UK Property News Week 32

Welcome to NestInsights, your guide to the evolving UK property market. In this blog series, we explore the latest property news and developments that shape the sector, offering you the insights needed to navigate and thrive. Our goal is to provide a comprehensive overview that empowers you to make well-informed decisions in this dynamic market.

Table of Contents

• Government’s Potential Actions Against Landlords

• Rental Reform: Evaluating the New Government’s Approach

• The Impact of the Proposed Landlord Database

• Shifting Sentiments in the Sales Market: Insights from RICS

• The Housing Crisis: Legal Implications and Risks of Eviction

• Latest Data on Mortgage Arrears and Property Possessions

UK Property News Week 32

Government’s Potential Actions Against Landlords

In recent months, concerns have been mounting among landlords regarding the potential actions the government may take to regulate the private rental sector. Speculation has been rife that a "war on landlords" could be unfolding, with new measures aimed at tightening regulations around evictions and property standards.

One of the most debated proposals is the introduction of stricter eviction rules, with suggestions of adopting a French-style "hardship test" before landlords can remove tenants from their properties.

Under this model, landlords would be restricted from evicting tenants if it could be proven that the tenants would face significant financial hardship as a result.

This could lead to a substantial reduction in the ability of landlords to regain possession of their properties, a scenario that is drawing criticism from within the property industry​.

In addition to eviction reforms, the government is also revisiting energy efficiency requirements for rental properties.

The reintroduction of EPC (Energy Performance Certificate) standards, which would require rental homes to meet a minimum EPC rating of C by 2030, is on the horizon.

This could involve substantial costs for landlords, particularly those owning older properties that would require significant upgrades to comply with these standards​.

Furthermore, the Renters' Rights Bill, which has reemerged under the current administration, focuses on enhancing tenants' protections while ensuring that landlords maintain higher property standards. Though these reforms are framed as efforts to create a fairer rental market, there is growing concern among landlords that the cumulative effect of increased regulation, tax burdens, and compliance costs could push many out of the market entirely​​.

Despite the government's stance that these reforms will improve the private rented sector, there is considerable skepticism from within the industry.

Landlords fear that these regulations, particularly if coupled with tax changes and increased compliance demands, could exacerbate the current housing supply crisis, driving more small landlords to exit the market. This, in turn, could reduce rental stock, increase rents further, and make the private rented sector less accessible for many tenants​.

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Rental Reform: Evaluating the New Government’s Approach

The new government’s approach to rental reform has reignited debates across the property sector, centering around the balance between enhancing tenant protections and ensuring the sustainability of the private rental market.

Central to the government's strategy is the reintroduction of the Renters’ Rights Bill, a comprehensive legislative effort aimed at addressing various tenant concerns while attempting to maintain a stable rental market​.

One of the primary focuses of the reform is increasing protections for tenants, particularly those in precarious housing situations. Currently, 85% of renters report being satisfied with their rental experience, with 86% also satisfied with the condition of their homes​.

However, the government remains concerned with improving conditions for the minority of renters who occupy substandard housing. The introduction of stricter housing standards is expected, along with a mandate for landlords to ensure properties meet a minimum standard before they can be rented​.

The new Renters’ Rights Bill is particularly notable for its absence of rent control measures in England, which many feared could have been included. Instead, the government has opted to prioritize increasing housing supply as the most sustainable solution to rising rents and the current supply-demand imbalance​.

This decision reflects the understanding that controlling rent prices without addressing the underlying issue of housing shortages could have long-term negative impacts on the availability of rental properties.

Another significant reform involves a proposed national landlord database aimed at improving transparency and ensuring compliance with legal standards.

This database could eliminate the need for selective licensing schemes by maintaining records of legally required documentation, such as gas safety certificates and floorplans. The introduction of such a database would serve as a mechanism to identify and eliminate rogue landlords, while simplifying compliance procedures for responsible property owners​.

