Why Labour’s Renters Charter is a charter for disaster

Labour appears to be flirting with the idea of rent controls or capping rent rises and tightening up on the Decent Homes Standard under its Renters’ Charter. The issue has raised its head again recently but for me this charter is a charter for disaster. So, let’s consider what might happen to landlords in England if it looks like Starmer and Co take over power. And my first question is: When should we put rents up? Now or wait for Labour to get in?

Essentially, if the Tories don’t do it first with their Renters (Reform) Bill, Labour has pledged to end Section 21 evictions, extend notice periods and allow tenants to have pets and make alterations to their homes. These policies could have a significant impact on your income and your rights as a landlord.

None of these ideas is good news and will cost us whatever happens – and that’s not taking into account the struggles that will come to evict a non-paying tenant.

Why should you put up your rent now

So, why should you put up your rent now and not wait for Labour? Let me explain:

• Demand is high and supply is low. The UK is facing a chronic housing shortage, especially in urban areas where most renters live. According to the Office for National Statistics, there were 4.6 million households renting privately in England. Meanwhile, the number of landlords has fallen by 222,000 since 2017, according to HMRC data. Another 225,000 landlords could go if interest rates keep on rising. This means that there are more tenants competing for fewer properties, which gives you more bargaining power to charge higher rents. Other surveys bear this out – including RICS this week.
• Inflation is rising and interest rates are too. The UK inflation rate is 8.7% and BTL mortgage rates are around 7%, says Moneyfacts. Those are both painful figures and have a huge impact on landlords. If you have a BTL mortgage then you have a tough choice when remortgaging: either take on a new, more expensive mortgage deal or sell up. You also need to consider whether you can afford to absorb the higher payments – for a good, decent tenant this is an attractive proposition. For tenants who aren’t, then not so much.
• Labour’s rent controls could backfire. Labour has vowed to cap rent rises so you won’t be able to increase your rents above the Consumer Price Index (CPI). However, this could have unintended consequences for both landlords and tenants. For landlords, it could reduce your income and your incentive to invest in your properties. For tenants, it could reduce the quality and quantity of rental housing available, as landlords exit the market or cut corners on maintenance. Rent controls would also create a black market for rented housing, where landlords charge illegal fees or discriminate against certain tenants. Just look at what has happened in Scotland – or anywhere else that has imposed rent caps and then had to ditch them. (They have never worked anywhere but politicians still talk about rent caps as the best solution).

The case for selling up now

So, I mentioned the rate rises are making BTL mortgages very expensive. Most landlords will have equity to help, but there will be lots of landlords that don’t have a business model geared up to higher mortgage payments. We can criticise them all we want but some landlords have entered the sector on a wing and a prayer and are likely to be found out. But if you are thinking of selling your rental property, you might want to do it sooner rather than later because:

• Capital gains tax (CGT) will almost certainly go up under Labour. CGT is a tax that you pay when you sell an asset that has increased in value, such as a property. The current rates of CGT for residential property are 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers. However, Labour has proposed to align CGT rates with income tax rates, which could mean paying up to an eye-watering 45% on your property gains. This could significantly reduce your net profit when selling. Just think as you hand over a big chunk of the profit you made after all of that work, investment, time and effort that a Labour government won’t even be grateful for your efforts.
• Labour’s policies could reduce the value of your property. Labour’s plans to bring in its Renters’ Charter, there will be an end to Section 21 evictions, extended notice periods, pets will be allowed, and tenants can make alterations and redecorate (God help us). To me, the Charter will make it almost impossible to sell a property with a sitting tenant – there won’t be many small landlords wanting to expand their portfolio in these circumstances. That will hit PRS house prices. And put up rents as landlords bail out.
• You could cash in and sell your property and portfolio and invest elsewhere. You’ll be looking at a tax bill – incorporating before selling is certainly worth considering – and you can invest in whatever you want. For example, you could invest in stocks, cryptocurrencies or even vintage cars. Depending on what you choose to do, not only could you get higher returns and lower risks than rental property, but you won’t have to deal with ungrateful tenants and tenant activist groups that think we are undesirables and should handover our properties. If you are lucky enough, this might also be the time to consider moving your cash overseas – at least until Labour are voted out.

Raise your rents!

It should come as no surprise that I believe that landlords should raise their rents now, if they can, and not wait for a Labour government. Labour’s policies could reduce your income and rights as a landlord and make it harder for you to sell your property in the future.

By raising your rents now, you are getting in before Labour inevitably brings in its shortsighted rent caps and you could sell up to maximise your profit and minimise your exposure to Labour’s plans.

Whatever happens, it’s the tenant that will pay the price with higher rents and fewer property choices. It’s always the tenant that pays in the end, but no-one will care as politicians, the media and tenant groups turn the private rented sector into a political football. No-one is listening to us – putting up rents to market rates and see the number of homes to rent dwindle might just make our critics take a step back.

I never thought I would be crossing my fingers in the hope that the current crop of no-hopers, slippery buffoons and anti-landlord Conservatives would get re-elected – it’s a long shot and I’m hoping that a Labour Party bereft of appealing ideas and one of the dullest political leaders of all time will still fall at the final hurdle.

Until next time,

The Landlord Crusader