenants due to the ban on evictions that stretched on until September 2020. If that wasn’t enough, house prices are predicted to fall by over 10 percent in 2021. Of course, there are some silver linings to look forward to. Fortunately, the third national lockdown didn’t lead to a closure of the housing market. Across England, Scotland, Wales and Northern Ireland, estate agents have still been able to conduct in person viewings and buyers able to move home.
As a result, the UK has been enjoying a ‘mini boom’: transactions are up considerably, with provisional data from HMRC revealing a total of 129,400 property sales in December – a 32% year-on-year growth. Thanks to the cuts in stamp duty in 2020, the UK property market has been on the rise as buyers look to take advantage of the tax savings before March 31st, 2021. Whether the bubble will burst after this date is uncertain.
Nevertheless, it’s clear that the coming year is going to be a busy one for property investors. From Electrical Safety Standards through to Right to Rent changes and the continually shifting restrictions in response to COVID-19, a little guidance can go a long way in ensuring compliance. While new regulations may make 2021 a tricky year for landlords, we’ve put together the following guide to changes in property law that you’ll need to keep in mind when investing in buy-to-let and managing your portfolio.
Changes to eviction legislation
In 2020, the first national lockdown saw the introduction of legislation to protect tenants from being evicted in the midst of the crisis. Although the ban on eviction orders was temporarily lifted in September and due to be lifted again in January, the Government recently decided to extend the tenant eviction ban to March (at least) in light of the tightening of COVID-19 restrictions in January. Naturally, there are caveats to allow for evictions in certain circumstances – landlords are able to start progressing within a shorter timeframe in cases such as notices in relation to anti-social behaviour, domestic abuse, rioting and false statement, where the required notice periods have returned to their pre-Coronavirus Act 2020 lengths. This may also apply in cases where tenants owe more than six months of rent arrears. If so, a minimum four-week notice period will be required. If less than 6 months of rent is unpaid, then the notice period is six months.
Due to the numerous extensions on the eviction ban, there is a concern that courts will inevitably face a backlog of cases when the ban is lifted in March. At present, the eviction ban means landlords cannot start court proceedings or physically remove a tenant from their property during this time. Six-month notice periods are also still in place until at least the end of March. It’s worth noting, however, that landlords can still serve tenants a Section 8 notice, allowing them to evict a tenant inside the fixed term of a tenancy if that tenant has breached their agreement.
Stamp duty changes
In July 2020, a reduction to stamp duty and land tax (SDLT) was brought in for properties with a value of £500,000 or lower as a means of boosting the housing market. Reduced rates will continue to apply until 31st of March inclusive – as to whether the relief applies to your purchase, the key point is the date you complete your purchase.
On a related note, from April 1st, UK non-residents are set to be charged a two per cent SDLT surcharge on all residential property. So, where a UK resident would pay no stamp duty for a property under £125,000, a non-resident can expect to pay an extra two per cent of the value of the sale. For properties over £1.5m, this surcharge increases to 14 per cent. HMRC will also require SDLT to be paid within 14 working days. However, if a buyer pays the stamp duty surcharge and then goes on to become a UK resident within 12 months, they may be eligible for a refund.
At present, buy-to-let investors are paying a three per cent surcharge on additional properties – a surcharge that landlords feel should be scrapped during the pandemic to promote activity in the UK’s housing market. Considering that most properties will be valued above £125,000, it’s almost inevitable for buy-to-let investors to enter the higher bands of SDLT.
Client money protection
April 1st marks the deadline date for letting or property management agents who hold client money to comply with the new client money protection legislation. Although this has been pushed back twice over the past few years, it’s unlikely to shift again from April 2021. Client money protection is effectively a form of insurance that safeguards the money of landlords and tenants against theft or misappropriation by a letting agent. That could include deposits, maintenance funds, rental payments or any other monies held by the agent in relation to a property. Mandator protection was introduced for letting agents in April 2019 in the form of the Client Money Protection Schemes for Property Agents Regulations, and firms were given a grace period of 12 months to comply. Then, in February 2020, the Government amended the rules and pushed the deadline to April 2021, giving agents another year to prepare.
There are currently six Government-approved client money protection schemes:
Client Money Protect, Money Shield, Propertymark, RICS, Safeagent (previously NALS), and UKALA Client Money Protection.
In order to join a client money protection scheme, agencies will need to hold their clients’ money within a bank or building society authorised by the Financial Conduct Authority. Agents are also expected to introduce or maintain robust client money handling procedures in place by April 1st. From this date, letting and property management agents will need to display the certificate that confirms their membership of an approved CMP scheme in a visible location within their premises as well as one their website. Further, you’ll need to provide a copy of your certificate to anyone who reasonably requests it, free of charge.