While the government’s approach leans towards tenant protection, it also acknowledges the critical role landlords play in maintaining a healthy rental market. The reforms are designed to strike a balance, avoiding overly punitive measures against landlords while promoting a more equitable and fair rental environment.

However, with lingering concerns over higher compliance costs, some in the property sector fear that further regulations may push smaller landlords out of the market, exacerbating housing shortages and driving up rental prices.

The Impact of the Proposed Landlord Database

The proposed national landlord database is being hailed as a potential game-changer for the private rented sector (PRS).

Spearheaded by discussions between the National Residential Landlords Association (NRLA) and the government, the database aims to streamline landlord compliance while tackling rogue practices in the market.

Proponents argue that this system will significantly improve the transparency and accountability of landlords, ensuring that rental properties across the UK meet legal standards.

One of the most significant benefits of the database is its potential to simplify compliance processes for landlords. Under current conditions, selective licensing schemes can vary greatly in cost and complexity across local authorities, creating an uneven regulatory environment.

For example, Phil Turtle of Landlord Licensing and Defence suggests that the introduction of the database could eliminate the need for these schemes entirely. In Jersey, a similar system already operates effectively, with property licenses costing just £60 for two years, covering all necessary documentation checks such as gas safety certificates and floorplans​.

This centralized database would not only ease the administrative burden on responsible landlords but also make it more challenging for rogue landlords to evade scrutiny.

By ensuring that all legally required documentation is consistently maintained and easily accessible, the database would help councils enforce standards more efficiently. This system could reduce the frequency of hefty fines imposed on landlords for minor administrative oversights, which are often a point of contention under current selective licensing models​.

Another critical impact of the database is its potential to support tenants. With all rental properties subject to regular documentation checks, tenants can be more confident that their homes meet safety and habitability standards.

This increased transparency could lead to a more stable rental market, where tenants have greater protections against substandard living conditions, while good landlords are shielded from being lumped together with rogue operators.

However, the success of the proposed database hinges on its implementation. Critics caution that without careful design, the database could simply add another layer of bureaucracy for landlords without delivering the intended benefits. As the government continues to refine its Renters' Rights Bill, the database’s role in the PRS will be closely watched, with many hoping it can deliver on its promise to create a fairer and more efficient rental market​.

Shifting Sentiments in the Sales Market: Insights from RICS

The sales market in the UK is showing signs of recovery, with sentiment improving significantly in recent months, according to the latest data from the Royal Institution of Chartered Surveyors (RICS).

After a prolonged period of uncertainty, spurred by rising interest rates and economic turbulence, the "mood music" in the market has notably shifted.

In its most recent survey, RICS reported a modest but promising increase in buyer enquiries, with a +2% net balance recorded in July 2024, up from -6% in June.

This marks the first positive movement in buyer interest in four months. Similarly, the number of agreed sales, while still negative at -2%, represents a significant improvement from the -13% seen in May​.

Looking ahead, optimism is growing.

A net balance of +30% of survey respondents expect sales to rise over the next three months, which is the most positive outlook since January 2020. Longer-term projections are even more encouraging, with a net balance of +45% of respondents anticipating sales increases over the next 12 months​​.

While the uptick in buyer activity is promising, house prices remain a point of concern. The UK-wide net balance for house prices was recorded at -19%, indicating a decline, though there are regional variations.

England's housing market remains subdued, with East Anglia and Yorkshire & the Humber showing the weakest price trends, while Scotland and Northern Ireland have experienced modest price growth​.

The improving sentiment is partially attributed to recent government initiatives aimed at boosting housing development, coupled with a quarter-point base rate cut by the Bank of England. While the full impact of these measures is yet to be realized, early indications suggest that they are helping to restore confidence in the market​.

This renewed optimism, however, does not come without challenges. Housing supply remains tight, and affordability issues continue to affect large parts of the market, particularly in southern England.

Nevertheless, with improving economic conditions and supportive government policies, the sales market appears poised for gradual recovery in the coming months.

