How the end of Section 21 might affect landlords
- Published: Tuesday 27 October, 2020
- By: Commercial Trust
A report from The Lettings Industry Council (TLIC) has outlined what is likely to happen should the Government abolish Section 21, as was first proposed by Communities Secretary James Brokenshire MP last year. The report highlights how damaging the move could be for the private rental sector should alternative measures not be improved.
How abolishing Section 21 affects the private rental sector
It is estimated by the TLIC, that eliminating Section 21 could result in up to 20% of properties to let in the UK being withdrawn from the market.
The knock on effects of such a move would:
- Force landlords to require stricter screening processes for potential tenants.
- Prevent them from serving Section 21 notices at the tenant’s request (to avoid being classified as intentionally homeless).
- Unfairly limit rental opportunities for benefit claimants and low income families.
TLIC believes that landlords will be forced to move towards alternative market segments, such as short term lets, or even leave the private rental sector entirely.
Those who do remain may have no choice but to increase rent to make up for lost income, narrowing their pool of potential tenants further.
Ending Section 21 also has social ramifications, as landlords will no longer be able to evict anti-social tenants without lengthy court procedures.
The negative impact all of these issues can have on the mental wellbeing of vulnerable tenants places further pressure on them for securing a safe living environment.
The end of Section 21 also jeopardises the smoothness of student lettings; student tenancies are currently flexible and shaped around the academic year, with the following year’s tenants often confirmed long before current tenants have moved out.
Without Section 21, landlords may be unable to regain possession of their properties at the end of a fixed term, and would therefore be unable to secure tenants for the next academic year in advance.
Finally, the move could see a shift away from newly-built properties to rent and even see existing developments re-purposed to sell.
The upfront and ongoing costs of investment in new housing developments results in tight margins, which may be seen as too risky moving forward.
Reform could help limit the damage
Although Section 8 covers the majority of reasons to Section 21, provided relevant evidence can be presented, the additional time and legal costs simply delay the process rather than prevent it.
The report advises that improving the court hearings process and bailiff proceedings will reduce the backlog of ongoing repossession cases, which currently average five months between landlords claiming a property and actually receiving it.
Section 21 has already been abolished in Scotland – a much smaller market than England – and saw a substantial increase in related court cases.
Ultimately, the private rental sector is reliant on landlord confidence. The safety net of Section 21 provides security in dealing with any issues that may arise, including those in their tenants’ best interests.
You can find a full copy of the TLIC report on Section 21 here.
How will the Welsh circuit-breaker impact landlords?
A nationwide lockdown has returned to Wales, following a last minute announcement on the 19th October made by First Minster Mark Drakeford MS.
The lockdown came into force at 6pm on Friday 23rd October, and will last until Monday 9th November.
The two-week ‘circuit breaker’ has some implications for the private rented sector (PRS), in relation to property viewings and house moves.
Like the previous lockdown, everyone in Wales are now required to stay at home, meaning that people should work from home wherever possible.
The impact on the rental industry
The Welsh government has set out how its two week ‘circuit breaker’ lockdown will impact the rental industry, as well as outlining the responsibilities of landlords, to ensure that everything is carried out in a Covid-safe’ manner.
One of the most significant impacts on the rental industry is the halt on property viewings, with high street estate agencies closing during the two-week lockdown. Virtual viewings will still be available.
Guidance published by the welsh government states that house moves already in motion will be able to go ahead, only if the move cannot be delayed until the short lockdown period is over.
The following rules for landlords published by the Welsh government:
- Landlords living in England or elsewhere outside of Wales, but with properties inside Wales, will not be able to travel into the country to attend their properties.
- Non-essential travel by landlords within Wales will “have to stop”.
- Home moves can take place if landlord, tenant and agent have already committed to a date within the lockdown period of late October 23 until state of business on November 9.
- The removals processes, property preparation, handover of keys, surveys and valuations can also take place in line with Covid guidance on working in other people’s homes, but only if the move has been pre-arranged.
- Property viewings cannot take place during lockdown (although virtual viewings can of course continue).
- Lettings agencies offices are expected to be closed.
- Landlords with legal obligations to attend to emergencies within properties can do so but only if ‘Covid-secure’ with tenants in agreement and in a separate part of the premises to a landlord or work-people attending the emergency.
- Scheduled events such as routine visits, inspections and so on should be deferred until after lockdown ends.
The National Residential Landlords Association (NRLA) are currently in the process of seeking clarification on the implications for HMO management and possession proceedings.