Failure to comply with the regulations can come with some harsh penalties. Since April 1st, 2019, a fine of up to £30,000 has been the penalty for agents who cannot show that they belong to an approved client money protection scheme. There was, however, a two-year grace period given to agents in case they were struggling to open a client money account. This grace period ends on April 1st, 2021: as of this date, agencies can and will be fined if they are found to not belong to an approved CMP scheme, and up to £5,000 if they do not display their certificate of membership or provide it when asked.
Deadline for electrical compliance
As a landlord, it’s your legal responsibility to ensure the safety of all your electrical equipment in each property you own, and to ensure that it is maintained throughout the duration of a tenancy. General wear and tear is to be expected, so it’s vital to take proactive measures to protect your tenants and provide them with fully functioning electrical equipment including wiring, plugs and light fixtures. From April 1st, you will need to have in place an electrical safety compliance certificate for every property you own. This certificate serves as proof that you have taken measures to ensure the safety of your tenants such as getting all electrical installations tested by a qualified professional. These new regulations will take effect from April, replacing the existing requirements for Houses in Multiple Occupation (HMOs) to have electrical installations tested. So, if you don’t already have a certificate for electrical compliance for your properties, don’t wait to get this sorted.
Changes to Right to Rent
With the UK having officially left the EU, landlords now have a legal obligation to check the immigration status of all tenants to ensure they are legally allowed to rent their property. The new points-based system came into effect from January 1st, but the Government has said it will accept passports and national ID cards as proof of right to live in the UK until June 30th.
In June, we can expect to see new guidance issued covering how landlords can perform Right to Rent checks for EEA nationals and whether we can expect further changes with regard to Brexit. In light of the COVID-19 pandemic and lockdown restrictions, the Government did temporarily adjust the rules around Right to Work checks to allow these to be carried out safely. Under the current lockdown, the following changes still apply:
Right to Rent checks can be done via video call with a scanned copy of the valid documents.
Landlords must mark scanned documents and affirm that “an adjusted check has been undertaken on [insert date] due to COVID-19”.
Landlords should perform a follow up check to confirm that the occupier still has a valid right to rent at a later date, although no date has been confirmed for follow-up checks as of yet.
With regard to mortgages and insurance, a large portion of lenders already required non-EU foreign nationals to provide identity documents and evidence of their right to remain in the UK as a condition of lending. Responding to Brexit, many will have updated their terms and conditions to include EU foreign nationals – Santander, for example, now requires EEA citizens to provide evidence of their right to remain in the UK when applying for a mortgage with an LtV of 75% or more.
Reform of leasehold laws
Under the current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent. Meanwhile, leaseholders of flats can extend their leas as often as they wish at a zero ground rent for 90 years. However, in early January, the Secretary of State for Housing, Communities and Local Government, Robert Jenrick, announced that the Government is planning to introduce legislation which will allow both house and flat leaseholders to extend their lease to a new standard of 990 years with zero ground rent.
Such changes would mean that any leaseholder who chooses to extend their lease will no longer pay ground rent to the freeholder, saving on thousands of pounds.
These proposed reforms to leasehold laws follow a series of reports published by the Law Commission in July 2020 which called for significant changes to the leasehold system. If these plans become enshrined into UK law, it would mark the most drastic reform to the sector in over 40 years.
In addition to zero ground rent, the proposals set out by the housing secretary include a cap on the ground rent which is payable when a leaseholder becomes a freeholder. A calculator tool will be made available online for leaseholders to determine how much it will cost them to buy their freehold or extend their lease. Costs such as “marriage value” (a fee calculated from the increase in the value of the property after the lease has been extended) would also be abolished as part of the leasehold reforms, and leaseholders would be able to agree to a restriction on future development of their property to avoid having to pay a “development value” fee. Finally, further protection for the elderly when purchasing leasehold retirement properties would be introduced. As part of these proposals, the Government has announced its intentions to establish a Commonhold Council – a partnership of leasehold groups, industry and government – that will prepare homeowners and the market for the widespread take-up of commonhold.
At present, the package of reforms still needs to go through several stages of review before they are introduced into law including drafting of legislation and review by the House of Lords. There will also be multiple legal reviews during this time to protect private investment firms and pension funds, meaning it may be a few years before the reforms are rolled out and it’s unlikely that the drastic changes proposed will resemble the final legislation. Still, while a knee-jerk reaction won’t be necessary, we’ll be keeping a close eye on developments in leaseholder legislation to help our clients prepare for the future and protect their interests.
The Budget on March 3 will set the tone for the country for the year ahead, with many of the current economic support measures for individuals and businesses set to finish in April. Should you require guidance or support from our specialist property and housing Solicitors, don’t hesitate to get in touch for a free consultation today.