2020: Reshaping the lettings market

This year, we will witness the continued impact of the Tenant Fees Act 2019. In June, the rental sector will mark the first anniversary of the cap on tenancy deposits and ban on letting fees, so, for the first time, agents will be able to conduct a year-on-year analysis of revenues and examine the impact the Act has had on their business. They will be able to review how well they are weathering the changes and consider adjustments. As an industry, we may start to see more mergers or closures as some agents struggle to balance the books.

2020 might be a time of flux for the rental market but it’s also a time of opportunity. It’s a chance to redefine what renting means in the UK today.

In the second Queen’s Speech last December, a new Renters’ Reform Bill was outlined. This should pass through Parliament in 2020. The proposed reforms include ending ‘no fault’ evictions, introducing a lifetime deposit for renters which moves with them from property to property, expanding the ‘rogue’ landlord and agent database and giving landlords more rights in regaining their property. If this Bill passes into effect it would be one of the most significant pieces of rental legislation in recent years – and all market players will need to adapt it.

Money laundering

In addition to new tenant protections, the property market must also be prepared for stronger checks on money laundering. As the UK complies with the EU’s Fifth Anti-Money-Laundering Directive, now, for the first time, rental properties fall under the Directive’s Rules.

This means that for properties rented at €10,000 per month or more, due diligence must be carried out on the property’s landlord, tenant, guarantor or authorised occupier. Currently these checks may only affect a few properties but this change signals more to come and the rental market should expect stricter Anti-Money- Laundering (AML) checks applied across the whole industry.

MEES means more costs

Another big change will relate to government legislation. April marks the end of the transition period to the new Minimum Energy Efficiency Standards (MEES) for domestic properties and it will be illegal to let out properties with an Energy Performance Certificate (EPC) rating of F or G, barring approved exemptions. These new standards will have a bigger impact than has been predicted.

Upgrading properties to the minimum EPC rating carries a significant cost – the RLA estimates that improving an F or G rated property up to a band E costs, on average, £1,200.

The Government previously adopted a ‘no cost to the landlord’ stance but last year it amended regulations so landlords have to cover improvement payments, up to the value of £3,500.

This may deter some landlords but it also has the ability to indirectly influence the Buy-to-Let market. Lower (although still legal) EPC ratings, such as E, may decrease a properties’ market value, as consideration of MEES is part of a valuer’s due diligence.

Build to rent

The Build-to-Rent (BTR) sector is redrawing the property landscape. £2billion invested in the UK’s BTR in the first three quarters of 2019 and 40,000 BTR homes are now complete.110,000 more are in construction or in the planning pipeline. Such schemes are an attractive proposition for both landlords and tenants: for tenants, there’s the enticement of standardised, streamlined renting, lack of erratic landlords and additional perks like in-house gyms; for development owners, the 11 per cent rental premium typically attached to BTR schemes is the obvious incentive.

BTR’s success is more than just a convenient answer to some of renting’s problems. It represents a sea change within property: a dawning recognition that the rental sector isn’t simply a mortgage waiting room but a viable and lucrative market in its own right.

If the property industry wants to fulfil its potential in 2020 and beyond, we need this acknowledgement to ripple right across the sector. It also reflects a growing desire from renters to see more for their money, whether it’s more flexible tenancy arrangements, a relaxed attitude to pets or a slicker renting process. Agents and landlords who keep pace with the evolving expectations of the on-demand economy are likely to stay ahead of the pack.

And finally

Change may initially be uncomfortable but it’s only through change that progress can occur. 2020 might be a time of flux for the rental market but it’s also a time of vast opportunity. It’s a chance to redefine what renting means in the UK today, developing new ways of working and building a better relationship between landlords, tenants and the government. A more efficient and productive sector should be our expectation – and our hope – for 2020 and the years to come.