The renters reform bill (a sad act)?

In 1988 Thatcher reformed the property market opening the way for BTL mortgages. She created new legislation and new tenancies were formed. Old contracts were not touched just new offerings introduced.

At that point, 7% of property was rented through the private sector. This grew to 20% of property by 2021 and with 5 million homes covered the PRS which overtook the social sector. By 2021 social housing shrank to 4m homes.

The BTL system was underpinned by new rules. These include affordability criteria currently set by the Bank of England (PRA) arm and legal contracts to underpin the tenancy being offered usually ASTs.

The system worked as expected with people borrowing within their affordability levels and offering known terms in contracts. In fact in 2023 according to Shelter only 0.4% of tenancies resulted in a bailiff eviction through a section 21 – no-fault route. Around one in two hundred tenancies.

So why the drama? and we have buckets full.

The Bank of England set affordability rules under Section 2.12 of PRA regulation. This explains mortgages should be affordable for 5 years and the rules allowed for rates to rise by 2%. But the Bank then raised rates by 5.24% nearly three times their own criteria in around a year – this immediately made many affordable mortgages unaffordable. It’s a bit like buying a car then the garage telling you it costs three times as much. Meanwhile, the banks paid people with money in the bank much more than they expected with healthy interest payments. The BoE became a reverse Robin Hood, disowning borrowed protections and handing the ‘borrowing tax’ to savers.

At the same time, the Rental Reform Bill decided that 5 million existing contracts should be modified or undone. Despite these regulations having covered tens of millions of contracts since 1988 and despite there being 5 million live contracts in force.

In essence, the government thought it was a good idea to rip up 5 million contracts and appears surprised it is being criticised.

The solution was always right there and was set in 1988 where new regulation allows for an evolution rather than a destruction of the old system. Allowing new products and contracts to be offered on different terms as and when they were needed is much less destructive. To undo all existing contracts that 5 million had agreed to is unprecedented. No wonder it has been beyond contentious.

It would be much more efficient to offer new contracts as and when with new conditions. The parties can at least decide if the terms are then acceptable before continuing.

Successive governments have failed to ensure sufficient supply of homes that then choose to whip the home providers. This is the policy of the foolish? Perhaps delusions of competence.

When will we again see sense in policy where the established rules and policies can be relied upon?

Paul

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