As the Renters’ Rights Bill edges closer to implementation, mortgage advisers should be aware of its ripple effects across the property market. Cordelia Smith, Associate in the Residential Property team at Hunters Law LLP, explores how the proposed abolition of ‘no-fault’ evictions is prompting small-scale landlords to reconsider their investments—potentially reshaping opportunities for first-time buyers and intensifying pressure on the rental sector.
The Renters’ Rights Bill has generated a huge amount of press coverage. Many of those column inches have addressed the proposed abolition of so-called ‘no-fault’ evictions. When it comes into force, the new legislation will significantly curtail the situations in which landlords can evict their tenants. It will also restrict how soon landlords can re-let a property if it fails to sell.
The aim of the Bill is to offer tenants a greater degree of certainty and stability in their rented homes. Unscrupulous landlords will no longer be able to evict a tenant simply because they suspect they could get higher rent from someone else. Or at least that’s the theory.
Landlord pressures
This much-publicised change is one of a range of factors that have made the ownership of rental properties feel increasingly untenable for many small-scale landlords, however. The promise of significant housing reform has added uncertainty to the increased financial pressures of higher mortgage rates that followed the infamous Truss-Kwarteng ‘mini budget’. Recent rumours of a new property tax are likely to make landlord-owners of higher-value properties in London and the South East feel even more nervous.
All of this has combined to make landlords who own maybe one or two rental properties – perhaps as part of their pension planning, or to supplement other income – feel that it’s all just more trouble than it’s worth.
Returns on investment are not what they might have been when interest rates were lower; and the uncertainty of legislative and tax changes has undoubtedly made ownership of rental property less appealing. It is striking how many clients have decided that now is the right time to divest themselves of the flat they’ve rented out for the last few years.
Good news for buyers?
With increasing numbers of ‘accidental’ landlords deciding to sell, the picture looks brighter for many first-time buyers. Many of the houses and flats that are being sold are the kind of smaller, more affordable properties that buyers getting a foot on the ladder are looking for. As anyone who’s trying to sell at the moment will know, it’s certainly a buyer’s market.
Recent evictions
But the impact on the rental market seems more problematic. Landlords who are selling will, of course, not necessarily sell to other landlords. The reduction in rental properties does nothing to ease the strain in an area where demand already far outstrips affordable supply.
Most people buying a house or flat to live in will want to buy with ‘vacant possession’ – very few buyers are willing to take on existing tenants and deal with the rigmarole of evicting them themselves. In consequence, landlords who are contemplating the sale of rental properties are choosing to evict tenants now. While the s.21 no-fault eviction route remains open, landlords are using it.
The sale of former rental properties might be good news for some would-be buyers. But it does nothing to ease the pressure on an already overburdened rental market. Without efforts to monitor and replace lost rental housing stock, it seems inevitable that the availability of rental properties will only shrink further as small-scale landlords find ownership becomes increasingly burdensome.
Unintended consequences
It’s ironic that a Bill designed to increase renters’ certainty and security should have the unintended effect of increasing the number of no-fault evictions; but that does appear to be the case from recent statistics. Without concerted efforts to increase the amount of affordable rental properties, it regrettably seems likely that the Renters’ Rights Bill will, at least in the short term, make life more uncertain, more expensive and more stressful for many renters.
The picture seems little brighter for landlords, either. The financial pressures on in particular small-scale landlords have increased significantly in recent years. The much-publicised changes that the Renters’ Rights Bill will introduce add a further layer of complexity. For many property investors, the time seems right to reconsider their ownership of rental property – and perhaps decide to put that money elsewhere.
Cordelia Smith, Associate in the Residential Property team at Hunters Law LLP
