Since the end of 2022, UK buy-to-let (‘BTL’) mortgage approvals rates have experienced a sharp contraction with the number of new BTL loans more than halving between mid-2022 and the end of 2024.
The sector has seen some respite following consecutive interest rate reductions over 2024/25, but the climate remains challenging, and landlord demand for BTL property remains comparatively subdued.
The Renters’ Rights Bill
The Renters’ Rights Bill is a manifesto pledge by the Labour Government to ‘transform the experience of private renting’ in the UK.
The Government’s principal aims are to give tenants much greater security and stability so they can stay in their homes for longer, put down strong roots in their communities and avoid the risk of homelessness.
All this whilst also seeking to improve the quality of the UK housing stock. According to the OECD, the UK has the oldest housing stock in Europe, with almost 40% of homes having been built before 1946 and 20% before 1919.
There are an estimated 11 million private renters and 2.3 million landlords in England. The impacts of the Bill on private landlords are therefore likely to be far-reaching.
The key changes proposed by the Bill include:-
- abolishing “no-fault” Section 21 evictions, meaning landlords must use a Section 8 notice and have a specific and valid reason to end a tenancy agreement, e.g. acts of anti-social behaviour, damage to the property or significant arrears. The requisite notice period for landlords obtaining possession in many cases will increase from 2 months to 4. There are some exceptions to this rule, including where there are rent arrears of 3 months or more, or following the death of a tenant. Conversely, tenants will be able to end a tenancy by giving 2 months’ notice (an increase from the current usual 4 weeks).
- abolishing Assured Shorthold Tenancies (ASTs)and introducing a 12-month “protected period” during which landlords cannot evict tenants to move in or sell – this will also be applied retrospectively to all existing tenancies. The rationale for this is that fixed-term tenancies oblige tenants to pay rent regardless of whether a property is up to standard, and they reduce flexibility to move in response to changing circumstances (e.g. after a relationship breakdown, taking up a new job or when burying a first home).
- limiting rent increases to once per yearusing a section 13 notice (Housing Act 1988). The Bill also seeks to ban unfair practices of ‘backdoor evictions’ by allowing tenants to appeal excessive above-market rents (sometimes designed to force tenants out) at the First-tier Tribunal.
- banning rental bidding wars. Landlords and agents will be required to publish an asking rent for their property, and it will be illegal to accept offers above this.
- removing the ability of landlords to demand large amounts of rent in advance, which is seen as unfair and places unnecessary financial pressure on tenants. Housing is a devolved matter and banning the practice of rent in advance will only apply in England. Other UK nations may opt to follow suit at a later date.
- widening the scope of the Decent Homes Standard,which already exists for the UK social housing sector but will also bite for the private rented sector. Landlords will be compelled to maintain their properties in a reasonable state of repair with modern facilities and services. Landlords who fail to comply will be liable for Court action.
- making it illegal to discriminate against tenants with children or pets, or those who are on benefits.
When does the Bill come into effect?
The Renters’ Reform Bill is expected to become law in early to mid-2026 after receiving Royal Assent which was given on 27 October.
The Government intends to implement the changes in two phases, starting with the rolling out of the new tenancy system before full implementation.
The Impact on Landlords
The changes being introduced are purposefully designed to be very tenant-friendly. Landlords, therefore, need to take pre-emptive measures now to ensure they are not in breach when the changes become enshrined in law. Non-compliance, whilst not automatically a criminal offence, can lead to criminal prosecution for serious or repeated violations in addition to other penalties like fines and court-ordered repairs.
Whilst the intentions of the Bill are well-meaning, we expect there will be unintended consequences as the market responds to the changes. Data produced by The Mortgage Works in the Summer of this year showed that the number of year-on-year residential buy-to-let investment transactions in the UK fell by almost 44%.
Some of this can be attributed to a 5% Stamp Duty surcharge imposed on purchases by landlords, which came into effect on 1 April 2025. However, weakening investor confidence brought about by uncertainty around the timing of the Bill has also deepened, and as the market comes to terms with the practical implications of the proposed changes.
The Impact for Lenders
BTL assets, traditionally the fodder of property auctions up and down the country, have become less liquid as a result of both fiscal and monetary policies. The inactivity (or complete withdrawal) of many would-be investors from the market has been particularly pronounced in areas where yields have typically been lower. Softening yields brought about by weakening investor confidence and greater uncertainty are placing downward pressure on pricing and causing values to fall. This has been compounded further over the past few years by the increase in cost of borrowing.
At Watling Real Estate, we have seen increasing levels of distress in the residential BTL sector, in all regions and across all housing types. Simply put, residential BTL investments are no longer the ‘cash cows’ they once were. The threat to cash flow and property values over the medium term is an issue for many landlords, many of whom have underinvested in their portfolios over a prolonged period. With limited opportunities to grow rental income in secondary/tertiary housing stock in the short to medium term, answers to the conundrum of how housing improvements will be funded remain as elusive as ever.
From a Lender perspective, the landscape is fast-changing and keeping pace of market shifts is crucial – valuations are soon becoming outdated as new evidence comes to light. Pro-active engagement with Customers is essential for preserving and optimising value.
If you are a Lender with clients who may need some support in navigating the proposed Bill changes, or have concerns about how the changes will impact upon your security, please reach out to a member of the Watling team and we will be pleased to assist.
