News and Events

Tom Simpson, managing director of YBS Commercial Mortgages, discusses the importance – and the challenge - of ensuring good quality homes in the rental market.

The rental sector has had some challenges in the last few years. Government policies, affordability issues and property shortages have all contributed to question marks over what the future of buy-to-let might look like – for both landlords and tenants. 

Higher interest rates have heaped financial pressure on many landlords, running the risk of damaging the private rental sector that has evolved over the last two decades – something which, if left unchecked, would only serve to harm not just landlords, but also the tenants they serve.

In light of this, many have raised questions about the potential long-term consequences of the Government’s policies and suggested reforms relating to this sector – including those designed to protect tenants from unscrupulous landlords. For me, this has sparked an interesting but very important debate. Namely, how can we ensure the private rental sector is sustainable, and that it remains viable for both reputable investors and their tenants?
 

Ensuring the right mix

There’s no doubt that there are unintended consequences to well-intended, but poorly-thought-through, tenant protection reforms. It is all about striking a balance and understanding the consequences of these in both the short and longer term. For example, whilst we must accept that protecting the rights of tenants is important, landlords too need to feel in control of their assets and have the freedom to make changes required to maintain the viability of their offering, which, after all, is in critically short supply. 

The fact is that there has been a succession of changes in the buy-to-let market over recent years which have, arguably, made being a landlord less palatable. These include adjustments to taxation and the introduction of rent controls in Scotland. In other areas, there is uncertainty within the industry - such as with regards to the scope and timing of EPC requirements for rental properties, following previously proposed reforms being placed on hold, coupled with the upcoming election.

I believe the blanket demonisation of landlords misses the point, which is the vital contribution reputable landlords make to the housing market machine – both in terms of making up the shortfall of quality homes for those who cannot or do not wish to buy, and offering a spring-board into homeownership for future first-time buyers. The Home Truths report published by Yorkshire Building Society last year can attest to the impact all of this is having on landlord sentiment – of those asked, 61%*  said that being a landlord is less attractive now than it was in the past. 

One of the most serious potential outcomes of changes which make landlords feel this way is what I could best describe as a 'race to the bottom'. We could see better-quality landlords exit the market, which would then become increasingly 'cost led' – in turn creating incentives for corners to be cut, leading to poorer quality, less safe accommodation and a rise in measures designed to extract greater yield from property, such as predatory ground rent practices, for example.

This brings into sharp focus the need for more strategic thinking around protections for tenants, covering vital factors like fire safety, accommodation standards and deposit protection, to prevent the scenario described above from becoming a reality. This should take the form of a long-term ‘joined-up’ strategy to promote a private rental sector that is viable for both reputable investors and tenants. Energy efficiency also has an important role to play here – as inefficient buildings increase energy bills for tenants.
 

Why it matters

Asset quality is so important. It allows lenders to manage their risk as well as their reputations, if they can lend to socially responsible landlords who keep properties in good condition, abide by regulations and treat tenants fairly. You could also describe this more simply as ‘doing the right thing’.

That’s why we’ve committed to the Decent Homes Standard – a formalisation of what we’re already doing to ensure the rental properties we lend on are of a high quality. This will ensure any properties we lend on meet clear criteria, according to a framework through which we determine what good quality properties look like. This includes ensuring the property meets the statutory minimum standard for housing (such as not being affected by damp or mould growth); is in a reasonable state of repair (for example, having windows and doors which are watertight and secure); and has reasonable facilities (for example, a modern kitchen). 

These standards are crucial, and landlords themselves agree that legislation to protect tenants is a good thing, with 63% of those surveyed for Home Truths stating that such measures were positive for landlords*. 
 

Collaboration is key

As an industry, we have a responsibility to the tenants relying on rental properties to ensure them a decent standard of living. However, we must also acknowledge the rights of landlords to make decisions about their assets – and these different priorities must be managed in a balanced and controlled manner. One way in which the Government could support this, for example, could be to incentivise landlords for providing properties of a decent standard, potentially through the tax regime – this would motivate reputable landlords, benefit tenants and help ensure the long-term viability of the sector. 

There are already further government policies in train designed to support tenants, such as the pending legislation to prevent no-fault evictions. However, what we really need is a wider package of reforms which achieve that sweet spot of supporting quality landlords and improving conditions for tenants on a long-term, ongoing basis.

Recognising and acting upon this could be fundamental to the future of the sector, for everyone who plays a part in it.

 * From Yorkshire Building Society’s Home Truths report, based on a survey of 500 landlords conducted with Opinium, April 2023.