Exploring the Landlord-Tenant Relationship

Landlord and tenant sentiment toward rental prices during the cost-of-living crisis

It has been a challenging year in the private rental sector, in which the base interest rate consistently rose and inflation hit 11.1%. Indeed, Market Financial Solutions’ research shows this had all had an impact on the relationship between tenants, landlords, and the price of rental properties.

With rents rising for the majority (58%) of tenants in the UK, one in two (49%) are worried  they will not be able to afford to pay rent in 2023.

On the flipside of this coin, almost half (48%) of landlords say they had to increase rental prices due to rising interest rates this year. Hikes from the central bank are regularly passed onto borrowers, and mortgage repayments have dramatically increased for the 9 million mortgage holders in the UK in recent months.

In fact, October’s BoE decision to hike rates to 3% have raised repayments for those on tracker mortgages by around £880 a year. Similarly, for those on standard variable rate mortgages, the cost for a borrower has risen by £178.70 since December. These rising costs have heaped added pressure onto buy-to-let investors.

Yet, despite the negative narrative of greedy, profiteering landlords, our data shows the opposite is true. Many landlords are doing all they can to support tenants.

Our research showed most (56%) landlords would allow flexibility on rental payments if a tenant was struggling financially amid the cost-of-living crisis. Meanwhile, over a third (35%) have gone even further, opting to freeze rents in 2022 due to well-documented pressures on people’s finances.

Nevertheless, the overwhelming view among tenants (77%), is that more needs to be done to control rental prices in the UK. This would likely put landlords under even more pressure and actually damage their relationship with tenants. Felicity Buchan, the Under Secretary of State for Housing and Homelessness, recognised this recently.

Confirming the Government does not support rent controls, she said in a speech to the National Residential Landlords Association’s (NRLA) annual conference that such a policy would lead to “disinvestment in the sector, which is not good for anyone”.

It’s recognised that landlords and the buy-to-let sector provide a net good for the UK. Yet, the industry has faced a lot of pushback in recent years. Arguably, much of it unfair. As such, some landlords are looking towards other investments. This creates opportunity for new property investors to invest in a market desperate for a suitable supply, and fair landlords.

Exploring landlords’ and tenants’ views about further regulation in the private rental sector

In recent years, landlords in the private rental sector have had to grapple with a fresh wave of reforms in the UK. This perhaps explains why our research shows that 63% of landlords believe the government has introduced too much regulation in the private rental sector.

For example, new licensing rules were introduced by the government in 2021 for houses in multiple occupation (HMO). The new rules state that an HMO license is needed for houses or flats where three or more people or two or more households share facilities.

Before these changes, licenses weren’t needed in England and Wales unless there were five or more people sharing facilities. These regulations, which are designed to raise the standard of properties in the HMO market, are supported by 74% of tenants who say that more needs to be done to improve the standard of rental properties in England and Wales. In fact, the overwhelming majority (78%) of tenants, believe renters should be able to claim rent back from the landlords if they are made to live in poor quality accommodation.

Elsewhere on the regulatory front, landlords had to deal with a temporary ban on evictions during the pandemic. Meanwhile, new legislation was announced in this year’s Queen’s Speech abolishing Section 21 (no-fault evictions) permanently. This is all before new EPC rules and tax hikes are set to be introduced.

Such regulations have had a significant effect on the buy-to-let market. Some 54% of landlords said they’ll need to make significant investments to improve the energy efficiency of their rental properties – raising costs in the process. Also, 40% of landlords say the ban left them with tenants they want to move out of their property(s) but cannot.

Changes to tax laws have also proven controversial in the private rental sector in recent years. From the 3% stamp duty for second homes, to the withdrawal of tax relief on mortgage interest costs, a majority (65%) of landlords say that the government has unfairly penalised and targeted them with challenging reforms over the past decade.

As a result of all this, 40% of landlords plan to sell one or more of their rental properties over the coming year. This could lead to lower levels of supply in an already squeezed rental market. So far in 2022, one in six homes sold have been rental properties. Instead of providing better outcomes for renters, new legislation could push rental costs even higher. Which does beg the question – who benefits from these legislative changes? As it doesn’t seem to be helping tenants.

Clearly, regulation in the private rental sector is a divisive topic between landlords and tenants. The majority (73%) of tenants believe more regulations are needed to protect them, despite the legislation that’s already been introduced.

But, we should remember why tenants want more protections. They want the buy-to-let industry to work as efficiently as possible. Tenants likely just want to see sustainable levels of supply, eco-friendly homes which won’t send their energy bills skyrocketing, and landlords who treat them with respect.

No one is denying that bad landlords exist. There are plenty of horror stories out there. But It’s unfortunate that a small number of bad actors have had such a big impact on perspectives. We must remember, bad landlords are the exception, not the rule.

Nevertheless, as buyers are flooded with BTL properties, there’s opportunity for property investors to support the market. New landlords could turn some of these negatives around. Old homes could be refurbished to provide greener options for tenants. Larger buildings could be turned into smaller flats for renters desperate to keep their costs down.

The challenges facing renters, landlords, and the state are ultimately the result of supply and demand imbalances. If we can collectively resolve this, the industry could look forward to a much more prosperous, and peaceful, future.

The view of our CEO

“Undoubtedly, with inflation and interest rates continuing to rise and the cost-of-living crisis deepening by the day, this is an incredibly challenging financial situation for the private rental sector to be facing.

“From a tenant point of view, rental prices are growing rapidly for the majority of renters. Within the wider context of rising food and energy prices, increases in rent will add pressure onto household budgets that are already stretched to the limit. However, it is worth remembering that the current economic landscape is also difficult for landlords to navigate.

“Those that can, have opted to freeze rents for the rest of the year. But the rate at which landlords are now having to pay back their mortgages has dramatically increased in a very short space of time. Like tenants, they will also be grappling with rising costs, while rises in mortgage rates will diminish rental yields.

“On top of this, it is fair to say that there has been a significant influx of regulations placed on landlords. Clearly, they believe that too much has been introduced too quickly, which is reflected by the fact that they feel unfairly penalised by the government.

“As a result of the decreasing viability of owning a rental property, combined with the prospect of further regulation on the horizon, it is no wonder that 40% of landlords are planning on selling one or more of their properties in the next twelve months.

“The implications of this happening, however, should not be underestimated. In a sector that is already plagued by rampant demand and a perennial undersupply of homes, such an exodus from the private rental sector would create even more competition between tenants, pushing prices even higher.

“The current crisis in the private rental sector is due to a lack of supply. Too often, the narrative about landlords is that they’re taking advantage of tenants and forcing prices up. In truth, its simple economics; if a product is in scarce supply, prices will rise.

“Therefore, while it is important that tenants feel protected in their rental properties, the government also needs to legislate and invest in the private rental sector to increase the supply of new homes.

“Whatever challenges arise in the private rental sector, Market Financial Solutions will be on hand to assist good landlords and savvy investors overcome them. Demand from tenants will not disappear, and there will be opportunities arising that can help relieve the current pressure in the rental market. We have the experience and expertise to assist in a wide range of cases and situations, such as specialist buy-to-let mortgages for new or expanding landlords, no matter how complex.

– Paresh Raja, CEO, Market Financial Solutions