MortgagesJun 16 2022

Renters reform bill could 'shrink' property market

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Renters reform bill could 'shrink' property market

In an oral statement delivered today (June 16) in the House of Commons, minister Eddie Hughes set out the government’s plans to give greater rights and protections to tenants while also providing more clarity and support to the UK’s 2.3mn private landlords. 

The government today published its fairer private rented sector white paper, in which the measures will form part of the renters reform bill as announced in the Queen’s Speech, to be introduced in this parliamentary session.

Along with out-lawing ‘no fault’ section 21 evictions - which currently allow landlords to terminate tenancies without giving any reason - the bill will double notice periods for rent increases and give tenants more power to challenge them if they are unjustified. 

Levelling Up and Housing secretary Michael Gove said that the new deal for renters will deliver on the people’s priorities and benefit millions in the UK. 

He said: “For too long many private renters have been at the mercy of unscrupulous landlords who fail to repair homes and let families live in damp, unsafe and cold properties, with the threat of unfair ‘no fault’ eviction orders hanging over them.”

However some in the buy-to-let sector raised concerns about the bill arguing that it may inadvertently drive up rents and shrink the rental property market.

Stephen Small, partner in the property and housing litigation team at Russell-Cooke said that the immediate consequence of today’s announcement may be a substantial increase in section 21 notices served as landlords look to exit the market while they still can do so easily. 

“Fewer landlords and no reduction in tenants will exacerbate supply and demand bottlenecks and, together with a high inflation economy, will fuel further increases in rent," he said.

Small also said there has been an acceleration of the professionalisation of the private rental sector as larger corporate landlords are able to handle the new regulatory environment better than smaller landlords.

He pointed out that for many corporate landlords, section 21 is already a thing of the past. 

“In the long run the rise of the large corporate landlord at the expense of the buy to let market should help improve housing stock in the country, but the journey there might be painful.”

More levels needed

The paper by the Department for Levelling Up, Housing and Communities outlined that provisions will be introduced to ensure responsible landlords can gain possession of their properties efficiently from anti-social tenants and can sell their properties when they need to.  

Yet Karen Noye, mortgage expert at Quilter said the bill might benefit from more nuance. 

She pointed out that the buy-to-let market has already suffered significantly and that a careful balance is needed to ensure the market works for both renters and private landlords.

Speaking to FTAdviser, Noye said: “The renters reform bill is largely a positive step forward for the industry and should further protect renters from a small minority of unscrupulous landlords. However, the bill might benefit from being more nuanced as otherwise it risks driving more investment away from the buy-to-let market which has already suffered significantly following years of successive tax and regulation changes which have made the market less attractive.” 

The National Residential Landlords Association welcomed headline commitments to strengthening possession grounds, speedier court processes and mediation but said the detail to follow must retain the confidence of responsible landlords while also improving tenants' rights. 

Ben Beadle, chief executive of the National Residential Landlords Association said: “We will be analysing the government’s plans carefully to ensure they meet this test. A failure to do so will exacerbate the housing crisis at a time when renters are struggling to find the homes they need. 

“The eventual legislation needs to recognise that government actions have led to a shortage of supply in the sector at a time of record demand. It is causing landlords to leave the sector and driving up rents when people can least afford it.”

The DLUHC said 21 per cent of private renters currently live in unfit homes.

Quilter’s Noye also pointed out that fundamentally, more housing stock is needed.

“Unless the government is able to commit to building a significant stock of new homes there is always going to be a huge rental market because younger generations simply can’t afford to get on the housing ladder at present," she said. 

Anticipating today's announcement, tax and advisory firm Blick Rothenberg warned the government yesterday (June 15) not to overburden buy-to-let landlords with too much red tape as it may push them to exit the market. 

jane.matthews@ft.com