Private renting in Wales is experiencing massive change. The introduction of Rent Smart Wales marked a huge shift in approach, with the new Renting Homes Act and safety and minimum property standards now on the horizon. Here RLA Senior Policy Officer for Wales, Dorine Pannarale looks at where the sector is now, and what the future holds.
The Private Rented Sector (PRS) has much to be proud of, despite of the negative stigma that is placed upon it.
Independent data repeatedly demonstrate that the sector offers lower rents, and longer tenancies where circumstances are right.
It continues to have lower eviction and higher satisfaction rates, and it offers higher quality accommodation. Despite this, however, the dark clouds of regulatory change continue to swirl over the sector, and landlords may well expect another deluge of change to contend with in 2018.
National landlord licensing
The passage of the Housing (Wales) Act 2014 sparked the beginning of a major transformation of the PRS in Wales.
Administered via Rent Smart Wales, mandatory landlord and agent licensing has now firmly bedded in, with enforcement of the scheme due to celebrate its first anniversary at the end of November.
In the space of a year, the scheme has managed three notable prosecutions of wilfully negligent landlords. Fixed penalty notices, the first step to a prosecution, continue to increase.
The scheme that was intended to professionalise the sector and root out “rogues” has yet to capture 20 percent of landlords and agents who remain noncompliant, according to a recent Cardiff Council Cabinet report.
Compliant landlords and agents are rightfully frustrated by this, particularly given the lack of an incentive for them for early compliance with the new regulations.
At three years into the scheme, regulators are already beginning to have discussions around new criteria for licence renewals.
The RLA intends to follow these developments closely and ensure that private landlords’ interests are protected.
Renting Homes Act and new tenancies for landlords
Shortly following the passage of the Housing (Wales) Act 2014, the Welsh Assembly passed another major piece of legislation that will revamp how landlords can write their tenancy contracts.
This legislation, the Renting Homes (Wales) Act 2016, will require landlords to issue a “standard [tenancy] contract” comprised of fundamental, supplementary, and additional terms that will be established by Welsh Government.
The Act also includes provisions to contend with retaliatory eviction, abandonment, and fitness for human habitation.
Welsh Government is currently formulating the various regulations and secondary legislation that will be required to implement the law.
A consultation addressing the provisions relating to Fitness for Human Habitation is currently open and closes in January 2018. Full implementation of the law is not expected until late 2018.
Tax, tax, and more tax
When it comes to mortgage interest relief, in 2018 landlords will only be able to claim 50 percent of finance costs at the higher rate, with the remaining 50 percent being deducted at the basic rate.
Compounding tax problems even further, the Land Transaction Tax (LTT), or Welsh “stamp duty”, will come into force in April 2018 (along with new minimum energy efficiency standards).
Despite the RLA’s campaign to remove the three percent levy on second properties, particularly those that are purchased with the intent to let, the Welsh Treasury has imported stamp duty from England and left it as is, or almost.
A stark difference is the rate of tax homebuyers will pay when purchasing property in Wales, with higher rates for higher end investment.
Naturally, there are concerns about how the LTT will impact investment in Wales, particularly for large investors. People buying houses worth more than £750,000, for example, will see a tax hike to 10 percent.
According to Welsh Government, nine out of 10 homebuyers in Wales will pay the same amount or less tax than they do currently. Transactions of £500,000 are expected to account for three percent of transactions in 2018-19.
Minimum Energy Efficiency Standards
If April wasn’t exciting enough, it is bound to be for landlords in 2018. As above, landlords will be hit with Land Transaction Tax and the new minimum energy efficiency standards all at once.
Don’t be a fool on April 1st– the day that PRS new lets and renewals must have an E rating on EPC. The regulation applies uniformly to all tenancies 1st April 2020.
The regulations make it unlawful to rent a property which breaches the requirement for a minimum E rating, unless the landlord registers an applicable exemption.
A civil penalty of up to £4,000 will be imposed for breaches and up to 330,000 PRS properties will be affected by compulsion.
According to government projections, landlords will face an approximate £1,800 cost to bring one property up to standard.
An RLA member survey, however, paints a vastly different picture, with landlords stating that, on average, it would cost £6,780 to bring a property up to the new standards.
Recently released guidance from government states that currently landlords are exempt from the requirements when they register with government that they have been unable to secure government subsidies to orchestrate upgrades.
It is important to underscore that this exemption must be registered.
The RLA is tracking this announcement closely as it deviates from the previously stated intention of government to create a spending cap on upgrades. It will be a notable victory for landlords should government stick to the exemption.
Following similar moves in Westminster, the Welsh Government is seeking to help those tenants who struggle to access the private rented sector, because of exorbitant and unforeseen fees charged by some letting agents.
They intend to remedy this by either eliminating or reducing fees charged to tenants by letting agents.
A consultation on the proposal to ban “unfair” letting fees closed in September. In its consultation response, the RLA stated that an outright ban, as called for in England, would be a dangerous move, with ripple effects throughout the sector.
Instead, the RLA campaigned for a capped fee, within which a set of services would be required, such as referencing, credit checks, and assistance with negotiating the terms of the tenancy with the landlord.
Additionally, the RLA called for a set menu of fees for services that might not apply to every tenancy, like guarantor referencing or surcharges for lost keys.
With fees capped and a set of tariffs established via Welsh Government, rule-making, tenants would no longer face any confusion about what they are paying for.
It also levels the playing field across the letting agency sector, a proposal also called for by the Association of Residential Letting Agents. Agency fees represent a cost to agents for a service rendered, and they should be fairly compensated for their services.
The RLA is also calling for Government to use powers already established under current law. The Consumer Rights Act 2015 requires agents to publish a list of their fees. Increased enforcement of this law will go some way in preventing confusion for tenants over any applicable tenancy fees.
The RLA will continue to follow progress on this issue.
High Marks for PRS
The PRS caters for many different types of tenants with very different requirements, and the sector as a whole receives high satisfaction rates.
The National Survey for Wales finds that 90 percent of PRS tenants in Wales are satisfied with their accommodation.
This compares to 83 percent of tenants in social housing across Wales.
At the same time rents are kept relatively low, with 0.1% decrease in the 12 months to June 2016.
Further, the PRS has increased security, with the PRS making far fewer claims for possession last year than the social housing sector (4,265 in the social housing sector compared to 677 in the PRS).
The RLA will continue in its efforts to raise awareness of amongst policymakers of the resilience and the utility of the sector in resolving the housing crisis.
Regulation must be formulated based on current realities, and that, so far, has not been the case. Responsibility for the ongoing housing crisis lies directly on government and faulty public policy.
In response the changes up ahead the RLA is hosting its first Future Renting Wales conference next month.
The national one day conference for the private rented sector will offer everything PRS landlords need to know regarding how best to prepare themselves for the changes ahead.
RLA policy director David Smith – legal adviser to the Renting Homes Bill committee – and Anne Rowland of Rent Smart Wales will also address the conference, along with other industry experts.
Early bird tickets start from just £20 for RLA members and £25 for non-members.
Tickets are available at https://www.rla.org.uk/conference/future-renting-wales/
Search #FutureRenting17 for all the latest conference news.