How will new regulations for landlords impact the market?

Written by

Robert Walton

Robert Walton is a Senior Marketing Manager with many years of experience helping brands reach the right customers through clear, informative and straight-to-the-point comms. He's all about delivering top quality customer service and shouting about the great things we do here at Novuna. In his spare time, Robert dabbles with DIY and likes to write about his home improvement tips and tricks.

Friday 26th May 2023

The proposal of new regulations including the Renter’s (Reform) Bill and the Minimum Energy Performance of Buildings Bill is ruffling plenty of feathers in the buy-to-let market, with many landlords considering quitting the private sector altogether.

If predictions are proved correct and nearly half a million landlords do sell up in the next five years, how will this affect the housing market in general?

Lower house prices

As more houses become available on the market, the more bargaining power buyers might have.

Mortgage rates are exceptionally high at the moment – the standard variable mortgage rate currently stands at 6.5%. That could contribute to first-time buyers delaying their first step onto the property ladder, while also putting off homeowners looking to move. Lots of houses on the market and not an equal number of buyers in a position to buy them could lead to house prices continuing to drop.

That said, lower house prices could encourage those ‘on the fence’ to put down an offer. While landlords may not wish to invest in eco-friendly upgrades, an owner-occupier may feel it beneficial to invest in renovations and improvements. This could result in older, potentially poorly maintained properties being given a new lease of life by new homeowners who take the opportunity to buy the property when it’s on the market at an affordable price.

Increased rental prices

Hikes in rent are bound to happen as mortgage rate increases hit property owners across the country – including landlords. With increased interest rate to pay, potentially more tax owed due to the introduction of Section 24 and the costs of potentially mandatory energy-efficient upgrades looming, landlords are understandably passing on some of these costs to their tenants in order to keep their property profitable.

One in five households are private renting, as many simply don’t have the means to buy their own property. Should a significant number of landlords leave the market, millions of people may be competing for a smaller pool of privately rented properties. This could allow landlords to pick and choose their tenants – with many potentially boosting rental prices in response to such high competition.

Improved quality of rental housing stock

If landlords start selling their older properties – likely to be those with an Energy Performance Certificate of D or lower to comply with proposed new regulations – it stands to reason that at least some landlords will re-invest in newer properties. This could have a positive impact on the market in the longer term, as the quality of homes available for tenants may be higher – and will almost certainly be more efficient.

Homeowners adopt an ‘improve, don’t move’ mentality

Those waiting in the wings to upsize or move into a newer property might choose to pause their plans to sell and focus on improving their current homes instead. From house extensions to eco-friendly home improvements, there are plenty of ways homeowners can improve their living space and ultimately boost their house’s value when the time comes to sell.

More tenants struggle to pay

If rent prices do continue to increase, the market may see an increase in tenants who struggle to keep up with their monthly payments. The stress of dealing with arrears (particularly with the abolition of Section 21 no-fault evictions potentially around the corner) might, in turn, drive an even greater rise in landlords looking to leave the sector.

A rise in short-term let properties becoming available

There’s the potential for more experienced landlords to sell some of their older housing stock and then buy newer, better-quality properties to kit out as short-term lets. If this does happen, we may see a rise in the availability of short-term let properties.

As there are already a third fewer homes available than there was 18 months ago, it’s possible those looking for a place to live may turn to the likes of Airbnb as a temporary measure. This in itself will cause disruption in the market, given that guests of holiday lets don’t have the same amount of protections in place compared to tenants.

Alternative options for landlords and investors may steady the ship

Properties that may have been previously owned by individual landlords (including ‘accidental’ and ‘non-portfolio’ landlords) might be bought through a limited company instead in the future. Though limited company mortgages are typically more expensive, those wishing to invest in property may find there are a number of benefits to buying property through a limited company rather than in your own name.

Let’s not forget the role institutional investors may play, too. With a potential shortage of rental properties on the horizon, the appetite for build-to-rent investment is likely to be high. The private rental market is set to grow to 22% this year as property developers and investors recognise the demand for homes from ‘generation rent’.

Overseas investors may also continue to purchase property in the UK, too, given that the weaker pound has made housing more affordable to foreign buyers.

An increase in all kinds of company or corporate ownership will potentially boost the number of privately rented properties on the market for tenants.

Get ready for some big changes

Whichever way the wind blows, the housing market is likely to see some significant disruption over the next twelve months and beyond.

Whether you’re a landlord looking to sell or improve your home, a homeowner considering whether to renovate or sell before house prices fall any further, or a tenant wondering what your rent increases might be this year, almost everyone in the UK will feel the impact of the ongoing cost-of-living crisis combined with the introduction of potential new housing regulations.

For the latest insight and information on how you can stay ahead of the curve, bookmark the Novuna Personal Finance blog or follow us on Facebook, Twitter or Instagram.