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Regulation must protect landlords as well as renters to encourage investment

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Regulation of the private rented sector (PRS) is high on the political agenda. The challenge for Government is to implement straightforward policy that encourages much needed investment while protecting both tenants and landlords.  

The Committee of Public Accounts’ Regulation of private renting report recently concluded that ‘piecemeal legislative changes’ have ‘made the regulatory system even more overly complex and difficult to navigate for tenants, landlords and local authorities’.

The authors highlighted how this will be addressed with a soon-to-be published White Paper outlining the Government’s intentions for any future legislation, namely the Renter’s Reform Bill.

The Bill will see the Decent Homes Standard extended to the PRS for the first time. Announcing the plans, a DLUHC press release proclaimed that ‘these reforms will build on the progress the Government has already made’. While positive to see acknowledgement of the progress made in the sector, some credit should also be given to the property industry.

The improvements made to PRS homes correlate with the rise of buy-to-let as a mortgage product and the growth of professional landlords.

Between 2006 and 2019, the portion of PRS homes considered ‘non-decent’ decreased from 46.7% to 23.3%. During the same period, the number of outstanding buy-to-let mortgages increased from 835,000 to 1.9 million.

Lenders have played an important role because surveyors and underwriters all assess the standard of properties, guaranteeing minimum lending standards.

But, with the most recent DLUHC data showing that one in five PRS homes is still classified as non-decent, we need to do more.

The current market, where buyers face a shortage of stock and sellers have seen their property rocket in value, means we may see a higher proportion of applications for properties that aren’t up to scratch.

This is where regulation, when well designed and executed can help. For example, the online Property Passport proposed by the NRLA would enable potential purchasers and tenants to check if homes are meeting the correct safety standards before committing to buying or renting.

Another key component of the Bill will see so-called ‘No Fault’ evictions abolished. Listening to landlords, this is the biggest area of concern because despite being used relatively sparingly, Section 21 offers a last line of defence to those faced with substantial rent arrears or anti-social behaviour.

The recently published English Private Landlord Survey (EPLS) found that tenants were only evicted in 3% of cases. Tenants were asked to leave in 6% of scenarios and tenancies not being renewed by landlords was the reason given for tenancies ending in 3% of cases.

Rental arrears was the most common reason given, chosen by 46% of landlords who issued a Section 21 notice. Tenancies were ended because the property was not cared for in 39% of cases, while 32% cited anti-social behaviour.

Despite this, Section 21 is an emotive tool for campaigners claiming that tenants are being made homeless by ruthless landlords through no fault of their own. Although this may be true in extreme cases, the reality is that decent tenants provide landlords with a stable income so lasting, harmonious relationships benefit both parties.

The Government says that reforming Section 8 will strengthen landlords’ grounds for possession, but landlords see this as a drawn out means for reclaiming their property, the reason behind some utilising Section 21 despite having to write off any rent arrears as a result.

When viewed alongside other planned changes that are expected to make letting more difficult yet less profitable, the proposed changes to EPC regulations being an obvious example, we can see why some landlords would be planning on exiting the sector.

Again, the EPLS sheds light on this with the 12% of landlords who plan to decrease their portfolios or the 10% who intend to sell all their rental property asked why they were planning to do so.

Most commonly selected by respondents were recent legislative changes, chosen by 55%. This was closely followed by forthcoming legislative changes, such as the removal of Section 21 notices, the reason given by 53% of those planning to reduce their involvement in the sector.

With the imbalance between supply and demand for rented homes causing rents to rise at the fastest rate since 2017, something unlikely to reverse any time soon due to the cost-of-living crisis impacting housing affordability, an exodus of landlords could have dire consequences for tenants.

Modelling undertaken by the Social Market Foundation for the Where next for the Private Rented Sector report found that even if the Government’s emphasis on increasing home ownership continues, the PRS will still be relied on by millions of people for decades.

This means that it is vital that policy is developed recognising the role of landlords in providing accommodation to the many people who can’t or don’t want to own a home now and in future.

 

 

Richard Rowntree

Richard Rowntree
Managing Director for Mortgages

 

This article was first published in Mortgage Strategy