Landlords across the country are getting ready to brace themselves for the impact of the Renters’ Reform Bill, as failing to comprehend the new rent review procedure could prevent you from implementing rent increases, according to a leading expert.
Lucian Cook, the head of residential research at Savills, emphasises that while the proposed legislation aims to protect landlords’ investments, it necessitates a fresh approach to conducting rent reviews.
The current version of the bill stipulates that landlords must provide notice of any proposed rent hikes using a specific form. This provision grants tenants the right to contest the proposal at the First Tier Tribunal if they deem it to exceed market rates.
Landlords are now obliged to substantiate their proposed rental increases with market evidence, placing a greater burden on their shoulders, explains Mr Cook. These regulatory changes come at a time when both mortgaged, and unmortgaged landlords face mounting financial pressures.
Reduction of private rental property on the market
The escalating costs of mortgage debt, combined with the implications of limited tax relief in higher interest rate environments, have become increasingly evident.
Furthermore, an analysis by Capital Economics for the National Residential Landlords Association reveals that tax-related issues may lead to a reduction in the availability of private rented properties.
However, Mr Cook points out that individual landlords’ experiences will vary depending on factors such as their property holding structure, the equity they have accumulated in their assets, and their ability to diversify risks across their portfolios.
“While smaller landlords with higher debt levels are likely to bear the brunt of these pressures, larger landlords with substantial equity may perceive this as an opportunity to expand their portfolios, especially if their properties are held within corporate structures,” he elaborates. “These landlords will closely monitor the state of the broader UK housing market.”
Turning to property market trends, Mr Cook highlights the persistent inflationary pressures across various goods and services, despite a decline in April’s headline inflation rate. Consequently, market expectations are rife that the Bank base rates will rise in the future.
According to Mr Cook, Oxford Economics is now forecasting a 5% rate by the end of August. Lenders have already increased fixed-rate mortgage costs before the end of May. Moneyfacts data reveals that the average effective mortgage rate for a 5-year fixed deal stands just below 5.2%, while a 2-year fixed deal lingers around 5.5%.
“This development could further constrain the borrowing capacity of potential buyers in the coming months, thereby maintaining a price-sensitive housing market throughout 2023 and into 2024,” warns Mr Cook.
Consequently, sellers must adopt a realistic approach when evaluating their property’s market value. However, he believes that any additional downward pressure on prices will be mitigated by demand from cash buyers and lender measures to assist those facing increased mortgage expenses as their fixed-rate mortgages expire.
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