The Renters’ Reform Bill has finally debuted in Parliament. The concept was first floated in 2019 but with four different prime ministers since then, six different housing ministers in the last two years and a delay to the first reading – there would have been some landlords clinging to hope that the Bill would be quietly overlooked or lost in the countless reshuffles.
No such luck. Forecasters predict the Bill will come into law on 1st October 2024, with the next few months given to debating the finer details, voting and entering into a process for the Bill to become a parliamentary Act. This usually takes around 12 months, taking us to May 2024. With new legislation usually becoming law on one of only two dates annually – 1st April and 1st October – the prediction is for a late autumn introduction next year.
What’s contained in the Renters’ Reform Bill is already worrying landlords. A study by consumer and business consultancy BVA BDRC for Property Week found the Bill was a major reason for private landlords selling their buy-to-lets. In fact, 17% of landlords questioned said they were offloading their properties due to the planned end of Section 21 evictions - the cornerstone of the Bill.
The Bill and a wider set of rental reforms is resulting in a new breed of distressed property sales. In the past, Open Property Group would classically label distressed sales as homes with short leases, derelict properties and rentals where the tenants were in arrears.
Jason comments that landlords are now presenting with very ‘of the moment’ issues that require a rapid disposal: “The Renters’ Reform Bill could be the death knell for the private rental sector and a distressed sale now includes a property where the landlord fears they won’t be able to regain possession.”
The Bill also confirms the introduction of a new Decent Homes Standard for private lets. “When this comes into force, even more rented properties will become untenable and we forecast a number of distressed sales by landlords who can’t afford to meet the new Decent Homes Standard,” adds Jason.
A distressed sale in 2023 is also one where the landlord is struggling to pay the mortgage repayments. The number of buy-to-let mortgages where the landlord is in arrears is rising. Analysis by UK Finance discovered there were 6,060 buy-to-let mortgages where landlords were 2.5% or more behind on their total outstanding balance at the end of 2022. The impact is already being felt, with 17% of landlords taking part in the Property Week study saying they were selling up due to their properties’ mortgage and debt terms no longer being viable.
Jason is certain this is because borrowers remortgaging after coming off fixed-rate deals can’t afford the new repayment that, for many, has doubled: “this is a new issue stemming from 2022’s mini Budget and selling a property fast is the only way to prevent the debt from increasing and stop the property from being repossessed.” For other landlords on tracker and SVR mortgages, consecutive interest rate rises are also proving financially unsustainable.
Offloading rentals with poor levels of energy efficiency can also be classed as distressed sales, with the Government pursuing a mandatory minimum EPC rating of C for all buy-to-let properties by 2028. “With many homes in the private rental sector requiring thousands of pounds of improvement work to meet the proposed new standard, it’s no surprise landlords are beginning to question whether they’ll ever recoup such investments.”
The issue was highlighted by a survey by the Mortgage Advice Bureau. It found nearly two-thirds of landlords are considering selling their properties because they can’t afford the changes needed to meet the suggested, new minimum EPC level. This sentiment was echoed by the landlords taking part in the study for Property Week, with around 16% saying their decision to sell was due to the cost of upgrading their properties to comply with new EPC and energy regulations.
“The introduction of the Renters’ Reform Bill and higher remortgage costs, combined with revised energy efficiency requirements in the near future, means we are handling an increasing number of distressed sales, with a variety of different reasons behind the exit,” comments Jason. “We can’t remember a time when the industry was troubled by landlords in mortgage arrears – we normally step in and help when it’s the tenants who can’t make payments.”
“Thankfully Open Property Group is in a position to help all landlords, whatever their reason for selling. We continue to buy properties with short leases but can also help property investors exit the lettings market before new legislation and additional compliance really bites.”
Landlords can start by requesting a free, no obligation cash offer, followed by an in-depth strategy planning meeting by one of the Open Property Group team. We are professional landlords and property managers, as well as investors, and we’re happy to share our profit planning advice with you – contact us for support.
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