A survey of almost 700 landlords, carried out by BVA BDRC for Paragon, reveals that that 67% of landlord respondents had experienced higher than usual tenant demand during the first three months of this year. This, according to Paragon, represents “a new all-time high and up from 65% recorded during the final quarter of 2022, the previous record high.”
Reflecting higher mortgage and running costs, landlords are increasing rents as they sign up new tenancies. Around 85 per cent of landlords, according to the Paragon survey, said that market rents are rising, while 52 per cent said they were planning to increase rents throughout their investment portfolios over the coming six months, with an average planned increase of 8.2 per cent.
A tough operating environment
A chorus of voices is highlighting the worsening problem of landlords leaving the sector and reducing the supply of reasonably priced rental accommodation. Tenants are struggling to find accommodation in the locations where they need them and at a price they can afford, because the supply simply is not there.
The latest Monetary Policy Report offers more proof, as if it were needed, that government tax and other policies are leading to the exodus of buy-to-let investors. The Bank says that “demand for rental properties continues to outstrip supply as the number of landlords choosing to exit the market has increased.”
New rules for renting
Housing Secretary Michael Gove has confirmed that a Bill will be introduced to Parliament this week that will radically alter the letting environment in England.
The new legislation, which has been expected for four years now. It is said to “improve conditions for private renters in England” but is one that is feared by many landlords. They think it will radically change the balance of power in the landlord-tenant relationship, giving more power and greater security of tenure to tenants.
The Renters’ Reform Bill is to include the long promised abolition of the now controversial Section 21 eviction process which allows landlords to evict tenants after giving 2 months’ notice and without giving a reason for doing so.
The Bill as it stands will also abolish fixed term tenancies, replacing them with continuous tenancies where landlords can only evict under specific circumstances such as rent arrears, if they want to sell the property or if they want to return to live in the property themselves.
The Bill is said to include a strengthening of the Section 8 eviction powers by adding a number of grounds for eviction which, unlike Section 21 based on a document only process, will involve a court hearing and an adversarial process.
An alternative dispute resolution process is to be provided for the benefit of landlords and tenants which will attempt to avoid the last resort of a court hearing. Attempts will be made through an independent mediation process to settle disputes before the need to resort to the courts. Also, a mandatory national landlord register will be set-up and a tightening of housing condition rules will be introduction with a Decent Homes Standard for the private sector, similar to that already in operation in the social housing sector.
Last week Michael Gove told Sky News:
“We’re introducing new legislation, it will be out next week and it will change the way in which the relationship between landlords and tenants work, providing tenants with new protection which should ensure that they’re better protected from arbitrary rent increases.”
No doubt a number of factors have contributed to the under-supply of rentals, not least higher tax and tightening regulation of the last few years, but these new radical proposals in the Reform Bill are it seems just the final nail in the coffin for many landlords.
Recent research by Savills backs up the exodus trend and worsening supply. According to their residential research analyst Sophie Tonge, “an increasing number of landlords decided to exit when the sales market was particularly hot, to realise the capital growth.” The threatened removal of Section 21 and the dramatic reduction in the capital gains tax allowance (cut from £12,300 to £6,000 in April) has further accelerated this trend.
An anti-landlord Bill?
Landlords could be forgiven for claiming the Government is a targeting buy-to-let, but despite the oft quoted claim that it values the small-scale landlord, all the evidence points that way. Is this a housing crisis of the Government’s own making and is it powering headlong into an even deeper crisis by introducing this radical seemingly “anti-landlord” Bill?
Meanwhile, for those landlords still in the game and prepared to stick it out, the outlook could be more rosy. The demand for renting means that landlords can be choosy about the tenants the sign up and the increased mortgage and with demand so high other costs can be covered by increasing the rents – average rents in England rose by around 1.2 per cent to £1,103 in April over one year ago, that’s according to data provided by letting agents, Goodlord this last week.
However, demand is not evenly spread throughout the country. The paragon survey reveals that in the South West, 94% of landlords said they were experiencing “strong, or very strong” demand for their properties, while in Wales 92%, the West Midlands 92% and in the South East 91% said demand was high.
The highest demand Across England and Wales, was reported in the East of England with 90 per cent recording a rise, while the lowest reported in the West Midlands at 73 per cent.
Paragon Bank managing director for mortgages Richard Rowntree has said:
“The fact that we’ve seen another high in the proportion of landlords who have told us that they’ve experienced an increase in tenant demand reinforces what I’ve said previously — put simply, we need more private rented sector homes, not less.
“An important element of this is policy that strikes the right balance between driving up standards and providing tenants with protection while not acting as a barrier to investment.
“Failure to address this will further drive rental inflation and increase competition for rented homes at a time when affordable housing is as important as ever.”
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