Understandably, interest rates — specifically mortgage interest rates — have hit the headlines over the past couple of months.
They were already rising due to record-breaking inflation, but former prime minister Liz Truss’s mini-Budget sent the money markets into turmoil. Swap rate volatility meant it was almost impossible for buy-to-let (BTL) lenders to pinpoint fixed rates, meaning many temporarily withdrew from the market.
The most vulnerable tenants will struggle without Section 21
Although things have settled down a bit, mortgage interest rates have increased significantly from previous levels and, of course, are a big concern for many property investors. However, I do not think this issue is the real threat to BTL.
Like many of you, I’ve been in this industry since pre-2008 and have many longstanding landlord clients who’ve experienced the subsequent economic rollercoaster too. These established and experienced landlords seem less concerned by the interest rates and are far more anxious about the shifting landscape of legislation.
Speaking to clients and landlords at industry events, the abolition of Section 21 is the number-one concern among most of the community. While I fully support government efforts to professionalise the private rented sector (PRS), the devastating potential consequences of this legislation, not just for landlords but for the tenants it intends to protect, are impossible to ignore.
We have a duty to educate clients and help them plan and fund these green improvements now
Without an efficient and affordable method by which landlords can manage their properties, as the current Section 21 provides, property investors will be forced to more thoroughly vet prospective tenants, letting only to those with good salaries, stable jobs and impeccable credit records. The consequence? Those most vulnerable tenants in less-than-perfect financial situations will struggle most to access affordable homes, potentially leading to an increase in homelessness.
Fewer properties
Lacking further details on how the government intends to replace Section 21, we may see a significant exodus of landlords. Demand for rental property is already very high, pushing up rents by 12.3% over the 12 months to July 2022. Fewer available private rental properties will only continue this trend, making it exceedingly challenging for the most in-need tenants.
On the whole, the Renters’ Reform Bill is a positive next step for the sector. The landlord register (or portal) and Decent Homes Standard regulations will help professionalise the industry and weed out the minority of slum landlords that still exist.
I believe we have to speak up for our clients (and the sector) on all the proposed legislation changes
However, a lack of detail (and forethought) around banning fixed-term tenancy agreements may leave the student rental sector completely dysfunctional.
While just 13% of England’s landlords let in this sector, it provides an essential housing solution for the 2.5 million university students studying in the UK. There is simply not enough purpose-built student accommodation to service the growing number of students.
MEES rules
Last, but not least, the Minimum Energy Efficiency Standards (MEES) supposedly will enter force from 2025 for new tenancies and 2028 for existing tenancies. The planned increase for PRS energy performance certificate ratings, from E to C, is perhaps one of the costliest proposals facing landlords.
According to Paragon Bank’s latest research, it will cost investors, on average, £10,560 per property to make these improvements. Surprisingly, 60% intend to use savings to fund the work, with only 16% using further advance facilities and other loans, and just 7% releasing equity from their existing portfolio.
A lack of detail (and forethought) around banning fixed-term tenancy agreements may leave the student rental sector completely dysfunctional
Given the time constraints (if the proposed deadline is upheld), we brokers have a duty to educate clients and help them plan and fund these green improvements now. Otherwise, the cost will be much greater amid a last-minute rush to meet requirements.
Although the MEES changes may seem the only issue we brokers can directly impact, I believe we have to speak up for our clients (and the sector) on the other proposed legislation changes.
We need to remind society of the essential role PRS landlords play in providing safe, affordable housing. Whether talking to journalists, lenders or government bodies, we should wield what influence we have to ensure the proposals serve both tenants and landlords fairly.
Jeni Browne is sales director at Mortgages for Business
