RICS raises concerns around a new deal for renting

Recently RICS responded to the Government's consultation: A New Deal for Renting, which seeks views on the proposed removal of s21 and changes to schedule 2 which sets out the s8 court process eviction grounds.

RICS consulted with our members and were concerned about the many unintended consequences of the proposals within the consultation, especially those that would unfairly affect the most vulnerable within the tenure.

We believe the issues raised within the consultation are of public interest and have made the decision to publish the general comments of our submission.

General Comment

RICS is happy to respond to this consultation. We would encourage the Government to ensure that any changes they make to the Private Rented Sector (PRS), in particular to the eviction processes are done so with further engagement with industry, clear timelines and a proper review of all areas of the sector to ensure any new processes introduced and embedded are a balance between landlord and tenant needs.

We support the removal of s21, but only when a viable alternative is established and embedded including significant reform to the court processes. It is disappointing that this consultation did not seek to consult on court processes that will accompany proposed changes to schedule 2 grounds especially, the mandatory grounds, to allow for a holistic analysis of any replacement to the current processes including s21.

RICS would reiterate our long-held belief that the best solution for the issues attempting to be fixed by tinkering with the eviction process, is for standards and regulation to be introduced across the industry. To encourage an efficient and balanced private rented sector, better standards and regulation need to be embedded into the industry, giving the security and conditions needed by tenants and to provide the clarity of good performance for landlords and agents. RICS does not believe that the proposals within this consultation will help bring about the changes, within the industry that the Government hopes.

As a regulatory and standards body RICS supports any attempts to improve the industry for consumers. However, we would caution Government to ensure that the current sector and powers already within it are being utilised to their potential, otherwise any changes may provide little relief as tenants and local authorities continue to underutilise what is at their disposal.

A build to rent, or PRS investment, is generally valued by reference to applying a yield-to-net operating income in the same way as you would value a commercial property. However, there is an underlying assumption in all investments of this type that there is owner flexibility and vacant sale is always an option.

It could be argued that if, for example, a certain percentage net yield is the appropriate discount rate for a good residential investment now, that yield may have to be higher if there is a risk that the owner will be constrained, as they will be under the new regime. Lenders would certainly worry about this.

Portfolio owners may see their portfolio capital value reduce purely as a function of the change of tenure from an assured shorthold tenancy (AST) to an assured rather than any change in the underlying income stream. This impacts viability and is likely to deter larger scale landlords from future investment. For funds and listed vehicles which rely on total return rather than pure income this has potential to be a serious deterrent.

The proposed changes may also impact the many buy-to-let landlords who may be in breach of their loan-to-value covenants and there is the possibility that lenders will become more restrictive in their lending criteria.

A less concerning unintended consequence is that the removal of s21 does not allow for landlords to finalise a tenant ended tenancy. Many landlords upon receiving a notice to end a tenancy from a tenant will in return serve a s21 to ensure a finalisation on part of both parties. The new proposals do not give any alternative for landlords.