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I am writing this at the end of March and the committee stage of the Renters Rights Bill in the Lords is due to begin on 22nd April 2025. Lets look at some of the changes which could impact the private rented sector as a consequence of the likely new legislation which are not the main aim of the bill
Having been a landlord since 1972 I have seen many changes but the biggest changes came about in 1996 when the term “Buy to Let” was introduced by ARLA (now Property Mark). Until this point building societies wouldn’t consider lending to anyone other than a potential homeowner. I bought my first rental for cash but when I then wanted to buy more – I remember the manager of a large building society looking at me like he had scraped me off the end of his shoe when I, rather naively, asked if he was prepared to loan me, a long term saver with them with a healthy balance, the money to invest in a property to rent. He told me “We are here to help people to get a home” I replied “Yes, that is my plan too” I will never forget that meeting, I was young and I left feeling like I had just suggested something immoral.
Fortunately A person who I trusted had told me “Don’t just buy one, buy two with a big deposit on each and more than enough rent to pay the debt and maintain the property.” When I bought the first one I didn’t have the courage to do as he suggested but now that I had rented that one for a few years I knew what I was doing and I wanted to buy more using the rent which I had saved for deposits. This was in the 80’s long before Buy to Let began, I was a young mother of two and had not worked full time for 5 years. I had really loved my job but now my priority was to have my own income without sacrificing my time with my children and renting property looked like a good option.
Having given it a lot of thought I decided to approach my bank, where I had held a current account since the 60’s when I started work and had always maintained a good balance. My bank manager, in those days these people had the power to grant loans, was an older man who was full of his own importance and wasted no time in telling me that I had no chance of the bank offering me a loan to buy rental properties, amusing when I think of how involved that bank is in that market now. He wouldn’t stop talking and I felt trapped listening to him going on about I cannot remember what. Eventually I managed to escape but not before realising that, at 11.00 am, this man was under the influence of alcohol.
Long story short I put in a formal complaint to the head office and this man retired – I have no idea how much that had to do with my complaint but he was replaced by a much younger woman who was very keen to help me. I showed her my accounts from the property which I was already renting and discussed my plans to continue in the student market where I knew exactly what I was doing and had identified area of demand in Birmingham where property prices were very reasonable at that time. I told her my plan was to buy properties in poor condition and totally refurbish them including fire doors and interlinked smoke alarms. The only people who supplied these items in those days were companies who supplied hotels and they were very expensive but if I was going to house other peoples kids I was going to make sure that they were safe. Legislation caught up with me when “shared housing” became HMO and Means of Escape prescribed the equipment needed.
The new bank manager was impressed that I had considered and sourced/budgeted for everything and not only did she give me the loan I wanted but she gave me something that I had never heard of – a capital holiday. For the first year I would pay interest only to give me some wriggle room to set up. I know that interest only loans are now a common thing but they were not in those days and I was privileged that this bank manager had so much faith in my plans and me that she offered this big leg-up.
What I bought with that money is a whole other story but the point is that didn’t need to put any of my own money into the deals -100% loans were also unheard of in those days but I was happy to be offered one at that point. I never forgot the advice “Don’t just buy one, buy two with a big deposit on each and more than enough rent to pay the debt and maintain the property.” And I worked hard, didn’t take any money out and chose my tenants with care so that I was able to repay the debt long before it was due and before I bought more property. I have never regretted keeping my LTV low and these days fortunately I don’t have to pay attention to interest rates any more
There have been many big changes, some related to lending and others to legislation but the next time I saw the private rented market make a big move was in 2007/2008 when the crash in property values caused many people to be forced to sell up and others to buy in. This was the first time I had heard the term Negative equity which turned out to be an opportunity for many people with little money to be able to become property investors. This change brought about other new terms including:
BUY REFURBISH AND RENT SELL/REFINANCE
RENT TO RENT
RECYCLE YOUR DEPOSIT
These were all ways for those who had very little or no money to become landlords. I know that the term “property investors” is more popular but the fact is if you own a property and rent it to a third party to live in it you are a landlord and will always be responsible for most aspects of the rental even if its in full management and you don’t go near it.
If you don’t own the property but rent it from the owner you are not a property investor although you will share some of the responsibility of the rental. I am going to be interested to see how the Rent to Rent market can survive the changes in the Bill. No fixed terms, no rent in advance, no section 21, A landlord register … I expect that there are some smart solicitors working on a contract which will work and a way of returning the property with vacant possession at the end of the agreed term
Recycling your deposit relies on you being able to increase the value of the property to lend more than the original loan and if its enough pull out your original investment to use again as another deposit or to keep. Hopefully the lenders will not lose their nerve and will continue to enable lenders to reduce their “skin in the deal”
I have no first-hand knowledge of any of these schemes, all of which are the opposite to my aim therefore I am comenting as a interested outsider.
Lets go back to Buy to Let – what was it which made it time for the building societies and some banks to change their attitude to lending to landlords?
In 1988 the biggest changes to private renting came about via the Housing Act 1988
The major changes:
3. Tenant sharing accommodation with persons other than landlord.
6. Fixing of terms of statutory periodic tenancy.
8. Notice of proceedings for possession.
13. Increases of rent under assured periodic tenancies.
21. Recovery of possession on expiry or termination of assured shorthold tenancy.
21A.Compliance with prescribed legal requirements
22. Reference of excessive rents to appropriate tribunal.
The two sections which most landlords are familiar with are section 8 and section 21 (this is proposed to end in the Renters Rights Bill).
