Plan to combat rogue landlords is receiving millions in extra funding, but industry members say it’s poorly structured legislation that could hit renters unexpectedly
English councils will receive an additional £41 million to help cover the cost of new enforcement powers under the Renters’ Rights Act, due to take effect on May 1 – but mortgage industry members say that measure is the wrong move and one that could have unintended negative consequences for both landlords and renters.
The legislation is aimed at protecting renters from “rogue” landlords and includes a range of sweeping reforms including the conversion of Assured Shorthold Tenancies (ASTs) to periodic, rolling tenancies and making it harder for landlords to evict their tenants.
The extra funding, announced on Tuesday, brings the total allocation for councils overseeing the Act to £60 million. Up to £50 million will go towards modernising civil courts, with the housing legal aid sector to receive an additional £5 million each year to bolster renters’ legal options when facing eviction.
Proponents of the legislation say it will provide relief for renters and ensure greater balance in the rental market. But Jeni Browne of Mortgage Finance Brokers believes it will miss the mark by unfairly scapegoating all landlords and failing to differentiate between corporate and smaller interests.
The consequence of that could be a dwindling number of small landlords, she said, and a situation that’s ultimately worse for renters.
“I think it’s disastrous,” Browne told Mortgage Introducer. “Sure, there’s a lot to be said for professionalising the market, but that’s quite different to corporate consolidation. If we look at data published by UK government housing regulators, small landlords receive 75% tenant satisfaction versus 66% for large corporate – not to be confused with portfolio – landlords.
“So we need to ask the question: If large corporates really start to dominate the market, who are the winners and who are the losers? Sadly, it looks like the tenants will once again lose out.”
What will change for renters and landlords under the new rules?
Landlords will still be able to evict tenants in certain circumstances under the new legislation, but will now not be able to sell or move into a property in the 12 months after the beginning of a tenancy.
Rent can now only be increased to “the market rate” and landlords are required to give two months’ notice of a raise, while tenants can challenge that decision at a first-tier tribunal if they think the new amount is too much.
Matthew Arena of The Brilliant Group told MI that cracking down on unscrupulous landlords was the right move but questioned how the legislation would work in practice.
“The push to strengthen tenant rights and take on rogue landlords is absolutely the right direction of travel, but as ever the detail is messy and there are clear unintended consequences on both sides,” he said.
“For example, tenants will face limits on what can be paid up front which will impact some. For landlords, we [still have to] find out how the system will deal with non-paying tenants in practice, rather than in theory.”
Could the Act see a big shift in landlord profiles?
It remains to be seen what the eventual impact of the legislation on the landlord and buy-to-let sectors will be – but Arena said a number of noteworthy trends are already at play even before the changes come into effect.
“We’re not seeing a reset in landlord behaviour, but more an acceleration of trends that were already active,” he said. “A focus on yield, diversification, SPVs and improving the quality of stock continues.
“Insurance and other de-risking tools are moving centre stage too. So yes, we’re likely to see a gradual tilt towards more professional ownership – but that’s an evolution of continued sector reform and market trends.”
Euan Stewart of Perth Mortgage Centre, meanwhile, said a shift toward more professional portfolio landlords was “broadly positive” for the industry because it would raise standards, improve consistency and make enforcement more effective – but also questioned the likely impact on other landlords.
“We can’t ignore the pressure this puts on smaller landlords, who make up a significant share of overall rental stock,” he said. “If too many of them decide the new regulatory environment isn’t worth the effort, we risk reducing supply at exactly the moment demand is rising. That would be counterproductive to the aims of the Act.”
The market is already seeing a split in behaviour, Stewart suggested, between different landlord types. “Some landlords are doubling down and professionalising, while others are stepping back or selling and leaving the sector altogether.
“The reforms are definitely reshaping the market but the question now is whether policymakers can balance higher standards with maintaining a healthy level of participation from smaller landlords.”
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