A well-known estate agent has written an open letter to housing secretary Michael Gove calling for him to do more to help ensure buy-to-let remains profitable for landlords again.

A growing number of landlords are exiting the private rented sector (PRS), owed largely to an increase in regulation and taxes, and that is a major cause for concern, and an issue that the government can no longer afford to ignore according to Nik Kyriacou, associate director at Sheldon Bosley Knight, as buy-to-let investors see their profit margins squeezed.

Here is the open letter to the housing secretary:

The Right Hon Mr Michael Gove MP
House Of Commons
London
SW1A 0AA
15th June 2023

The Renters’ Reform Bill

Dear Mr Gove

I work for Sheldon Bosley Knight, a 180-year-old land and property agency based in the Midlands.

We manage more than 3,500 rental properties on behalf of landlords across Warwickshire, Leicestershire, Gloucestershire and Wcestershire. I am also a landlord myself and have been working in this sector for more than 16 years.

I am writing to you to urge you to look again at the Renters’ Reform Bill you published on May 17.

The Bill has taken four long years to be published, during which time, landlords in the private rental sector (PRS) have been faced with uncertainty and anxiety over what the future holds for them.

Right from the start you said you wanted to create a fairer PRS. However, I believe the Bill as it stands, is a missed opportunity to do so.
Crucially it does nothing to address the chronic shortage of stock across the country which is one of the biggest bugbears in the industry. This imbalance in stock vs demand has been exacerbated by this government falling short on incentivising landlords to remain in the sector – and this Bill does nothing to help that.

One of the most contentious elements is the abolition of Section 21.

Although this was widely anticipated, it still represents a headache for landlords who will find it much more difficult – and expensive – to evict tenants who don’t comply with their tenancy agreement.

Although there are other avenues available to evict anti-social tenants via Section 8, it will mean going to court – and extra expense. This in turn will clog up the already overloaded court system and add to landlords’ costs with legal fees. The government will have its work cut out to make this process as streamlined as it needs to be.

The change to the EPC regulations will also add yet more costs for landlords with some estimates suggesting a figure of £10,000 per property to upgrade it to a rating of at least a C. There is still detail
yet to come out (for example specific dates, how it affects listed buildings etc), leaving some landlords in limbo and unsure what they need to do and by when. This is unacceptable.

However, the abolition of fixed tenancies is in my view, the biggest kick in the teeth for landlords as it offers no security of income. A landlord could get a set of tenants in, pay the agent’s finder’s fee and then a few months later could find the tenant serves two months’ notice to leave.

The landlord will then have to go through the process again, adding more costs to an already fragile bottom line.

All these measures will just add more and more of a financial burden to landlords already struggling and for many their profits have been all but wiped out.

Perhaps you are not aware, but most of the PRS landlords in this country, myself included, are portfolio landlords, ie we have multiple properties and operate them as a business providing a much-needed service in providing a roof over a person’s head. Despite this, landlords seem to be treated differently including crucially in respect of not having the same tax benefits and arrangements as other entrepreneurs and sole traders.

Indeed, from 2017, there have been a series of phased taxation changes brought in by the government which have resulted in finance costs no longer being deductible against income on rental properties. Although limited company landlords are afforded some tax breaks, the ability for
sole traders to put property into a limited company is financially unviable due to duplicated Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT).

While on the subject of tax, I would like to also take this opportunity to highlight the need to turn the additional 3% second home SDLT from a stick to carrot for the motivated landlords who want to continue increasing good quality lettable stock. Maybe a possible rebate for seconds home with tenancies taken out within the first 12 months?

If you are serious about levelling up the PRS we need you to lobby and endorse these tax changes for landlords and kick start your manifesto pledge to build 300,000 homes a year which would go some way to increase the supply needed to meet the demand. This would then allow rents to fall to more manageable levels which would be of huge benefit to tenants. You need to incentivise landlords to stay within the industry and the Bill, along with the tax system, is not conducive to landlords as
things stand.

Sadly all this increased taxation, on top of the increased cost of living and rising mortgage rates, have resulted in landlords selling up, which in turn has reduced the available rentals which disadvantages tenants in that they are looking for accommodation which isn’t there.

Buy-to-let is no longer seen as a profitable business to go in to and that’s why new landlords are nervous about investing in it and in turn, that’s why there is a shortage of both landlords and stock.

The opposite should be happening. For those landlords who have managed to stay in the sector, they have had to increase their rents to
cover the ever-increasing costs. This has in turn disadvantaged the tenants who are already struggling due to the cost-of-living crisis.

Despite all this there are, thankfully, a few positives coming from the Bill. These are the promise not to introduce rent controls and the Section 8 possession orders which seem to be fairly robust and allow landlords a quicker route to repossess their properties, if the criteria fits. As ever, detail is still required on this.

I understand as the Bill passes through Parliament there will be amendments and the finer details will come out but as it stands at the moment, I feel as though you are punishing the wrong people which indirectly has consequences in that it will hit tenants. If the balance is not allowed to tip back to a more even keel, I fear many more landlords will simply cash in their chips leading to an even bigger supply and demand crisis.

I am writing to you to ask you to do something positive to help create a fairer private rental sector (PRS). Please meet with me and some of our landlords so we can talk to you face to face about the very real issues faced by our sector and how this Bill will not create the fairer private rental sector you claim to want, but will instead penalise the very people you claim to want to help – the tenants – through higher rents, fewer properties available and a decline in the decent homes standard. Your landlords need you!

Yours sincerely

Nik Kyriacou
Associate Director and Landlord