How could the Renters’ Rights Bill affect mortgages?

Once the Renters’ Rights Bill (RRB) passes, it’s possible that there could be some changes to Buy to Let lending. That’s because the risk of not having rental income to pay the mortgage is increasing – for both landlords and lenders:

1. There will be less security of rental income – certainly for an initial period, as:
   1. Fixed-term tenancies are being scrapped, and
   2. The amount that tenants can be asked to pay up-front will be limited to one month’s rent.
2. It’s likely to take much longer for landlords to regain possession from a non-paying tenant because of:

• Section 21 being scrapped
• The loss of the ‘accelerated possession’ procedure, which doesn’t require a court hearing
• The requirement to use the section 8 ground increasing from the tenant being two months’ in arrears to three, and the notice period doubling, from two months to four

3. If a landlord evicts a tenant because they want to sell the property (ground 1A) they won’t be able to re-let for 12 months after the required four-month notice period. That means if they change their mind or the property doesn’t sell, it will have to sit empty – meanwhile, the mortgage still has to be paid.

For lenders, all these things increase the risk of a landlord defaulting on their loan, so we may see lending criteria tightening. Two things lenders could do are:

• Increase the ‘rent cover’ percentage – that’s the level of rental income the lender requires, over the monthly repayment amount, e.g. they want the rent to be at least 135% of the loan payment. If that percentage increases, it could result in landlords being offered a lower maximum loan to value.
• Raise interest rates. When the perceived risk of lending increases, interest rates often rise too. So it’s possible that some landlords may have to pay a higher rate for their mortgage than those with greater financial reserves.

How likely is it that mortgages will change?

When new tenancies were introduced in Scotland (2017) and Wales (2022) there was no clear change to Buy to Let lending. In both cases, tenants’ rights were strengthened and landlords can now only evict them on specific grounds.

However, because of the size of the lettings sector in England, and the 12-month ‘no let’ rule following an eviction on ground 1A, it is possible lenders might be more likely to make changes this time.

Even if that doesn’t happen, mortgage brokers will need to know about and understand the implications of the RRB so that they can explain the higher risk to landlords and advise them accordingly.

If you currently have a Buy to Let mortgage or you’re planning to take one out in the near future, here are some questions to ask a broker:

• Are there likely to be any changes to new lending criteria?
• When I next remortgage, could the lender reduce my loan to value?
• Is there anything that could stop me remortgaging?
• Might I be able to remortgage to release some capital reserves to cover repayments if I don’t have rental income – and how much would my monthly payments increase?

If you’d like to discuss any aspect of mortgage borrowing, our partners at Embrace Financial Services are always here to help.

Talk to an expert financial adviser

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.