Home / The Renters’ Rights Bill – potential impacts on the buy-to-let market
12th December 2024
Below, we identify three things for lenders to consider before agreeing a buy-to-let mortgage under the new Renters’ Rights Bill.
In our first article on The Renters’ Rights Bill, we discussed how the Bill will abolish evictions under section 21 of the Housing Act 1988, also known as Section 21 Evictions, making it harder for landlords to remove residential tenants from properties, in this article we focus on what lenders need to know.
The biggest concern for landlords and lenders will be the scrapping of Section 21 evictions. It can already be difficult and time-consuming to obtain an order for possession against a tenant, with backlogs in the court system meaning cases taking significantly longer and costing more to get to a final hearing. Prior to lending on a buy-to-let basis, lenders should complete the appropriate due diligence so that they are satisfied landlords can maintain payments should a tenant refuse to leave the property or pay rent.
Another concern for lenders, is the proposed abolition of fixed term assured shorthold tenancies (‘ASTs’). ASTs provided some security for both landlords and renters, guaranteeing income for a set period of time. The introduction of periodic tenancies will increase the risk of uncertainty, and as a result the risk of default on buy-to-let mortgages, as the tenant will be able to leave at shorter notice than under a tenancy which has a defined time period. Other risks arising from the abolition of AST’s may include landlord’s using more ad-hoc or less protective leases, and as a result they may find it more difficult to collect rent or evict tenants. Lenders might therefore need to be more wary of granting buy-to-let mortgages, and as a result may need to consider more stringent checks before the granting of a buy-to-let mortgage.
The bill also proposes that if a landlord evicts a tenant on the basis that they wish to sell their property, but fails to sell, the landlord will be unable to re-let the property for 12-months following the end of the four months’ notice period (which the bill also proposes) and could be fined £7,000 for doing so. This could mean that lenders need to advise landlords that there is a risk that they unable to exit their buy-to-let mortgage easily should their circumstances change.
All of these added risks for landlords are factors that lenders will need to consider when lending on buy-to-let mortgages.
Our Financial Services Advice team are experts in the lending market. If you have any questions with regards the new legislation, please get in touch with the team on financialserviceslitigation@kuits.com.