The government is considering abolishing the easiest mechanism for evicting tenants, so what are the implications for the BTL market?
Landlords are used to the comfort of knowing that, supported by Section 21, as long as their tenants are outside of their initial fixed-term tenancy, they can serve notice.
However, since the government has announced plans to abolish Section 21, we are now in a period of uncertainty awaiting the outcome of the consultation period.
What does this mean for buy-to-let landlords?
Section 21 is the notice which a landlord must give to their tenant to begin the process to take possession of a property let on an AST, without needing to provide a reason for taking possession.
Landlords generally prefer to use a Section 21 instead of a Section 8, which is a possession order traditionally used for evictions when the terms of the tenancy have been broken. A Section 21 is a quicker means of removing the tenant from the property because, unlike a Section 8, it does not usually involve the courts.
This announcement has, understandably, been met with dissent from the landlord community. However, it is not clear what changes would be made to other legislation, such as Section 8, which would help to compensate and protect the landlord should the abolishment of Section 21 go ahead. Right now, all we know is that Section 21 may be abolished – how this will ultimately look in conjunction with other housing legislation and the time frames on this are not known.
What will this mean for the BTL mortgage market? At present lenders are not saying anything, and rightly so, given where we are with this. However, that has not stopped the press speculating. Here are my thoughts:
- Section 21 was abolished in Scotland in November 2017 – I cannot recall any lender pulling out of the Scottish BTL market because of this. Granted, they balanced the Section 21 removal with ‘Notice to Leave’, but let us assume the English and Welsh rules will factor in something similar.
- Lenders are very committed to supporting the BTL market – the books perform really well (Coventry has reported that it lent against over 100,000 properties in the past nine years, yet have taken on losses across just four loans, totalling £49k) and the margins are good.
- If, as a result, BTL mortgages were given a ‘credit negative’ for securitised bonds, this may drive up the cost of borrowing a little, but it is not going to wipe the market out.
The consultation period will take time and this is not going to be a quick change. It is clear from the market reaction, however, that landlords are feeling disappointed about the news.
Jeni Browne is sales director at Mortgages for Business