The government has recently faced calls to take a stronger stance in support of small landlords, urging them to abandon any plans for rent controls and to fully recognise the crucial role the private rental sector plays in providing housing across the country.
This appeal has been made by the Intermediary Mortgage Lenders Association (IMLA), a body that represents a range of mortgage lenders who provide products for landlords and borrowers. The association has highlighted concerns in a new report that delves into the proposed Renters Rights Bill and the anticipated future regulations around Energy Performance Certificates (EPCs) for rental properties.
According to the IMLA, the government must acknowledge that the private rental sector is an essential component of the overall housing market, providing homes to millions of people. The association has stressed that any changes to the regulatory framework must balance the needs of tenants and landlords, without imposing burdensome regulations that could damage the sector.
As part of their report, IMLA has put forward six key recommendations aimed at creating a more effective policy framework for the sector. These recommendations include proposals to improve communication between landlords and tenants, ensure fair regulation that benefits both parties, and promote better energy efficiency standards without overburdening smaller landlords. The aim is to create a more sustainable, transparent, and efficient rental market that continues to meet the housing needs of the population while supporting the viability of small landlords.
The private rental sector (PRS) plays a crucial role in housing the UK population, providing homes for just under 20% of households. It is essential for the government to recognise the significance of this sector, as it continues to be an integral part of the country’s housing market. While landlords must be expected to treat their tenants fairly, a blanket approach to all private landlords could result in anomalies and unfair practices. Tailored policies that account for the diversity within the sector are necessary to ensure a balanced and equitable system for both tenants and landlords.
Small landlords, in particular, form the backbone of the PRS. According to IMLA’s landlord survey in December 2023, 80% of landlords own one or two rental properties. In contrast, only 13% of landlords are considered portfolio landlords, owning four or more properties. Despite owning a smaller number of units, these smaller landlords collectively own 61% of the rental stock, while larger portfolio landlords hold 39%. This highlights the vital role small landlords play in maintaining a well-functioning rental market, and their contribution must be acknowledged in any regulatory changes.
It is also important to recognise that, as with any sector, increased regulatory costs and risks will ultimately lead to higher prices. The PRS is already subject to over 100 regulations, many of which have been introduced since 2004. While some of the proposed changes in the Renters’ Rights Bill may be justifiable, the additional costs imposed on landlords due to these regulations will likely be passed on to tenants through increased rents. This could further exacerbate affordability issues for renters, making it crucial for the government to carefully consider the impact of these regulations on both landlords and tenants.
It is important to recognise that the increasing risk faced by landlords will naturally require higher returns. One of the most significant policy risks currently hanging over landlords is the potential introduction of rent controls. The mere possibility of rent controls could deter new investors from entering the sector and may even prompt some existing landlords to exit. For others, the threat of rent controls would raise the required rate of return on their investments, which could result in higher rents for tenants. This would ultimately defeat the intended purpose of the policy, which is to reduce rent costs and increase affordability for tenants.
The market has the inherent ability to drive up standards in the private rental sector (PRS), but this is only effective when tenants have the freedom to shop around for the best available properties within their budget. However, when demand outstrips supply, this ability becomes restricted. Moreover, when new regulations are introduced, driving rents up, it further limits the number of properties that tenants can afford. This could inadvertently undermine the goal of improving housing standards, as tenants may be forced to accept lower-quality housing simply because it is more affordable.
Finally, it is essential to apply policy in a fair and balanced manner across all tenures. The proposed deadline for private rental properties to achieve a minimum Energy Performance Certificate (EPC) rating of C discriminates against landlords and may reduce the overall supply of rental properties. Landlords who own properties with lower EPC ratings may choose to sell these properties into the owner-occupied sector, where no such requirements exist, rather than invest in costly improvements. This could exacerbate the existing supply shortages in the PRS and ultimately harm tenants who rely on rental accommodation.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), has emphasised the importance of balancing government efforts to increase social rented accommodation with the need to support private landlords. She stated, “The government’s long-term plan to massively boost much-needed social rented accommodation is very much welcomed, but it cannot come at the expense of the UK’s private landlords, who currently play a vital role in providing homes for 20% of the country’s households.”
Davies further explained that IMLA has long called for policymakers to take action that would help private landlords feel confident in continuing to invest in the sector. “IMLA is reiterating a call we have been making for some time, for policymakers to take action to ensure those landlords feel confident enough to remain in the sector and continue to offer this essential housing for the country’s renting population,” she said.
She also warned that continuing to impose costly regulations on landlords risks pushing out smaller landlords, who currently make up the majority of the sector. “Continuing to heap expensive regulation on the sector risks pushing out more of the smaller landlords who make up the lion’s share of providers, creating a vicious circle of fewer rental properties available and higher rents for tenants,” Davies concluded.
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