We recently held a landlord seminar, where Meera Chindooroy of the NLA gave an insightful overview of the kind of policies that landlords across Britain can anticipate seeing in the coming months, and years, potentially. Here’s what she had to say.
(It should be noted that due to the fact we’re in the middle of a general election, ultimately, the nature of what comes next will depend on who is elected on the 12th December.)
What’s been happening in the private rental sector?
The private rental sector has seen a lot of legislative change and new regulations in recent years - and there’s a lot of reform that’s still on the agenda.
There are areas, for example, that we know the government is interested in, but we don’t quite know what direction the reforms will take. For example:
The abolition of Section 21, and associated with that, court reform
The protection of deposits and any reform of that
Wider regulation questions such as the regulation of property agents and whether that will expand to landlords
Licensing and reviews of licensing
The introduction of compulsory redress for landlords
The future of right-to-rent
If that wasn’t enough, there are also a number of areas where we know that there is reform coming and we have a good idea of what it will look like:
Energy efficiency. The government’s committed to trajectory for reaching net zero carbon by 2050, so we know that there will be more energy-efficiency regulations on the horizon
Safety. This is an issue that was brought to the forefront by Grenfell and continues to be one of the government’s priorities
Expanding the Rogue Landlords Database. The database of rogue landlords and property agents was introduced in April 2018. In October 2018 the Prime Minister committed to opening up access to information on the database of rogue landlords and property agents to tenants. And more recently, the government has consulted on widening tenants’ access and reviewing the scope of offences that lead to inclusion on the Rogue Landlords Database
In addition to this, there are also ongoing challenges in the sector which either haven’t been met with legislation yet, but probably will be soon, or we haven’t yet seen the full impact of recent changes. For example: affordability; tackling homelessness; the challenge of enforcement in the private rental section; the future of taxation (we already know that Section 24 is coming into full effect next tax year); and the Tenant Fees Ban which came into effect in June this year.
The elephant in the room: Section 21
So to kick things off we’ll talk about the elephant in the room: Section 21.
The government consulted on abolishing section 21 and introducing assured tenancies as the default tenancy over the summer. Though we are still awaiting the response to the consultation, which closed in October, scrapping Section 21 was committed to in the Labour, Conservative and Liberal Democrat manifestos, so it is very likely that the reform will be going ahead.
In response to the government's announcement, the NLA surveyed our members and this is a summary of their planned response if the abolition goes ahead:
Landlords will become 'more selective' of tenants and rental supply will drop by 20%
As you can see, the majority response from landlords was that they will be more selective about the type of tenants that they would accept. Around 16% said they would exit the PRS completely and about 1 in 10 would reduce the size of their portfolios. All of this will have a big impact on supply in the PRS.
We commissioned Capital Economics to take a closer look at what these results would mean for rental supply in the sector. They revealed that, if landlords respond to the abolition of Section 21 in the way they have said they would, there would be a reduction in the supply of rental properties of 20%. That’s almost 1 million dwellings in the PRS which would no longer be available.
There will also be a reduction in properties available to tenants in receipt of benefits
What’s more concerning, there would be a reduction in the number of dwellings available to tenants in receipt of benefits of 59%. So, although the government has introduced this consultation as a way of providing more security to tenants, the question is whether it actually will actually provide protection to tenants who need homes the most.
One question is whether an improved court process would lead to landlords feeling more confident to remain in the market. As you can see, there are mixed views among our members. A large proportion of our members would find some confidence in a reformed court process.
Could court reform mitigate the impact of the loss of section 21?
Capital Economics looked at this analysis and found that court reform could significantly mitigate the impact of the loss of Section 21. So, instead of a loss of one fifth, with court reform, the reduction of supply could fall to 4-8%. And the reduction of supply for benefit claimants could fall to 10-23%.
Hence, our position has always been that you cannot abolish Section 21 unless and until there is wholesale reform of the courts. That includes reform of both the Section 8 grounds, and the courts themselves, because we know landlords are finding it increasingly difficult to get timely access to the courts. We also know that landlords are having big issues with waiting times for hearings and waiting times for bailiff appointments (for those who need to go that far).
The current court experience for landlords
Interestingly, the government did do a call for evidence on the case for a specialist housing court. That call for evidence closed in January this year, and we’re still awaiting the response from the government.
Meanwhile, we’ve used YouGov to find out about landlords’ experiences of the courts. We surveyed over 3,000 landlords in England and Wales, and found that 47% had used Section 21 only, when they had legitimate grounds to use Section 8. Additionally, only 1 in 5 had used section 8 only.
