Buy to Let - Still a Good Investment?

Landlords have enough concerns at the moment about the likely impact on their tenants of the seemingly never-ending increases in the cost of living. However, landlords who let residential property in England (and anyone who is thinking of moving into the residential property letting business) also need to be aware of the changes which are proposed by the Renters Reform Bill which was introduced by the Government this summer. No doubt “buy to let” mortgage lenders will also be interested.

The Bill is included within the Government’s white paper, “A Fairer Private Rented Sector”.

Since 1988 virtually all residential landlords have been letting their properties by way of what is known as an Assured Shorthold Tenancy. This was introduced in that year by Margaret Thatcher’s Conservative Government and was designed to incentivise lettings by landlords with there being no limit on the amount of rent that could be charged and, perhaps more importantly, with the landlord being able to evict the tenant once the term of the tenancy had expired regardless of whether the tenant had broken the terms of the agreement (often referred to as a “no fault eviction”).  There is no doubt that this form of tenancy has been extremely popular with landlords and has been a key factor in the growth in the “buy to let” market that has been seen over the last thirty years.

What are the proposed changes?

The end of the no-fault eviction- Currently, a landlord may serve notice on their tenant once the fixed term of the tenancy agreement has expired or at any time during a rolling periodic tenancy. The landlord does not have to give any reason and the fact that the tenant may never have broken the terms of the agreement is irrelevant. The proposal is that this will end, and that landlords will only be able to serve notice in reasonable circumstances, the details of which are awaited. Note however that landlords will be able to serve notice if they wish to sell the property, or move into it themselves (see 8 below)

A new dispute resolution service- An Ombudsman will be appointed, and membership will be mandatory for all private residential landlords. The objective of this service will be to settle disputes between landlords and tenants without the need to go to court, and the Ombudsman will have the power to make various orders including the payment of compensation of up to £25,000.00.

Prohibition of restrictions against lettings to tenants with children or tenants who are in receipt of benefits- The courts have already ruled that such restrictions amount to unlawful discrimination, and the Bill will make them illegal.

Pets- Currently many tenancy agreements do not allow a tenant to keep pets. It is proposed that tenants will have the right to request the landlord’s permission to keep a pet which the landlord will be obliged to consider and unable to unreasonably refuse. If the landlord does refuse permission, then the tenant will have the further right to challenge the decision. If however the landlord grants permission they will be able to insist that the tenant has pet insurance in order to cover the cost of any damage to the property that the pet may cause.

Rent review clauses- Such clauses will be prohibited, and landlords will only be permitted to increase rents once a year. Landlords will also have to give tenants two months’ notice of any increase.

Rent paid in advance- A tenant who has paid several months rent in advance must be refunded if the tenancy ends earlier than the end of the period for which the tenant has paid. Also, a limit on the amount of rent that a landlord can request in advance will be introduced.

Decent Homes Standard- This currently applies only to the social rented sector, but it is proposed to extend it to the private rented sector. To meet the standard a landlord will have to ensure that there are no serious health or safety hazards, that there are adequate kitchen and bathroom facilities, that there is decent noise insulation, and that there is adequate heating so that the property is warm and dry,

Eviction of Tenants- New mandatory grounds for possession will be introduced for landlords who wish to sell the property or move into it themselves (apart from during the first six months of the tenancy). Landlords will also be able to evict tenants who have been in at least two months’ rent arrears on three occasions within the previous three years, even if there are no arrears as of the date of the court hearing. The existing ground for possession based on two months’ rent arrears will continue to apply although the notice period will be increased to four weeks.

Property Portal- A new portal will be established so that landlords and tenants can check their rights and obligations.

If the Bill becomes law will it have any effect on the buy to let market? This remains to be seen although it has been suggested that mortgage lenders may be less willing to lend if the “no fault” eviction is removed altogether, as this has been utilised by mortgage lenders to gain possession of let properties where the landlord has defaulted on their mortgage payments. Although there are other options that are open to mortgage lenders, the “no fault” eviction has always been viewed as a far more straightforward way of gaining possession.

It is perhaps only the less scrupulous landlords who will be most affected by the proposed changes and there are some positives for landlords, such as the provisions which will make it easier for them to evict tenants who are wilfully not paying their rent.

How likely is it that the Bill will become law and, if so, when? Since the time when the Bill was introduced, there have of course been major changes in the Government. It is therefore considered unlikely that the Bill will become law before the end of 2023. Accordingly, there may be time for key stakeholders in the residential letting business to lobby against the Bill.

For an initial consultation or quotation regarding advice about the Renters Reform Bill, please contact the Feldon Dunsmore team on 01926 954 694.