A charity claims some landlords are using what it calls “excessive” rent rises to effectively evict tenants.
Citizens Advice says the Renters Reform Bill, currently before Parliament, will only improve renters rights if forthcoming legislation prevents backdoor ‘no fault’ evictions from taking place - through rent rises and other reasons - despite the abolition of Section 21.
The charity claims to helped almost 2,000 people with Section 21 issues in May, the most in a single month on record and a 25 per cent increase since May 2022. New grounds in the Renters Reform Bill allow landlords to evict tenants six months into a tenancy if they wish to sell a property or move family in. Citizens Advice claims 48 per cent of renters who have been evicted had been told their landlord wanted to sell up.
The charity says in a statement: “Worryingly, the new rules won’t require landlords to give evidence they have followed through on this once a tenant has left.”
Citizens Advice claims that last year, 1.8m households either had their rent increased or were threatened with an increase, with 300,000 renters “forced out of their home by a rent increase.” The charity does not source these figures in its statement. Citizens Advice is urging the government to close what it describes as ‘loopholes’ in the Renters Reform Bill to give tenants the promised greater protection and security. It is also calling for the length of time new tenants are protected from ‘no fault’ grounds for eviction to be increased from six months to two years. And it wants steps to be put in place to ensure landlords who claim to need to sell a property can’t rapidly re-let it.
Matthew Upton - acting executive director of policy and advocacy at Citizens Advice - says “our advisers are increasingly hearing from renters who are being forced to uproot their entire lives after receiving a Section 21 notice. For too long, renters have lived in precarious situations with few protections while landlords have held all the cards. Reforms to the private rental sector are welcome but they’re open to abuse from unscrupulous landlords. The government must ensure reforms are watertight and not include loopholes which allow Section 21 evictions to continue by the backdoor.”
BTL landlords face ‘unprecedented financial challenges’ as government told LHA should track rents
With new data last week revealing that just one in 20 newly listed private rental properties on Zoopla in Q1 2023 was affordable typically for housing benefit or universal credit recipients, the government is being urged to do more to ensure Local Housing Allowance track rents.
Timothy Douglas, Propertymark’s head of policy and campaigns, was among a handful of experts invited to give evidence to the Department for Work and Pensions Commons Committee hearing on the current benefit levels in the UK this week. He outlined the impact they are having on the private rented sector. Propertymark and other experts representing landlords, tenants, policymakers, and the homeless looked at a vast array of areas LHA’s impact those across the housing sector and we stressed that the DWP should engage more with landlords and recognise they are stakeholders in the housing allowance scheme.
The demand for rented property continues to outstrip supply in a highly competitive market. Evidence from a survey of Propertymark members shows that demand is up 24% in April 2023 compared to the previous year. Douglas stated that benefits are not keeping up with rising rent, and further pressure has been placed on the PRS because of low social housing stock, leading to vulnerable tenants being priced out of the market.
Timothy Douglas, Head of Policy and Campaigns comments: “The decision to phase out Mortgage Interest Relief and other unfavourable taxation policies is resulting in landlords facing unprecedented financial challenges. If a decision not to implement a pro-growth taxation agenda for the private rented sector is not brought forward, it will be the most vulnerable tenants who are negatively impacted, many of whom are in receipt of benefits.
“The UK government must increase housing options for the most vulnerable by setting Local Housing Allowance at the thirtieth percentile, if not the fiftieth, and to increase this annually to keep pace with market rents. A change in rhetoric is also needed with policymakers viewing private landlords and letting agents as part of the solution to resolve the housing crisis.
“After pressing them to do so, we are pleased to see that the Department for Work and Pensions is now investigating ways in which it can engage with membership bodies such as Propertymark and our partnership with the Valuation Office Agency will continue to ensure that letting agents provide rental data to support rent officer valuations and housing benefits.”