Many landlords don’t understand Section 13 which should be used when a rent increase is proposed outside of a new fixed term contract with the possibility of the tenant asking the Rent Tribunal to assess whether it was inline with local rents for similar properties under Section 22
Prior to this Act it was extremely difficult to remove a tenant and rent increases were controlled. These four changes were huge. Landlords could evict a tenant without necessarily having a reason, or if we had a reason we could evict them quicker. Rent could be increased annually with no real limit, enabling us to make enough profit to maintain our properties – good for many tenants. Anyone who doesn’t understand that these changes reduced the risk of being a landlord by 99% doesn’t realise how it was to have tenants who did not pay, caused property damage or anti social behaviour and be stuck with them while not being able to increase the rent to an economic level.
THIS is when the building societies suddenly climbed down from their high horse and banks became more interested in lending to those who wanted to buy properties to let. 100% loans!! Interest only loans!!
At the time those of us who were already landlords were pinching ourselves, we could hardly imagine. It took some time for tenants to realise what was happening and the loss of security it brought about
What we didn’t see coming was the huge increase in people who wanted to become landlords. The BUY TO LET explosion but by 2007/8 the explosion had left a pile of burnt fingers
“With almost unbroken rises in property values since deregulation the home mortgage markets and the ‘buy to let’ markets became both very large and very profitable to banks worldwide. Thus some lenders, anxious to retain and expand market share, offered loans that were often more than the face value of the underlying property and were sometimes as high as six or seven times the borrower’s income. This ratio compares to one that generally pertained in the tighter regulatory era where lenders would typically only lend a couple with two incomes an amount equal to twice the higher income plus the lower income. With high returns available on this type of business but, perhaps underestimating the higher element of risk involved, some organisations started to raise funds by selling off ‘bundles’ of their mortgage and loan deals to other lenders, who were largely unaware of the original, underlying, transactions. This process was known as ‘securitisation’. During early-mid 2007 the oil price began to rise sharply, causing worldwide fears of a trade recession. Rising unemployment triggered the beginning of a sharp rise in mortgage defaults. Banks became increasingly worried about both the value of their own mortgage books and particularly the value of the mortgage-securitised investments they had bought from other institutions As a result they became reluctant to lend to other banks in the short-term money markets. This crisis of confidence led to major liquidity problems for many banks and insurance companies worldwide. Liquidity means the ability of institutions, including banks, to meet their short term obligations including repayment of short term loans. The oil price eventually peaked at $147 per barrel in mid 2008. The Bank of England had to provide financial support to the Northern Rock Building Society in the latter part of 2007, to prevent a run on the society’s cash by depositors. It became necessary to formally nationalise Northern Rock in February 2008 (i.e. the Government became its major shareholder, having used taxpayers’ money to support it). Early in 2008 a major US investment bank, Bear Stearns, had to be rescued by J.P. Morgan with US Government support. The crisis deepened in the summer of 2008 and on the 7th September 2008, two major US mortgage finance operations, Fannie Mae and Freddie Mac, also had to be rescued by the US Federal Government. Then, on the 15th September 2008, the biggest bankruptcy in the world to date took place when Lehman Brothers Bank failed with liabilities of US $600 billion. The US Government declined to step in to save Lehman Brothers, in order to show markets that they could not and would not rescue every troubled financial institution.
The UK Government also effectively forced the UK’s largest mortgage lender, Halifax Bank of Scotland (HBOS), which was in deep trouble, into the Lloyds TSB group and, in January 2009, took a 43.4% stake in the combined business.
Despite a sharp cut in central bank interest rates worldwide, interbank lending rates remained stubbornly high (showing the banks’ lack of confidence in each others’ financial security), which in turn lead to a severe reduction in both personal and corporate credit and a rapid downturn in the housing and construction markets.
Falls in retail sales and rises in unemployment mean falling taxes revenues for governments worldwide. The UK was no exception. In the 4th quarter of 2008 UK Gross Domestic Product (GDP)* fell by 1.5% and the country officially entered a period of recession. The recession continued through 2009.
Perhaps one of the most reflective and incisive comments on the crisis period as a whole was that, at the time of their respective failures, the Northern Rock was building society trying to act like an investment bank and Lehman Brothers was an investment bank trying to act like a building society!”
The Financial Crisis and its Impact on the UK and other Economies.pdf
I have cut and pasted the above because it is the best description I have seen of what happened, my own knowledge of the financial world is next to nothing and I claim no skills in that area. I have got reasonable instincts, and I have changed my plans several times over the last 50 years in order for my renting business to continue to thrive.
I wrote about the proposed amendments which will be discussed in committee in April last month here
THE Renters Rights Bill Article 5 – It Ain’t Over Yet! – Landlord insider
I believe that its time for all landlords to read the ongoing versions of the Renters Rights Bill – don’t just read what the media think is important and make sure that your business is in decent shape to deal with any changes that might be brought about by the legislation – including the lenders pulling their horns in if they perceive that the risk has increased and borrowers might once again be unable to pay what they owe.
“Sequere pecuniam”