The Housing Crisis: Legal Implications and Risks of Eviction

The ongoing housing crisis in the UK continues to escalate, with tens of thousands of individuals facing the threat of eviction.

According to recent data from the Ministry of Justice, between April and June 2024, more than 29,000 eviction claims were processed, representing a significant increase in both mortgage possession claims and landlord possession claims​.

A key concern for many tenants is the lack of access to legal aid, which has diminished substantially over the years. As the Law Society highlights, millions of people are left without local legal aid providers, placing them at a severe disadvantage when fighting eviction claims in court.

Without adequate legal representation, many tenants face eviction and are forced into temporary accommodation or even homelessness​.

The legal framework around evictions remains complex, particularly for landlords navigating the use of Section 21 and Section 8 notices under the Housing Act 1988. While Section 21 allows for no-fault evictions—provided the correct notice period is given—tenants are increasingly challenging these notices in court, especially where they can demonstrate that the eviction would result in severe hardship​​.

From a legal perspective, the increasing number of eviction cases presents a growing risk for both tenants and landlords. For landlords, compliance with legal procedures is crucial to avoid penalties and delays in repossessing their properties.

Meanwhile, tenants face the daunting challenge of navigating the court system, often without the resources to adequately defend their cases.

Latest Data on Mortgage Arrears and Property Possessions

According to the latest figures from UK Finance, the number of homeowner mortgages in arrears showed a slight decline of less than 0.5% in the second quarter of 2024, bringing the total to 96,070 mortgages.

In contrast, buy-to-let (BTL) properties saw a small uptick in arrears, with a 0.5% increase to 13,570. This brought the overall proportion of mortgages in arrears to 1.10% for homeowners and 0.69% for BTL mortgages​.

Notably, the number of mortgaged properties taken into possession has risen, largely due to HM Courts Service clearing a backlog of historical arrears cases.

In Q2 2024, 980 homeowner properties and 710 BTL properties were repossessed. While these figures reflect an increase, they remain significantly below long-term averages​.

The slight improvement in homeowner arrears could be attributed to easing pressures from higher interest rates and the cost-of-living crisis. However, BTL landlords face a more challenging environment, particularly with recent inflation and energy costs impacting both landlords and tenants​.

Overall, while the data suggests some stability in the mortgage market, the gradual rise in possession rates indicates that the aftershocks of previous financial pressures are still being felt.

The outlook for the remainder of 2024 remains cautiously optimistic, especially as inflation and energy prices continue to stabilize.

Takeaways

• Government's Potential Actions Against Landlords: New regulations, including stricter eviction rules and enhanced energy efficiency standards, could pose significant financial challenges for landlords. These measures, while intended to create a fairer rental market, risk reducing rental stock and further intensifying the housing supply crisis.

• Rental Reform: The Renters' Rights Bill emphasizes tenant protection without imposing rent controls, focusing instead on increasing housing supply. The introduction of a landlord database is a key reform aimed at improving transparency and ensuring compliance, though concerns persist regarding the impact of these reforms on smaller landlords.

• Landlord Database: Seen as a potential solution to streamline compliance and target rogue landlords, the proposed landlord database could reduce the need for selective licensing. However, successful implementation will be critical to avoid adding unnecessary bureaucracy for landlords.

• Sales Market Sentiment: RICS reports a positive shift in buyer interest and sales projections, buoyed by government initiatives and a recent base rate cut. However, regional disparities and ongoing affordability issues mean that challenges remain for the housing market, particularly in southern England.

• Housing Crisis and Evictions: With over 29,000 eviction claims processed between April and June 2024, the risk of homelessness is growing. Access to legal aid remains a critical issue for tenants facing eviction, while landlords must navigate increasingly complex legal procedures to regain possession of their properties.

• Mortgage Arrears and Possessions: Homeowner mortgage arrears have stabilized, while buy-to-let arrears have seen a slight uptick. The number of repossessions is rising as courts clear backlogs, but figures remain below long-term averages, reflecting a cautious recovery in the housing finance sector.

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