After Labour’s landslide victory on July 4th, the UK has a new Prime Minister: Labour Leader Sir Kier Starmer. His election marks the first time in over 14 years that the Conservatives are out of power. The new government has plenty of plans for the private rented sector (PRS), but what does this mean for landlords and property investors?
In this article, we’ll explore Labour’s proposed housing policies in depth and examine the potential impact they’ll have on landlords and property investors. Can the new government make the PRS more viable and stable for everyone involved? Let’s take a look…
Which PRS reforms are expected under the new Labour government?
Immediately abolish Section 21 notices
Section 21 of the Housing Act 1988 allows landlords to seek possession of their property from tenants without providing a reason. While there are several legitimate reasons for seeking possession of a property that don’t constitute an eviction, more and more landlords have been using Section 21 notices as eviction notices because the process of issuing them is more straightforward than issuing an actual eviction notice. Perhaps that’s why Section 21 notices have more recently been termed “no-fault evictions”.
Section 21 notices can currently be issued at any time after a fixed-term tenancy has ended (if there’s a written contract) or for periodic tenancies (without a fixed end date) so long as the tenants are given at least 2 months’ notice to leave the property.
Labour’s planned reforms are particularly pro-tenant. By abolishing Section 21 notices, they aim to address concerns that tenants can be evicted at any time outside of a fixed term and be made homeless, which has previously prevented some tenants from reporting disrepair or other issues to their landlord for fear of eviction. The abolition of Section 21 will give renters more security and will likely result in longer tenancies.
For landlords, longer tenancies could mean reduced tenant turnover and a more stable rental income. However, some landlords are worried about losing control over their properties and facing difficulties in removing problematic tenants.
It’s worth noting, however, that while Labour plan to put an end to no-fault evictions, they haven’t announced any plans to abolish Section 8 evictions, which allow landlords to evict tenants on 17 different Grounds for Possession. These include: the landlord needing to move back into the property; the landlord needing to redevelop all or part of the property; rent arrears of at least eight weeks/two months; and breaches to the tenancy agreement.
This should provide landlords with some peace of mind as they’ll still be able to evict problematic tenants. However, they’ll need to go through the courts to do this if the tenants refuse to leave after being served an eviction notice. We should wait and see whether Labour adds any new Grounds for Possession to Section 8 in wake of abolishing Section 21, e.g. if a landlord wishes to sell their property.
With the abolition of Section 21, Labour will need to find a way to better fund the justice system so that it can handle an increase in court cases. However, if their reforms can balance the needs of both landlords and tenants, it could provide the clarity and confidence property investors need to stay in the sector.
It’s also important to note that, while Labour claim they are going to abolish Section 21 notices “immediately”, legislative changes must go through proper parliamentary processes. This means that the statute won’t be repealed on day one of the new government and landlords will have plenty of time to prepare for the changes.
Introduce rent stabilisation measures
According to a recent rental market report by Zoopla, tenant demand has doubled since before the pandemic, while rental stock availability has decreased by a third. This imbalance has led to rental inflation due to basic supply and demand economics.
To make things fairer and provide tenants with better financial stability and security, Labour plans to cap rent increases to either local wage growth or the Consumer Price Index (CPI). This approach should make rent more predictable and affordable for tenants and help foster better tenant-landlord relationships.
Labour are also planning to introduce other rent stabilisation measures, such as limiting rent increases to once per year; ensuring tenants get at least four months’ notice of rent increases; abolishing rent review clauses; introducing a cap on the amount of rent that can be paid upfront by tenants to secure a rental property; and implementing a unified system across England and Wales to prevent rental ‘bidding wars’ between prospective tenants. However, Labour haven’t announced details about how this is all going to work just yet.
These reforms will give tenants the power to challenge unreasonable rent rises and prevent unjustified rent increases leading to evictions. However, some landlords see these measures as constraints on their ability to adjust rents based on market conditions, limiting their financial flexibility and ability to cover rising costs. The reduced tenant turnover will, however, ultimately benefit landlords.
While some landlords feel that increased tenant rights will limit their ability to manage their properties effectively, increased tenant security will improve the reputation of the rental market and make it more attractive for long-term investments.
Create a mandatory National Landlords Register
Currently, there’s no nationwide requirement for landlords to register themselves in England or Wales, though some local authorities have introduced their own selective licensing schemes. Under Labour, joining a National Landlords Register will be mandatory.
This means that all landlords in England and Wales will need to register their properties, comply with an annually updated PRS Decent Homes Standard, provide proof of Gas Safety certificates and electrical tests, and declare how much rent they charge. They’ll also need to update their registration yearly.
