Repossessed: Landlords, Mortgage Rate Pressure and Regulation

Whenever economies are in difficulty, evidence of the pressures which such a situation creates can be readily and regularly found in the home.

I don't just mean the ways in which a rise in the cost of living can cause people to reprioritise how they spend their money.

Simply keeping a roof above one's head can be an immense challenge for individuals, whether they own or rent their homes.

However, it can also present considerable headaches for private landlords, especially those who aren't institutional investors, able to control a portfolio of mortgage-free properties.

A couple of weeks ago, new research suggested that the number of UK homes for rent had dropped to its lowest level in 14 years (https://www.lettingagenttoday.co.uk/breaking-news/2023/7/stock-drought--more-evidence-of-shocking-under-supply?source=newsticker).

That is regarded as being largely down to the effect of rising mortgage rates.

Only the previous month, more data - this time from the estate agency Savills - outlined how consecutive hikes in interest rates had, in fact, led to "a very real risk" of some buy-to-let landlords leaving the sector altogether (https://www.bbc.co.uk/news/business-65890391).

Those who do remain are forced to consider increasing rents to cover mortgage costs but that, of course, can have consequences for tenants and landlords alike, as even a quick glance at official figures makes clear.

In May, the Ministry of Justice (MoJ) revealed that the number of warrants obtained by landlords in the first three months of 2023 enabling a repossession to take place was 52 per cent higher than in the same period during 2022 (https://www.gov.uk/government/statistics/mortgage-and-landlord-possession-statistics-january-to-march-2023/mortgage-and-landlord-possession-statistics-january-to-march-2023#:~:text=In%20the%20most%20recent%20quarter,the%20same%20quarter%20in%202022).

Not all of those actions are due to disputes with tenants. I have dealt with a number of landlords for whom the expense involved has become too great and they simply want to sell their properties.

Every one of those individuals that I have dealt with has not taken the decision lightly and are fully aware of what it means to both their tenants and themselves.

Yet they are increasingly conscious of how difficult it can be to take back control of their properties.

Under section 21 of the Housing Act 1988, landlords are entitled to remove tenants without alleging fault (https://www.legislation.gov.uk/ukpga/1988/50/section/21).

On the face of it, such a step seems relatively clear-cut for both: two months' advance notice for the tenant and the avoidance of court proceedings for the landlord.

Yet the qualifying criteria enabling them to take such steps are so particular and, therefore, difficult to satisfy that many landlords only find that they are in breach when they come to issue proceedings.

Any difficulties might mean a landlord's case being thrown out and their having to start all over again or look at alternative means of securing a possession order.

Even if their court action succeeds, tenants may still decide to stay put, something which requires an additional application and the eventual visit of bailiffs.

In some instances, it's not that residents are just being awkward but because they have either been told or believe that local authorities need sight of an eviction warrant before adding someone else to what might be an already over-burdened council housing list.

To reach that stage is stressful all-'round, expensive and uncertain. It also takes a considerable amount of time.

The latest MoJ figures show that last year it took on average 43.6 weeks from landlords commencing their repossession action to claiming an empty property back.

Of course, those landlords who wish to sell having ended a tenancy find themselves with no rental income while they search for a buyer. In the meantime, they know that they will have to cover mortgage costs themselves.

However, having a tenant in place while a property is on the market can cause different complications, though, not least potentially lengthening a sale process.

To all that can be added the likely impact of new legislation; namely, the Renters (Reform) Bill, which was introduced to parliament in May (https://www.gov.uk/guidance/guide-to-the-renters-reform-bill).

Part of the rationale for the Bill is the negative effect which interest groups claim that the anxiety resulting from the existing section 21 provisions have on tenants' well-being.

The legislation has been hailed by the Government as "a fair deal for renters" (https://commonslibrary.parliament.uk/research-briefings/cbp-8658/), even as it promises to introduce new grounds for a tenant's possible eviction - measures aimed at avoiding a difficult situation for landlords.

From what I am being told, even a slight reduction in mortgage rates (https://www.thetimes.co.uk/article/ec2ce378-265b-11ee-9959-3da1f328ac3c?shareToken=814300ffb6743bcbc784d57487b8cb) seems insufficient to reduce the acute tensions felt by landlords trying to balance their obligations to tenants and their own commercial realities.

Should the Renters (Reform) Bill become statute, it will no doubt increase the scrutiny of landlords' decision to remove tenants and sell properties because of their own economic pressures.

Until that happens, however, the old section 21 provisions remain in force.

Regardless of the rules in this highly regulated area of law, there is plenty of evidence as to why landlords should not only pay painstaking heed to proper process when they are looking to evict tenants but when they establish a tenancy agreement as well.

Whilst it might seem tempting to try and do everything oneself, the time, the stress and the expense involved in meeting the fine details required for a swift repossession would point to the merits of taking specialist advice.

The alternatives might only exacerbate the financial squeeze compelling landlords not to be landlords in the first place.

To discuss any of the above further, please feel free to contact Sarah Savage: sarahsavage@bexleybeaumont.com  |  07825 554148