Thought of the Week
The Impact of Government regulation on the private rented sector
May 8, 2025 4 Minute Read
The Government is ushering in a set of sweeping regulatory reforms for the private rented sector (PRS), designed to transform the renting experience for tenants, and make homes more sustainable.
However, the reforms, which include the Renters’ Rights Bill and new Minimum Energy Efficiency Standards (MEES), might deter landlords and investors because of increased operational costs, reduced flexibility, and higher financial risks. For example, some landlords will incur substantial costs to upgrade their properties to meet the new MEES. And the Renters’ Rights Bill will ban Section 21 no-fault evictions along with Assured Shorthold Tenancies (ASTs), giving less assurance and security for landlords.
Hence, these new regulations still risk accelerating the landlord exodus and exacerbating the supply shortage across the sector.
Higher interest rates and other measures have already meant many landlords have sold their rental homes. For example, almost a fifth of homes for sale last year were previously rented out, compared with just 8% in 2010. Our analysis of UK Finance data suggests that over 560,000 buy-to-let mortgages have been redeemed since 2016. This is against a demand backdrop that sees an average of 21 people competing for each rental home.
Our Consumer Survey has revealed that, of those looking to sell their homes, almost 40% of respondents are considering doing so specifically because of new regulation. To put that into context, this equates to a further 150,000 rented homes that could potentially be lost.
These findings are supported by the English Household Survey 2024, which found that 40% of landlords intend to downsize portfolios within two years. Amongst landlords who planned to decrease their portfolio size, recent tax and legislative changes were the most cited reason (66%), followed by forthcoming legislative changes (44%).
However, a consideration to sell may not come to fruition. And the homes being sold could be bought by other landlords, so the impact may not be as stark. Or, they might be sold to first-time buyers, thereby partly easing the pressure on the rental market in the short-term. There seems to be some evidence for this, as while UK Finance data indicates that there has been an 8% reduction in outstanding buy-to-let mortgages between 2023-24, first-time buyer purchases recovered by 16% over the same period. Nevertheless, the results of our survey highlight the potentially significant impact that these regulations could have on the supply of rental homes across the country.
Figure 1: What, if anything, is driving your decision to sell additional homes?*
*Those who plan to sell all their additional homes
The unintended consequences of regulatory reform
The regulations also present concerns for the Build-to-Rent (BTR) sector. Positively, the sector largely already complies with the new MEES because most of the stock are new, purpose-built homes. However, institutional landlords are also concerned that the Bill will lead to a higher turnover of tenants and curtail the ability to end and/or remove a tenant if needed. In addition, the requirement to register with the new PRS Ombudsman will result in a substantial administrative burden for institutional landlords. That said, even in the current environment of ASTs, the average tenant stays longer than the minimum 12-month period. The English Housing Survey, for example, recorded the average tenant lives in their home for just over four years. This should provide some assurance that an AST is not the only reason tenants stay in situ, with other factors contributing to their decision. The high-quality homes provided by the BTR sector means it should be well insulated when ASTs are ended.
Given the concerns around the Bill in its current form, the National Residential Landlords Association (NRLA) is proposing urgent amendments to it, to ensure its effectiveness. It proposes reviewing the impact of ending Section 21 on the justice system to prevent courts being inundated with claims for possession. It also calls to reverse the increase in allowable rent arrears (from three months to two months) to prevent tenants from accumulating unmanageable debt.
Furthermore, it’s also crucial for the Bill to make provision for landlords that rent their property to students, where the tenancy cycle differs. Currently possession grounds for student lettings only apply to Homes of Multiple Occupation. But the NRLA is calling for this to be extended to all homes to protect the annual cycle of student housing across the country.
Ultimately, fostering a stable and equitable rental market requires a collaborative effort that considers the needs of both tenants and landlords. If the Government fails to address these concerns, the UK risks creating an increasingly unaffordable and inaccessible rental market.
Thought of the Week
Contacts
Related Services
Unlock the potential of your residential real estate with expert investment, financing, valuation, agency and design strategies.
We advise on all aspects of the multifamily market through our unparalleled advice on funding, development and transaction strategies.
Astute advice across all aspects of Residential investment including Private Rented Sector, Build-to-Rent, Co-Living and Affordable Housing.