In one of her last moves as prime minister, Theresa May announced that she would bring an end to ‘no-fault’ evictions of tenants occupying their property under assured shorthold tenancies. She did so by consulting on longer-term tenancies which led to proposals for the abolition of Section 21 of the Housing Act. If and when it is introduced, it will end the ability of landlords to recover possession of their property at the end of a tenancy on the service of a minimum of two months’ notice.

This policy follows close on the heels of restrictions placed on lettings agents to charge tenants fees, as the political pendulum continues to swing towards supporting a growing and increasingly diverse group of tenants and away from private landlords.

Changes in tax relief

Other measures in a similar vein include restricting the tax deductibility of mortgage interest. This measure has been responsible for a dramatic fall in the number of mortgaged buy to let purchases in the mainstream market. By contrast, it has had a relatively limited impact on the prime part of the rental market. However, there has been some evidence of landlords selling smaller properties which they have acquired using buy to let mortgage finance.

The impact of recent proposals

In 2010, properties let at a rent of up to £100,000 per year were brought within the ambit of the assured shorthold regime. Previously, the threshold had been £25,000 a year. This means that a large chunk of the prime rental market could be affected by these changes.

Most tenancies in the prime rentals market are brought to an end by the tenant serving notice to quit or choosing not to renew their tenancy. However, private investors and accidental landlords may be concerned that restricting their ability to bring a tenancy to an end will affect the liquidity of their investment.

Importantly, the government has suggested that a landlord will still be able to recover possession of their property where they can either prove an intention to sell it or occupy it for their own use. Critically, that should limit any negative impact on the underlying value of their investment because of the increased security of tenure afforded to the tenant, provided the measures have teeth.

In practice, we know that many landlords will have used Section 21 to avoid the costs and delay of obtaining a court order were they to rely on specific grounds to recover possession where a tenant is in breach of their tenancy.

Reassuring landlords

With that in mind, the government has also suggested that the ability to recover possession on grounds such as non-payment of rent will be strengthened and procedures will be put in place to speed up that process. Crucial to this will be the establishment of a new housing court to deal with the likely increase in court cases.

The consultation process is also likely to throw up other circumstances where it would be fair for a landlord to recover possession to protect their investment.

All of this should provide comfort to existing landlords. However, it remains to be seen how this will work in practice. That means there is a risk that some landlords who have previously had their fingers burnt will draw stumps on their investment. Others are likely to spend more time qualifying potential tenants and reviewing what it means for the management of their investments going forward.

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