Rental reform: private landlords out and companies in?

The UK’s rental market faces its biggest shake-up in decades when the Renters’ Rights Act takes effect next week. Private landlords say the new rules will drive them out of the market – but there are signs that companies and institutional investors plan to fill the gap.

From 1 May, landlords will be banned from issuing section 21 notices, also known as “no-fault evictions”, which allow them to evict tenants without providing a justification. Instead they will be allowed to evict tenants only if they can prove they are selling the property or moving into it themselves. Rent rises will be limited to once a year and to the market rate, landlords will no longer be able to accept offers over the rate they advertised, and tenants will be given new rights to own pets.

The act is the culmination of years of efforts by successive governments to professionalise the rental sector and drive out “bad landlords” who fail to maintain homes properly and raise rents unfairly.

Already the change has had an impact. Pepper Money, a specialist lender, has found that 220,000 rental homes, or 5% of the UK’s rental stock, are set to be sold by the end of the year by landlords who fear repercussions. The owners of about 65,000 of those homes directly blame the Renters’ Rights Act.

There are signs that companies are stepping in to fill the gap they’ll leave. Research by Molior, a data service for the property market, shows that 1,931 homes in London were sold to companies in the first quarter of this year, with 1,254 of those sold as part of a block or as a build-to-rent deal. Just 907 homes were sold to individual buyers.

“The institutions and the build-to-rent developers are seeing an opportunity based on the lack of stock that’s in the market,” said Gary Hall, head of lettings at Knight Frank.

These institutional landlords tend to specialise in larger, purpose-built blocks. They bill themselves as a “more responsible landlord”, said Dan Wilson Craw, deputy chief executive of Generation Rent, with staff on-site who can fix problems immediately. “They have an interest in keeping tenants in the home long-term,” he said.

That’s not always the case, however. “A couple of years ago, it was reported that one build-to-rent landlord was issuing section 21 notices and really large rent increases,” said Wilson Craw. “They were being ruthless and cashing in on what the market conditions allowed them to do.” That has been the case at similar developments across London.

Nor are these landlords immune to the problems plaguing the rest of the UK’s housing developers: in March, for example, John Lewis pulled the plug on its build-to-rent arm after it was beset by planning delays.

Because of this, Jonathan Isaac, regional director of central London lettings at Hamptons, suggests that larger landlords will be “measured about where they invest and how quickly they want to build these schemes up”.

Ultimately, he said, the new rental rules are aimed at “increasing standards for tenants and making people accountable for when they’re not doing the right thing. I think all those things collectively are the right directions of travel.”

Photograph by Bjanka Kadic/Alamy