Labour's landlord reforms are tougher than expected

Yesterday, the government introduced its Renters’ Rights Bill, aiming to comprehensively reform the buy-to-let market. The bill is in many ways as expected, but does have a sting in the tail that could push even more landlords into selling their properties.

Rental reform has been a long time coming, with the previous Conservative government very close to approving its own bill before a general election was called and the legislation abandoned.

Some of the measures in Labour’s bill, such as the creation of a landlord’s database and giving tenants the right to request a pet, mirror what the previous government intended to. The abolition of section 21 ’no fault’ eviction was also expected, even though in the previous bill this was not going to be implemented until the courts were also reformed, to make it easier for landlords to carry out evictions when they have grounds to do so. The new version instead wants to introduce a new mediation system to solve disputes before they get to court.

But there are also provisions that look tougher than some landlords had perhaps hoped. All tenancies will become periodic, and tenants will be able to serve two months’ notice anytime, right from the start of the tenancy. Landlords will still be able to end the tenancy if they want to sell or move into the property themselves, but will need to give four months’ notice. The bill also aims to stop rental bidding, making it illegal for landlords and agents to accept offers made above the rate advertised. 

It’s hard to say whether the changes will actually push more landlords into selling or push prices up, but they do not help with the investment case for buy-to-let, which has been shaky for a long time.

Rightmove market data shows that a record proportion of properties currently on sale were previously rentals – 18 per cent of the total, compared with 8 per cent in 2010. This suggests that more landlords are selling up, the property website says.

On one hand, this trend is far from new. As Tim Bannister, property expert at Rightmove, puts it, “In recent years it has become more attractive for some landlords to leave the rental sector rather than to continue to invest in it, due to rising costs, taxes, and legislation.” But, he adds: “It doesn’t appear to be a mass exodus, and we will need to monitor the longer-term impacts of what happens to the rental supply that is put up for sale. For example, these homes could provide first-time buyers with more choice. They might also be purchased by other landlords and put back into the rental market.”

Some sales could also be driven by concerns about potential increases in capital gains tax (CGT) in the upcoming Budget on 30 October. CGT does look like a likely target for a government that is sorely in need of funds, and an increase would definitely be further a blow for buy-to-let. Investors should not be selling assets just on the basis of a tax change that may or may not happen, but those who were already planning to sell might be understandably keen to do it before any changes are introduced.