View the Welsh Government’s latest lockdown guidance here.
Housing transactions return to pre Covid-19 level
The housing market has completed a positive return to pre Covid-19 levels of activity in September, four months after the market re-opened in England.
It seems that the Covid-19 pandemic has not been a deterrent for buyers determined to make a change, despite the fear of a UK recession and predictions of a major decline in UK house prices.
The number of housing transactions completed in September amounted to 98,010 in England, returning to equivalent levels in September 2019, according to data from HM Revenue and Customs (HMRC).
Figures presented from the HMRC showed that sales were up by 21.3 percent from August, just 0.7 percent lower than September 2019. Emphasising the significant turnaround after being closed down in March.
This is the first time the volume of property transactions has reached a ‘normal’ level since the beginning of the pandemic.
House moves were allowed to recommence in England on 13th May with restrictions in place for all parties involved.
HMRC’s data corroborates recent reports from mortgage lenders and estate agents of a ‘boom’ in housing market activity since lockdown restrictions were lifted.
This was further boosted by the chancellors stamp duty rate reduction, which is available on all property purchases until 31st March.
Although housing transactions are increasing, the total number of completions, year to date, is currently 22 percent behind the usual level.
So far, approximately 693,000 housing transactions have been completed in 2020, compared to the 882,000 in 2019 and 890,000 in 2018.
This is however, expected to increase, what with the shifts in the consumer’s needs and the recent encouragement to take advantage of the stamp duty relief, which continues to motivate people to move property.
ARLA Propertymark predict that with the Covid-19 restrictions, and the flexible working opportunities for some, will cause people to reassess their lives, which will shape the ongoing shift in trends for housing supply and demand throughout the UK.
Andrew Southern, chairman of property development firm, Southern Grove, points out that when the stamp duty ends the government will need to find a new way to sustain the demand.
“This current expansion of activity is not all down to financial incentives and the government needs to find ways of sustaining this increase in sales beyond the New Year when the March deadline for the end of the stamp duty holiday will be staring buyers down.
“There is already talk of some missing out because of severe delays to the conveyancing process tripping up even those who have had offers accepted and are trying to exchange now.
NRLA Wales call for the Welsh Government to implement Green Homes Grant
The National Residential Landlords Association (NRLA) in Wales has asked the Welsh Government to replicate the Green Homes Grant voucher scheme that has already been launched in England.
Improving household energy efficiency is a significant factor in tackling climate change concerns and reducing unnecessary costs for landlords and tenants, following the economic impact of Covid-19.
The Green Homes Grant was first announced in the Summer Budget and has seen almost 21,000 applications across England. It offers up to £5,000 for both homeowners and landlords to make their properties more energy efficient.
The Welsh private rental sector contains a disproportionate number of older properties with single cavity walls and increasing numbers of vulnerable tenants.
NRLA Wales believes that the Welsh Government should earmark funding for a similar scheme to help homeowners who aren’t eligible for the UK Government’s scheme.
Feedback on the Green Homes Grant in England
Responses to the Green Homes Grant available in England have been mixed so far.
Although over 20,000 applications have been made, indicating strong interest in the scheme, a consumer survey conducted by Money Saving Expert has indicated that the scheme is failing – with just one in six homeowners able to find a registered installer after applying.
The Department for Business, Energy & Industrial Strategy have reacted to this by assuring applicants they are working to increase the number of vetted installers to meet demand.
Efficiency schemes already available in Wales
Arbed am byth manage the existing Welsh Government Warm Homes scheme. The scheme provides funding for insulation and modern, efficient central heating systems to help decrease household energy bills.
However, Arbed assistance is only available in certain areas, for properties with a poor EPC rating (D or lower), and for homeowners who haven’t received more than £160,000 in government aid over the last three years.
The Arbed Annual Report for 2019/20 reveals that almost 84% of their improvements have been focused in Blaenau Gwent, Flintshire, and Rhondda Cynon Taf. Work has been completed in most Local Authority areas, with plans in place to expand the scheme throughout the rest of Wales in the near future.
Nest, a scheme managed by British Gas on behalf of the Welsh Government, offers free advice and home energy efficiency improvements for homeowners. Their service is available for properties with clear efficiency problems where the homeowner or tenant/s claim benefits, or have a chronic respiratory, circulatory, or mental health condition and are low income.
By asking the Welsh Government to commit to a separate Green Homes Grant, NRLA Wales clearly hope to further support homeowners in Wales.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.