The Renters’ Rights Bill will add extra cost for tenants as well as landlords, and it will cause landlords to leave the private rented sector (PRS).
Those are some of the conclusions of the impact assessment carried out on the likely impact of the Righters Rights Bill, just published by the Government.
The Government has admitted in its impact assessment that costs for tenants will increase and the measure could cause more landlords to leave the sector.
The new legislation involving multiple regulation changes will inevitably add costs for buy to let landlords, costs they will try to pass on to their tenants, the government admits.
Angela Rayner’s Housing Ministry has carried out its own impact assessment, an analysis that also predicts the Bill could lead to yet more buy to let landlords leaving.
Many buy to let landlords have been in the business since the mid-1990s and early 2000s, so may be ready to retire in any case. This new set of regulations could just be the trigger that says, let's sell up!
However, a serious consideration for many long-term landlords is the capital gains tax that they may be liable to pay when they do sell. When landlords have substantial gains over many years CGT at 18 percent or 28 percent for high-rate taxpayers is not insubstantial. Some may find they can’t afford to sell and pay off the tax liability.
The impact assessment conducted by The Department of Housing, Communities and Local Government, says:
“It is likely that landlords will pass through some costs of new policies to tenants in the form of higher rents – to offset those costs and maintain a degree of profit.
“Landlords will likely offset some of the costs of the regulation through rental price growth.”
The Government assessment predicts that on average the extra cost of the bill’s measures to buy to let landlords will be £22 per year per property, or 0.2 per cent of annual average rents. These extra costs, the assessment says, will get passed on to tenants and concludes that.
“This [extra cost to landlords] is unlikely to have a substantial impact on the supply of privately rented properties.”
However, the National Residential Landlord Association (NRLA) has warned that cost increases of as much as 10 percent could result from the measures included in the new Bill.
The Impact Assessment also acknowledges the likely impact it will have on letting agents. The Renters’ Rights Bill, it says, will cost letting agencies £392m over the next ten years as it will lead to fewer landlords using agency services.
The loss of fee income for agents will be around 40% higher than that projected under the Conservatives regulations, through its own Renters (Reform) Bill. This it was predicted would have been around £279m in agency losses if the Renters (Reform) Bill had been implemented under the previous Conservative government.
Driving up rents
The new Bill, which is likely to become law in the first half of 2025, is likely to drive up rents. That’s despite its stated intention of making life better for tenants in the private sector, the impact assessment acknowledges.
The Renters’ Rights Bill, currently making its way through Parliament, will ban no-fault evictions under Section 21. It will prevent rent rises considered to be unreasonable, as well as introducing more regulations. It will also introduce a PRS ombudsman service and set up a government database of landlords.
The Bill also intends to allow tenants in arrears to remain in a property for longer, adding considerably to the time a landlord with rent owning to regain possession of the property. Under the current rules, the landlord can begin repossession proceedings when a tenant misses two months of rent. Under Labour’s plans that would be extended to three months.
Other measures likely to add to running costs include higher housing standards (The Decent Homes Standard) intended to improve the safety and quality of private rental dwellings, and a ban on discrimination against tenants who have children and pets, or those in receipt of welfare benefits.
The NRLA says it has concerns about the figures produced by the Government’s impact assessment just published.
“We are sceptical of the suggestion in the assessment document that there could be ‘cost benefits’ to landlords, which would reduce the cost to landlords from a gross of £22 a year to £12.”
This, the Government argues, is due to a reduction in letting agents fees as there will be fewer tenancy changeovers. But it’s highly likely that agents will seek to recoup these ‘lost’ fees from landlords in other ways, says the NRLA.
According to the assessment document an estimated cost for joining the ombudsman scheme averages £6 per landlord per property. For the new private rented sector database, the impact assessment assumes a registration fee of £28.58 per property covering three years.
However, cost estimates based on experience gained in Scotland and Wales, where similar schemes are already operating, could be considerably higher. For example, the charge for registration in Scotland is £80 plus, as well as a fee of £18 per property, making the cost to individual landlords far more.
The NRLA identifies one of the biggest issues for landlords as the risk of higher rental arrears when Section 21 repossessions are no longer available, and the notice period and time to get into court are extended.
The landlords’ body has consistently warned about the risks of rising demand on the courts because of these changes, though the Government document plays this fear down.
However, the Government recognises, within its assessment document, that court costs are likely to be higher as well: “landlords are also likely to incur additional court fees as tenants will have greater ability to challenge section 8 evictions. This may mean additional cases entering the court system with the associated costs”.
It is estimated this would total an extra £113.6 million of costs to landlords, plus a further £27.5 million in additional time taken to evidence Section 8 claims. This equates to just under £500 per possession case.
A Ministry of Housing, Communities and Local Government spokesman has said, in relation to how the Bill, it will improve the lot for tenants:
“The evidence shows that landlords value good tenants – and are therefore less likely to raise rents for sitting tenants.
“Landlords will also only be able to raise the rent once a year using the existing section 13 process and our reforms will empower tenants to challenge an unfair rent increase at the first-tier tribunal.”
Tags:
Comments