How Rental Reforms Could Impact Property Investors

How rental reforms could impact property investors

With major legislation set to reshape the UK rental market, it’s crucial that property investors stay ahead.

These changes aren’t just headlines, they are set to impact how you buy, let, and manage property. We are here to make sure you are informed and prepared. New rules will make it somewhat harder to manage properties in the way they once were, with many of the new changes aimed at giving tenants more security. However, the changes will also create new challenges for property investors.

Here we look closer at these challenges and explain exactly how the rental reforms could impact property investors across the UK.

The end of Section 21 evictions

One of the biggest changes is the plan to abolish Section 21 no fault evictions, which currently allows landlords to evict tenants without giving a reason. They will instead need to use Section 8, which requires specific legal grounds such as failure to pay rent or the tenant having caused damage to the property.

This change will obviously make it harder for landlords to remove problem tenants quickly, unless the problems they cause specifically allow for eviction as stated above. In some cases it could mean long waits for court decisions.

The main effect of this will likely be landlords taking a more cautious approach when choosing tenants, with thorough background checks and references more important than ever.

Higher costs and tax changes

Landlords also face increasing costs. The government has already removed mortgage interest tax relief, meaning landlords can no longer deduct mortgage interest from their rental income before paying tax. This has made buy-to-let investments less profitable for many.

Stamp duty also remains high, with a 5% surcharge on second homes and buy-to-let properties. At the same time, interest rates have risen, and landlords who bought properties when rates were low may struggle with higher repayments when their fixed terms end.

New energy efficiency rules mean maintenance costs have also gone up, with landlords expected to improve their properties to meet higher standards. This could involve upgrading insulation, replacing windows or installing new heating systems. It’s clearly good news for tenants as it should lead to lower energy bills for tenants, but again it adds to the financial burden on landlords.

Some investors will likely pass these costs on by raising rents, but that could lead to fewer tenants being able to afford the higher payments, in turn increasing the risk of void periods.

A more regulated market

Quite a few councils around the country have introduced licensing schemes that require landlords to register and meet certain standards, ultimately improving rental conditions but adding extra costs and paperwork.

The government has also introduced stricter rules for landlords who want to convert homes into Houses in Multiple Occupation (HMOs). These properties with multiple tenants sharing facilities often bring higher rental yields, but tougher licensing and management rules will make them harder to manage.

Opportunities for investors

There are still plenty of opportunities despite these challenges. Rental demand remains strong in many areas, especially in cities with growing populations, and there is still a steady influx of tenants who struggle to get mortgages and thus continue to rely on the rental market.

Some landlords will leave the sector due to rising costs and regulation, and this could reduce the supply of rental homes benefitting those landlords who remain. Investors with cash reserves may well find some good property deals as others sell up.

There is also growing demand for high quality rental homes. Landlords who invest in well-maintained properties with good energy efficiency ratings may attract tenants willing to pay a premium. Those who offer long term tenancies and good service may reduce the risk of vacancies and tenant disputes.

Other investors still may shift to different types of property. The likes of student housing, holiday lets and build-to-rent developments offer alternative ways to generate rental income. Each comes with its own risks and rewards, but they may provide more flexibility than traditional buy-to-let properties.

The road ahead

The rental market is becoming more complex, but landlords who adapt to the new rules and plan for higher costs will be in a stronger position than those who resist change. Keeping up with regulations, maintaining good relationships with tenants, and managing finances carefully will be the key to long term success.

As some investors leave the market, others will find ways to make it work. Rental properties remain a valuable asset, but success will depend on careful planning and a willingness to adjust to the new conditions.

Auction House London provides in-depth guides for buying and selling property at auction, and if you have any questions about making the most of the current housing market, then contact our team of auction professionals. If you’re already looking to buy residential or commercial property at auction, browse through the lots listed in our forthcoming auction. Or, if you have property you want to sell, why not see how much it could be worth in an auction with a free valuation by Auction House London.