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What would the PRS look like with more legislation?

Written by Accommodation.co.uk | Nov 24, 2022 4:18:09 PM

There's been some unbelievable statistics coming out about the rental market in recent months.

From the rapid rise in rental prices to the amount of confidence (or not!) landlords have in the Government's approach to the private rented sector, the numbers don't always make for good reading.

If you're a landlord, the rental rise is great, however, for tenants, it is becoming hard to keep up with the rise amid the cost of living crisis. For every positive, there seems to be a negative too.

This also applies to the numerous new pieces of legislation landlords will have to demonstrate compliance with in 2023. Whilst 94% of landlords feel this will have an overall negative effect on the PRS, 42% of tenants actually want to see more legislation.

 

So what would more legislation look like, and how would it impact the PRS?

Many of the issues facing the PRS have come from landlords being disgruntled with new regulations and the implications on their properties & income as a result of these.

For example, the Section 24 tax brought in a few years ago meant landlords wouldn't be able to write mortgage interest off their expenses, and they would have to pay taxes on the money they made before that cost. This made things less profitable and began a sell-off in recent years as property prices reached all-time highs.

Another sticking point for landlords has been the EPC regulations. Properties must have an EPC rating of C or above by 2025, otherwise, landlords could face up to £30,000 in fines. Many privately rented properties currently fall below Grade C and are rated D & E which would mean landlords have to invest thousands of pounds in upgrades to make their properties more energy efficient. 

The result of tightened regulations and increased costs, combined with year-on-year increases in property prices has meant there are now 266,000 fewer properties in the private rented sector, compared to 5 years ago. Many of these landlords have been in the market for 10+ years, and have been portfolio landlords who have gotten fed up with constant updates & increased costs.

And whilst the Renter's Reform Bill is there to protect tenants and make things easier for landlords, many landlords feel it won't help them, but instead could leave them at risk.

For example, many landlords are worried about periodic tenancies, which could mean they don't have their income secured over longer periods such as 12 months, as the tenant can rent the property on a monthly basis and give 2 months' notice when they want to leave.

Whilst many tenants are staying in their accommodation longer term due to the competitiveness in the rental market, it doesn't give landlords confidence as they won't necessarily have a stable, long-term income which is what many of them bought their rental property to achieve.

 

What could more legislation look like?

This could depend on who is in Government, however, with Scotland introducing rent freezes for a period of time, there have been calls from ministers across the UK to introduce these everywhere.

We feel this would make the problems to do with supply and demand in the PRS even worse, as landlords' costs to run and maintain their properties will still increase, as will inflation, however, their rental income will stay the same, and their profit margins will shrink the longer rental prices are capped for.

In Scotland, this has seen even more landlords look at their options when it comes to selling their property, and make use of the capital gains instead of their rental profits. Leading to even more competition for rented accommodation between tenants, and if this continues, it could see an unsustainable record jump in monthly rents when price caps are lifted, as landlords & the rental markets adjust to the levels of demand and increased costs.

The Labour party are also pushing for plans to allow tenants in arrears to stay in the property under certain circumstances, but with landlords having overheads and bills to pay to do with their asset and their personal expenses, having a tenant that doesn't pay, and doesn't have to pay could lead to an asset that isn't profitable, but also loses the landlord money.

This would not be a sustainable way to run the private rented sector, as it offers landlords no protection from higher costs when many of them rely on their rental income to support their own expenses and families.

As a result of this, landlords could opt to sell their assets as they simply wouldn't have the means to keep them long-term without assurances over their income, and with development targets not being hit for new homes, this could lead to an even greater shortage of suitable rented accommodation for tenants and unaffordable rental rises.

 

Whilst more needs to be done to protect tenants from bad landlords & poor quality accommodation, there has to be a solution that works for both landlords that provide the accommodation, and the tenant who lives in it and pays rent each month.

 

What do you think will happen to the PRS in the coming year?