Labour believes that the creation of this register will improve standards and accountability in the PRS and help to ensure that all rental properties meet safety and quality standards. Tenants will benefit too, as they’ll be able to check a landlord’s history, such as whether they have any criminal convictions or enforcement actions, and see if a landlord has failed to carry out repairs or pushed for unreasonable rent increases in the past. This transparency will provide tenants with more reassurance before they commit to a rental agreement.
“Bad landlords” will be put under a microscope and it will be easier for councils to take action against them, but “good landlords” are set to benefit. This can only be a good thing for the sector as a whole. A potential challenge for landlords, however, is the additional bureaucratic burden of the National Landlords Register, as well as an increase in administrative costs (they’ll need to pay annually to use the register to help fund an independent body that conducts compliance checks).
Extend Awaab’s Law
Labour has also pledged to extend Awaab’s Law to the PRS. Awaab’s Law was introduced as an amendment to the Social Housing (Regulation) Act after an inquest into the death of two-year-old Awaab Ishak in 2022. He died from a respiratory condition caused by prolonged exposure to mould in a Rochdale Boroughwide Housing (RBH) flat.
With this law, it became a legal requirement for social housing landlords to investigate health hazards in their properties within 14 days of them being reported. If a hazard is identified, the landlord must begin repairs within 7 days and address emergency repairs within 24 hours. Currently, these requirements only apply to social landlords.
Labour plans to extend Awaab’s Law to private landlords in the hopes of protecting tenants from living in unsafe conditions. This will likely increase overheads for landlords but it will also help to restore trust in the PRS as a whole, and protect properties from disrepair.
Introduce new energy efficiency standards
Another key reform proposed by Labour is to introduce new energy efficiency standards for rental properties in the UK by 2030, though they’ve yet to specify what the new minimum EPC rating will be.
While these changes are designed to benefit tenants by reducing energy costs and improving living conditions (Labour estimates that the changes could save tenants around £250 annually), they also impose new responsibilities on landlords. Landlords will need to make their properties more energy efficient to ensure compliance, which could mean significant upfront costs.
On the flip side, Labour have vowed to remove the requirement for landlords and homeowners to replace their gas boilers with heat pumps by 2030 for fears it will cost them too much money. Instead, Labour will encourage heat pump installations through the use of financial incentives.
What are Labour’s plans for urban development?
Labour has pledged to take significant steps to address the housing crisis and ensure sustainable urban development. Here are some key initiatives that landlords and property investors should be aware of:
- Reinstate house-building targets for local authorities: These targets will push local authorities to address the current property shortage by boosting the construction of new homes. This could help to stabilise property prices and provide more opportunities for landlords and investors.
- Hire 300 additional planning officers: Planning officers play a crucial role in driving city and town development. The additional roles will likely be funded by increased stamp duty for overseas buyers.
- Select sites for new towns and identify locations for large-scale residential developments: New towns and developments will provide more opportunities for investment, which has the potential to boost the property market and offer new avenues for landlords and developers.
What are Labour’s plans for tax?
Labour has no plans to increase the basic, higher or additional rates of income tax, and corporation tax will remain capped at the current rate of 25%. VAT and National Insurance rates will also stay the same. However to raise additional funds, Labour may increase capital gains tax rates, which will directly affect landlords and property investors.
To ensure fairness and efficiency in the housing market, it’s also rumoured that Labour will reduce the number of vacant homes by imposing higher taxes on empty properties and second homes. These measures are designed to stabilise the market and make housing more accessible. If these changes are introduced, it will encourage property investors to maximise the value of their investments by keeping tenants in properties for longer.
How will Labour’s reforms affect landlords and property investors?
Labour’s reforms are likely to influence market dynamics, affecting property prices and rental rates. Despite this, demand for rental properties is expected to remain strong due to Labour’s commitment to improving rental conditions and increasing the supply of affordable rental homes. This means rental yields will continue to be attractive, making it a good time for landlords to expand their portfolios. Developers will also benefit as the demand for new homes grows.
While landlords and property investors may face challenges while they adjust to the new regulations and increased compliance costs, these changes present more opportunities to attract long-term tenants, reduce vacancies, and ensure a stable income.
And remember, not all manifesto promises are fulfilled. The Conservative government only initiated 55% of their 2019 manifesto commitments so it’s reasonable to assume that Labour won’t deliver on all of their promises. Plus, all of these implementations will take time to be introduced.
Partner with Purseglove for property management in Nottinghamshire
While you may have concerns as a landlord or property investor about Labour’s proposed changes, these reforms could bring long-term benefits to the sector as a whole and improve the overall quality and stability of the rental market. With proactive management and adaptation, you can leverage these reforms to create a more stable and profitable rental business.
Choose Purseglove, a trusted property management agent, to stay informed and adapt to these changes as they come. Get in touch to learn about our property management services!