Renters’ Rights Act sees ‘hobby landlords’ leave the sector

Hobby landlords are increasingly leaving the PRS because of the Renters’ Rights Act, while other landlords will increase tenant checks and tighten letting criteria, raising questions about rental home access for some potential tenants.

Those are the views of Louisa Sedgwick, the managing director of mortgages at Paragon Bank, who was speaking on a podcast hosted by Tom Bill, the head of UK residential research at Knight Frank.

She said landlord behaviour is shifting ahead of the 1 May start date.

Ms Sedgwick pointed to changes around rent in advance and affordability checks, which are beginning to influence decision-making.

Landlord behaviour changes

She said: “I think what will happen without a shadow of a doubt, and you are already seeing this, is that the due diligence that landlords will do on any new tenant will be significantly higher than it has been in the past.

“A tenant can now no longer pay rent in advance, and that might have been a way to secure a property if they had a previous poor credit history or they weren’t working or relying on universal credit.”

She added: “We’ll see more vulnerable tenants not being able to secure properties as a result of the Renters’ Rights Act.”

Landlords are leaving

Ms Sedgwick said a combination of tax changes and higher stamp duty is feeding into landlord exits.

She said: “There is absolutely a move towards hobby landlords leaving the sector.

“It just becomes harder, and I think this is kind of the point where landlords say, unless I’m going to do this either as a full-time role or certainly concentrate and focus time and effort on making sure that I can make this a viable business, then I’m actually going to move out of the sector.”

Rental stock decline

Tom Bill said rental home supply continues to influence conditions.

He said: “The decline in available stock means tenants are competing more intensely in some parts of London.

“Landlords who remain are operating in a market where yields have adjusted alongside weaker sales prices.”

Ms Sedgwick also outlined her involvement in discussions with government and industry bodies during the legislative process.

More problems to come

She said: “My feeling was that this was in the Labour Party manifesto, and as such, they were going to implement it.

“So, regardless of whether or not they understood and were listening, I think that they’d reached the point where there was just no going back on this particular change in legislation.”

Further changes to rented homes will come with the Minimum Energy Efficiency Standard requirements, targeting an EPC C rating by 2030.

Ms Sedgwick said: “This particular change in legislation I think is going to be bigger and potentially more demanding because I don’t believe we’ve got the infrastructure to support it.”

Community of landlords

She continued: “We’re talking 1,800 properties per day that will need to be upgraded by October 2030.

“We don’t have the tradespeople because they’re busy building the 1.5 million homes that have been committed to from this government.”

She said the sector is shifting in structure, adding: “You’ve seen the move towards larger apartment blocks with concierges and gyms that have been built by insurance and investment companies.

“It is going to be a community of landlords that do this as part of their everyday roles as opposed to doing this just as a hobby or off the side of the desk.”