According to the Institute for Fiscal Studies (IFS), just one in 20 – 5% – newly listed private rental properties on Zoopla in the first quarter of 2023 was affordable typically for housing benefit or universal credit recipients. “Frozen and falling” housing support and rising rents are behind the squeeze on the availability of affordable properties, it said.
The IFS, whose research was funded by the Joseph Rowntree Foundation (JRF), defined rents as being affordable if they could potentially be completely covered by benefits.
Darren Baxter, principal policy adviser at the JRF, said “as more people on low incomes rent privately, it’s crucial that the government unfreezes LHA and ensures it reflects market rents so that families aren’t forced to choose between homes that are unsafe or homes they can afford.”
A government spokesperson said “we’re helping ease the pressure of rising rents by maintaining 2020’s £1bn boost to local housing allowance rates, giving more than a million people an extra £600 a year on average. We are set to spend over £30bn on housing support this year, on top of significant cost-of-living support worth an average £3,300 per household. Building more affordable homes is key, which is why we’re investing £11.5bn to deliver more social and affordable rented homes across the country.”
Landlords will have to hike rent by £614 to make a profit
Landlords in London and the South East will need to hike rents by a staggering £614 per month to make a profit when remortgaging at present rates.
This means that tenants could see their monthly rent leap from £1,498 to £2,112, on average, marking a substantial 41% increase, Hamptons reveals. The estate agency warns that the rise would be prohibitive for tenants so many landlords may be forced to sell-up.
The lead analyst at Hamptons, David Fell said “we estimate that at a loan rate of 6.3%, that 40% of mortgaged rental homes – or 28% of all rental homes – would become unprofitable when it comes to re-mortgaging. This figure takes into account management and maintenance costs, but not tax. We estimate that an additional 18% of existing landlords would not pass a stress test of an extra 1% above this rate. Stress testing isn’t generally applied to landlords who are re-mortgaging with the same lender – though it is generally applied to new purchases or product transfers to a new lender, 48% of those homes which are not profitable at the current rates on offer are in London and the South East and this tends to mean they’re expensive, but rents are comparatively low – hence the lower yields.
It would take a 41% increase in rents here to reach break-even point, with rents needing to rise from £1,498pcm to £2,112 – that’s an extra £614 per month.”
Mr Fell also notes that recently, the average landlord who paid the rate they were stress tested against, for example, 2% above their mortgage rate, would be losing around £1,500 per year after maintenance and management costs.
He said “for most investors, it’s not a profitable position to be in, therefore it is likely to be unsustainable for anything other than the short term.”
Last month, the Bank of England raised its base rate to 5% and, according to Moneyfacts, an average two-year BTL mortgage rate had already hit 6.44%, with five-year deals at 6.31%. Just two years ago, the firm says that a two-year deal was, on average, costing 2.96%.
And last week, the property platform Zoopla revealed that 51% of properties being sold in the South East and London had previously been rental homes.
Chris Norris, the policy director at the National Residential Landlords Association, told the Daily Telegraph “we’re seeing lots of people talking about exiting the market at the moment because they’re not able to increase the rent – they don’t feel it’s right or sustainable to increase the rent by the amount they would have to. If you’re talking about 30 or 40%, that’s not sustainable. The option you’re left with is to dispose of that property and to exit.”
Mr Norris says landlords are having problems when remortgaging after a cheap fixed-rate deal had ended because they struggle to pass the stress tests for a lender’s BTL mortgage product.
Landlords and homeowners face hefty bills to meet EPC target
Landlords and homeowners are facing steep costs to upgrade their properties to meet potential Energy Performance Certificate (EPC) ratings – with an average price tag of £13,981.
According to mortgage data firm Dashly, homeowners in Greater London will feel even more of a financial pinch with an average cost of £14,589 to make the necessary enhancements to their properties. Currently, the typical UK home sits in band D, equivalent to 66 points on the EPC scale.
