Financial strain and abolition of Section 21 are driving landlords out of the PRS

“A perfect storm” is how one legal expert describes the difficult position of landlords within the private rented sector (PRS), with the Renters’ (Reform) Bill playing a significant part in it.

Gina Peters, the head of landlord and tenant at law firm Dutton Gregory, says many landlords of all ages are leaving the market due to various factors, including the impending abolition of Section 21.

She tells Property118 that a gradual landlord exodus has been taking place over recent years, and the Renters’ (Reform) Bill is exacerbating this.

Not profitable for landlords

Mrs Peters tells Property118 that some landlords she speaks to want to leave the market as it is too much work for little return, particularly where buy-to-let mortgage rates have increased so dramatically within the last year, and selective licensing schemes are adding to the expense of owning rental properties in many areas.

She says: “We are starting to see older landlords wanting to ensure they can secure possession to enable them to realise the capital from their properties.

“This is even more important for those landlords who have invested in property as a retirement portfolio as there is a nervousness about being able to seek possession should they require a larger sum during their retirement years.

Mrs Peters says Section 24 of the Finance Act 2015 has also had a huge impact on landlords, financially.

She says: “Landlords can no longer deduct mortgage interest and arrangement fees from their rental income calculating their tax liability. With taxation now on gross rental income, this has meant some landlords are finding themselves in the higher rate tax bracket.

“Even selling a property is catching landlords due to the lowering of the annual exemption since April 2022 from £12,300 to £6,000 this tax year and then £3,000 in 2024/25. This is making a marked difference in the tax being paid on such sales, especially as house prices are relatively high.”

“It’s become difficult in real terms for some landlords to make any decent money on their rental properties.

“They need to be in the market for the longer term as generally property is still a good investment over time, and interest rates will gradually come down. A regular income is what a landlord really wants and what the market needs to keep landlords in the market.”

Abolition of Section 21 causing nervousness within the market

Mrs Peters tells Property118 that the intended removal of the Section 21 notice is causing concern in the private rented sector.

She says: “Abolishing anything generally gives rise to concern and since this is the only notice that guarantees the return of a landlord’s property it has generated a lot of nervousness within the market.

“Whilst the nature of an assured shorthold tenancy has the Section 21 mechanism to get your property back, it is not necessarily used in a bad way. A landlord does not want to remove a good tenant.

“This is the way it has been for the last 25 years when the Housing Act 1988 has been in place.”

Mrs Peters adds that the government needs to get a grip on the court service and the ever-increasing delays and backlog.

She says: “The government isn’t banning Section 21 overnight, but they’ve now started to realise there are other key factors involved.”

“With Section 21 notices being removed there will be no option but to use a Section 8 notice, and if the tenant does not vacate at the expiry it will mean in all cases unless the legislation is changed, the landlord will end up at a Court hearing to prove the ground they are seeking possession on.

This will put an instant further demand on judicial time for the additional hearings that this will generate.

“To add to this, Court fees are going to go up in 2024 and despite this being down to overheads increasing, just as for every household and business in the land, landlords are going to be up in arms with that because the delays and poor service received from many Courts do not merit such a rise.

“There is such a shortage of Court staff and coupled with a shrinking judiciary the ever-apparent backlogs in so many Courts will never improve without serious investment.”
Influx of landlords looking to use Section 21

Mrs Peters says the landlord exodus has been exacerbated by the Renters’ (Reform) Bill.

She tells Property118: “The Bill has definitely exacerbated the situation within the lettings market. We have seen a rise in landlords looking to use Section 21 in the last 12 months.

“We’ve also seen tenants pushing back as well, seeking more time to vacate as they don’t want to move because they can’t move easily.

“They are stuck in a system of high rents and short supply of housing stock, be that private or social housing. It’s a harsh environment in the rental market at the moment to make it work fairly for everybody.”

EPC rules scrapped

Mrs Peters says there was some good news for the private rented sector when the government announced plans to scrap the requirement for landlords to ensure their rental properties had a minimum energy efficiency EPC rating of Level C.

The mooted deadline was 2025 for new tenancies, and by 2028 for all tenancies.

Mrs Peters says: “That would have been an absolute relief to some landlords because they were not facing investing thousands of pounds upgrading their properties.

“It would have been incredibly expensive for some properties to be upgraded to a Level C. Some landlords were facing payments of between £7,000-£10,000. This would have been a huge problem for some landlords, but it may only be a short reprieve, we don’t know what the new plan to reduce carbon emissions is yet.”

Abolition of Section 21 causing problems for the government

Mrs Peters says the million-dollar question is whether the Renters’ (Reform) Bill will pass before the next election.

She says: “There are certain aspects such as the abolition of Section 21 which are becoming more of a problem for the government because they have not addressed the bigger picture.

“The government need to take a wider stance, but it is difficult to see how they are going to do this.

She adds that the problem with the courts will continue to worsen.

Mrs Peters says: “The problem with the court backlog is not going to go away anytime soon. The judiciary is under a lot of pressure and with the government’s closure of over half the courts in England and Wales between 2010 and 2019 it is going to take a dramatic step to resolve.

“The Department for Levelling Up, Housing and Communities and the Ministry of Justice do not seem to be talking to one another to actually try and resolve the problem.”

Will Renters’ (Reform) Bill pass before the next election?

The abolition of Section 21, the Section 24 provisions, and the court backlog seem to be creating the “perfect storm” for landlords exiting the rental market across the land, coupled with higher interest rates for those with mortgages and the higher cost of living.

It is putting a lot of pressure on landlords to do what’s best in the current climate. For many choosing to sell it will mean that many tenants will find themselves in limbo.

Whether the Renters’ (Reform) Bill will pass before the next general election – and push more landlords from the PRS – remains to be seen.

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