We know therefore that section 21 is being used when landlords do have the grounds to use the section 8 process. Clearly landlords don’t have the confidence that they will regain possession through the section 8 process.
The government really needs to take a look at what those section 8 grounds are, as well as providing more confidence in the timeliness of the court process. In other words, they need to ensure that landlords don’t have to follow a convoluted section 8 process to regain possession if that’s the only route they have to do so.
The UK's 1.5 million private landlords to join a compulsory redress scheme
Earlier this year, the government also announced that they intend to bring in compulsory redress for landlords. Currently, letting agents are already required to be registered with a redress scheme. But the government now wants to introduce that for landlords as well, with a fine of up to 5,000 if landlords do not join the scheme. They will have to legislate for this, and the plan when we spoke to government was to take this forward relatively quickly, with implementation in 2020.
Obviously the political situation has overtaken the circumstances and we’ll have to wait and see what the next government's view is on introducing redress. But either way, it will require parliamentary time to introduce so, so it’s not something that will come in the immediate future. The NLA are currently exploring how to include this within their package of membership.
Selective licensing of private landlords to remain the same
The government also published an independent review of selective licensing in the summer. We were disappointed to see that there was no requirement for local authorities to report against their objectives. There was a recommendation that it would be good practice to do so, but it wasn’t made a requirement.
While the review did recommended that enforcement costs should be charged pro rata, and expanded the definition of a ‘fit and proper person’, ultimately there wasn’t much else that came out of the review. Selective licensing will therefore continue the way it has been.
The future of deposits - ‘deposit passporting’?
The government has also instituted a working group to look at the future of deposits. The working group looked at the future of the insurance backed schemes and custodial schemes, and have also been looking at passporting of deposits (that would be tenants being able to move their deposits more easily between tenancies). They’ve also issued a consultation on this which closed in October.
It’s likely that the insurance backed scheme will continue; after all, there’s no evidence to suggest that the outcomes for tenants is different whether they use an insurance or custodial backed scheme. But it’s also likely that there’s going to be a real push to introduce deposit passporting. This is technically challenging, and the deposit schemes are currently looking at how they could make this work for both landlords and tenants. We await the response to the consultation.
Energy-efficiency across properties by 2050
Energy-efficiency is a big issue that the government has now made an even bigger one, by committing the country to reaching net-zero carbon by 2050. In effect this will mean that all properties will need to meet an A rating on their EPC by 2050 at the latest.
In the private rental sector, the minimum energy efficiency standard is an E rating, and this will become compulsory for all tenancies from April 2020 (unless you have a valid exemption). We anticipate that the minimum requirement will increase to a D by 2025, and a C by 2030, and you can see the trajectory that is going to continue in advance of 2050 - assuming the next government doesn’t increase or decrease the target date for reaching net-zero.
The thing about net-zero is that it’s about carbon, not really about energy-efficiency. In other words, some of the things which are energy-efficient, like a gas combi-boiler, are actually terrible in terms of the use of carbon. The government intends to prevent gas boilers from being installed in new-build properties from 2025, and it’s likely that in the future there will be further requirements for existing properties to remove those sorts of appliances.
It’s really important therefore that landlords consider energy-efficiency in their long-term plans. Ask yourself: Where can you implement energy-efficiency or carbon reduction measures in your properties? It’s particularly helpful to consider whether there are changes you can make during void periods, to anticipate future regulations coming down the line.
Health and safety high on the agenda
Health and safety is always high on the agenda. The rating system HHSRS is currently being reviewed; the plan is to update the guidance, to review training, and to provide a simpler process so that it’s easier for local authorities, landlords and tenants to understand what the process is and what’s required. They’re going to update the enforcement guide and introduce new technology into the process. All of that’s to come.
There are also forthcoming requirements around electrical safety. The previous government committed to introducing mandatory five-year electrical safety checks, but will need to introduce new regulations for these, so they’re on the horizon. The response to Grenfell continues, so there will be more on building safety.
So, what is on the horizon?
This is a chart to show the political party’s support over recent months. It’s all up for grabs at the moment. What’s certain however, is whichever party comes into power, there will be tenancy reform.
You can read Portico’s summaries of the Labour, Conservative and Liberal Democrat manifestos here, and the NLA summaries here.
The National Landlords Association (NLA) is the UK’s largest membership organisation for private residential landlords, supporting and representing 41,000 members. The NLA help their members navigate regulatory and legal challenges and offer comprehensive learning resources. Click here for membership information.
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