Tom Entwistle comments on some of the key concerns
Despite warnings about potential unintended consequences of the Renters’ Rights Bill, such as landlords leaving the market, increased rents, more empty homes, and potential homelessness, the government it would seem is rushing headlong with the bill, proceeding at speed without heeding industry concerns.
During the Second Reading of the Renters’ Rights Bill in the House of Lords this last week, Conservative shadow housing minister Baroness Scott of Bybrook had criticised the speed of progress and its possible rapid introduction without due consideration of the full negative consequences.
The Bill's latest amendment, one preventing landlords from taking more than one month's rent in advance, in particular will affect the student rental market. This is especially true for overseas students. Overseas students now comprise around 25% of the UK’s student population.
Students or their families often pay several months’ rent in advance due to the fact they lack a UK credit history. Their parents live abroad, where it’s almost impossible to pursue debts through their foreign courts, when parents have acted as guarantors.
The new rule could seriously deter landlords from renting to students, impacting students’ accommodation options and potentially reducing the more than £40 billion contribution they are currently making to the UK economy. These new proposed rules, however, don’t apply to Purpose-Built Student accommodation, effectively discriminating against private landlords in the sector.
Proposed restrictions on guarantor arrangement are also something of a game changer. Under the Renters’ Rights Bill 2024/25, pending any further amendments or changes before it is passed, guarantors will not have unlimited liability. A key provision in the bill will limit the financial liability of guarantors to a maximum of six months’ rent.
There are also other specific provisions on guarantees in the forthcoming Bill including an amendment that prevents individual guarantors, often family members, from being held liable for rent payments after the tenant's death. This measure aims to protect bereaved guarantors from financial hardship during a time of grief.
A proposed new clause seeks to limit the circumstances under which landlords can request a guarantor. Specifically, landlords would be prohibited from requiring a guarantor if:
• The tenant has paid a tenancy deposit or has been assisted under a deposit scheme.
• The tenant is required to pay rent in advance equivalent to one month's rent. In fact, a recent amendment says all rent in advance is to be limited to one month’s rent.
• The tenant's income, including state benefits and any other lawful source, is sufficient to cover the rent.
• Arrangements are made for housing benefit or the housing element of universal credit to be paid directly to the landlord.
• The landlord has entered a contract of insurance against non-payment of rent.
• In situations where a guarantor is lawfully required, the guarantor's liability would be capped at a sum equal to six months' rent.
These provisions, it is said, aim to balance the protection of tenants and their families with the legitimate interests of landlords.
The government’s new rental reforms were labelled “counter-productive”, potentially driving away responsible landlords and increasing costs for tenants, when speakers in Westminster warned about the ill thought through.
During the debate Baroness Scott emphasized that 45% of landlords own a single property, with another 40% owning between two and four properties. She argued that many are not professional landlords, thus making it too challenging for them to manage the costs and burdens imposed by the Bill. She warned that these measures could lead to a reduction in available quality rental properties and consequently rent increases.
Labour’s housing minister Baroness Taylor of Stevenage begged to differ. She robustly defended the reforms, stating that “they are essential for providing tenants with stability and the ability to establish roots in their communities.”
Fundamental changes in the bill are the removal of fixed term Assured Shorthold Tenancies (ASTs) and the abolition of so-called ‘no-fault’ evictions. Under this new Bill, landlords won’t be able to refuse to renew a disruptive tenant’s contract as there will be no end-date to the tenancy. Also, they will no longer be able to evict without a good reason, which means going to court and convincing a judge.
The only way a disruptive tenant will be removed when the Bill becomes law is through a court hearing, otherwise tenants will have the right to remain indefinitely. The only other means of taking over is if the landlord wants to sell or move into the property or where there are obvious and serious breaches of contract such as rent arrears or good evidence of anti-social behaviour.
What landlords fear, and there’s plenty of evidence to support this, is long drawn-out court cases lasting months and sometimes years when it’s hard to enforce the new grounds for eviction. What is likely to exacerbate the process is the long backlog of cases which are currently clogging up the courts’ system, along with long waits for bailiff evictions. 12 month waits for an eviction, often with no rent being paid, are not uncommon today. Despite the Government's assurances to the contrary, this situation might worsen with the new rules in place.
Currently, many homeowners rent-out their homes when either moving away for a temporary work contract, or to travel and live abroad for a time. The removal of fixed term contracts means there will be no certainty of getting their property back quickly on their return. This is likely to result in more properties being removed from the letting market because they will more likely be left empty, rather than risk a protracted legal process to get the property back.
Perhaps the biggest risk the Bill poses to the housing market is the continuing exit from the private rented sector (PRS) of those buy-to-let landlords who have been the backbone of the sector, they have been an integral part of the UK’s housing provision which more and more people have come to rely on.
Private landlords now make up almost around 20% of the UK’s housing provision. The sector is housing young professionals and working people, singles and couples and increasingly older tenant families with children, attending local schools. That’s not to mention the many thousands of students the sector houses every academic year.
Rents are already at record highs, having increased by almost ten 10% over each of the last two years. As more landlords opt to sell, the lack of supply drives up rents further in the face of record demand, when getting on the property ladder is almost impossible for many people.
Successive governments have piled the pressure onto responsible landlords in the PRS, with increasingly challenging regulations, high demands for environmental standards, improvements and health and safety measures and an increasingly penalising tax regime. Renting out property on a small-scale today involves far more work and is far less profitable than it was 10 years ago.
Kate Davies, executive director at The Intermediary Mortgage Lenders Association, the trade association that represents the views and interests of UK mortgage lenders, writing for Mortgage Strategy says:
“The last Conservative administration failed to get its Renters’ Reform Bill in place before they lost the election, and cynical observers might say the current government is determined to prove it can achieve what the competition couldn’t.
“But to use the country’s tenants as a political football would be misguided. The UK is suffering an acute housing crisis. It is vital that the government wakes up to the dangers of further damaging the PRS, and the potentially calamitous impact the Renters’ Rights Bill could have on renters themselves.”
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