Research reveals that Greater London has some serious work to do since the average London property emits 4.07 of CO2 and has an EPC rating of 62 points. With appropriate improvements, these figures could be slashed to 2.04 of CO2, corresponding to 80 points and a band C EPC rating.
Dashly’s chief operating officer, Martin Leonard, said “we all need to step up and do our bit for the environment, but making these adjustments to your home can be costly. The mortgage industry needs to do its bit to ensure homeowners are aware of the existence and possibilities of green mortgages. Up until now, green mortgages have attracted very little attention, but cheaper borrowing rates in a difficult environment could help raise awareness of the benefits of energy efficient homes. EPC ratings have a role to play but the reality is that they mean very little to the average homeowner. People want to know how the rating impacts them in pounds and pence and what they can do about it.”
The highest EPC emissions in the UK
Meanwhile, Scotland is grappling with its own environmental challenges because properties currently have the highest EPC emissions in the UK, emitting 6.33 of CO2.
Consequently, they face the heftiest costs to reach proposed EPC targets with an estimated bill of £18,046. The East and West Midlands boast the lowest EPC emissions at 3.49 of CO2 and in the South West, homeowners have the lowest required expenditure of £13,565.
Energy efficiency is becoming a daunting task for landlords
Meeting the proposed demands of energy efficiency is becoming a daunting task for landlords – and soon, homeowners.
That’s because landlords are looking at a potential deadline to reach a minimum EPC rating of C in 2028, and homeowners in 2035. From adding cavity wall insulation to installing condensing boilers, these necessary changes come with hefty price tags, Dashly says.
However, the mortgage market is responding to this challenge, offering ‘green’ mortgages. These financial products incentivise homeowners to make their properties more energy-efficient and offer perks such as lower borrowing rates. Some green mortgage packages even provide funds to cover the costs of implementing energy-saving improvements.
Landlords opt to buy homes with an EPC rating of C or higher
Landlords are increasingly investing in energy-efficient properties that have an EPC rating of C or higher, a study reveals.
Rightmove says that since January 2019, there has been a 16% increase in the number of rental properties entering the private rental sector with an EPC rating between A and C. Those homes had previously been listed for sale. However, rental properties with lower EPC ratings of D to G have seen an 11% fall.
The trend comes ahead of a government proposal to implement a minimum EPC rating of C – though there is no deadline for this to happen.
Rightmove’s property expert, Tim Bannister, said “upcoming changes to EPC legislation is a growing concern for landlords. However, the data suggests that many are getting ahead and focusing their investment on properties that will meet the new minimum standard and bringing these to the rental market.”
The research shows that landlords with larger portfolios are more likely to carry out the necessary improvements to boost the EPC rating of lower rated homes. These portfolio landlords are also more willing to invest in lower EPC rated properties and improve them.
Mr Bannister said “this suggests there may be a changing of the guard over the next few years, with landlords with bigger portfolios buying up lower EPC properties being sold by landlords with smaller portfolios, to improve and then rent out again.”
The Rightmove survey also reveals that landlords are now steering clear of properties with lower EPC ratings. The property platform found that 61% of landlords would now hesitate to purchase a property with an EPC rating below C – up from last year’s figure of 47%. Also, around one in three landlords who currently own properties with a lower EPC rating are considering selling them off rather than investing in upgrades to improve their energy efficiency.
This figure has risen from 20% who held the same intention last year.
This shift in investing in higher rated homes also highlights a growing challenge within the PRS which is leading to some landlords putting their properties up for sale. The Rightmove study found that 16% of properties listed for sale had been available for rent previously, marking an increase from 13% in January 2019.
Several factors are influencing this change, including concerns about the government’s stance on landlords (47%), increased taxation (41%), stricter compliance requirements (33%), and the escalating cost of buy-to-let mortgages (25%). Despite these challenges, landlords’ attitudes towards EPC ratings and their portfolio plans for the upcoming year, Rightmove says, largely depend on the number of properties they own.