Landlords warned over new rent review procedures

Landlords are being warned that the proposed Renters’ Reform Bill means understanding the new rent review procedure or risk not imposing a rent rise, an expert warns.

Lucian Cook, the head of residential research at Savills, says that while the new law will safeguard landlord investments, it will also mean taking a fresh approach to rent reviews.

The current draft of the bill states that landlords must serve notice of proposed rent increases using a specified form.

This then gives a tenant the right to contest the proposal at the First Tier Tribunal if deemed above market rate.

Landlords to justify any proposed rental increases

Mr Cook says: “Practically this is likely to put a greater onus on landlords to justify any proposed rental increases through market evidence.”

He says that these regulatory changes coincide with growing financial pressures on both mortgaged and unmortgaged landlords.

That’s because mortgage debt costs are soaring and the effects of ‘limited tax relief in higher interest rate environments’ is becoming ‘increasingly apparent’.

Potential drop in available private rented properties

Mr Cook also points to a recent analysis by Capital Economics for the National Residential Landlords Association that reveals a potential drop in available private rented properties because of tax issues.

However, he adds, individual landlords’ experiences will vary depending on factors such as their property holding structure, the equity they have built in their assets, and their ability to diversify property-specific risks across their portfolios.

He explained: “While smaller more indebted landlords are likely to be at the sharp end of these pressures, some larger, equity-rich landlords will be eyeing an opportunity to expand their portfolio, particularly if they hold their property in a corporate structure.

“Those landlords will have a keen eye on the state of the wider UK housing market.”

Future rise in Bank base rates

In his analysis of property market trends, Mr Cook also said that despite a fall in April’s headline inflation rate, price pressures across various goods and services has led to heightened market expectations for a future rise in Bank base rates.

He says that Oxford Economics is now forecasting a 5% rate by the end of August.

Lenders had raised fixed-rate mortgage costs before the end of May and Moneyfacts reports that the average effective mortgage rate for a 5-year fixed deal is now just below 5.2%, while a 2-year fix hovers around 5.5%.

‘Further strain the borrowing capacity of potential buyers’

Mr Cook says: “This development could further strain the borrowing capacity of potential buyers in the coming months, maintaining a price-sensitive housing market through 2023 and into 2024.

“As a result, sellers must be realistic about their property’s market value.

“Nonetheless, we believe that any additional downward pressure on prices will be cushioned by cash buyer demand and lender measures assisting those facing increased mortgage expenses as their fixed-rate mortgages expire.”

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