The history of the Buy-to-Let market

The origins of the buy-to-let boom go back to legal changes relating to tenancies in the 1990s and a favourable tax regime for landlords. The sector enjoyed runaway growth, but the tide began to turn in 2016 when the Chancellor, George Osborne cut tax relief for property investors and ended a key landlord tax break.

Despite this, several more years of strong house price growth and the growing demand for rental properties gave buy-to-let renewed impetus, until the infamous mini-budget in September 2022 destabilised financial markets and pushed interest rates sharply higher. This forced some landlords to re-consider their commitment to the private rental market.  Subsequently, the cost of living crisis has had a major impact on the ability of renters to pay rapidly rising rents.

The Renter’s Rights Bill

The latest blow to landlord confidence in their investment model is the Renter’s Rights Bill announced in the new government’s first Queen’s Speech, a replacement for the Renter’s Reform Bill which had been progressing through Parliament when the election was called. The principal features of this new regime are said to be:

• The ending of “no-fault evictions”.
• Giving tenants the right to challenge rent increases.
• Banning rental bidding wars used by landlords and agents to push up rents
• Applying the Decent Homes Standard to the private rented sector to ensure safe and secure homes and to improve poor quality rental homes.
• Awaab’s Law to extend the framework of rules relating to time frames within which landlords of social housing are obliged to deal with serious and unsafe hazards in homes.
• Creating a digital private rented sector database.
• Supporting cheaper, quicker dispute resolution.
• Making it illegal for landlords to discriminate against tenants in receipt of benefits.
• Strengthening local council enforcement powers against landlords contravening the provisions of the Bill.

The Buy-to-Let mortgage market

The combination of these accumulating adverse factors is finally impacting the lending market for landlords. Data published in July 2024 by UK Finance showed that the buy-to-let mortgage market was shrinking:

• The number of new mortgages granted has halved in just over a year.
• The total number of mortgages in issue (1.98m) has fallen for the first time in more than thirty years.
• The number of mortgages in arrears (13,570) at the end of Q1 2024 was up by 93% compared to a year earlier.

Tenants’ rights if the landlord’s lender repossesses the property

A tenant’s rights if a lender forecloses against a mortgage owed by the landlord and secured on the property depend largely on the nature of their tenancy. The housing and homelessness charity, Shelter published a detailed guide to this complex area in December 2023.

The options open to a lender as regards an existing tenancy set out in this guide will be materially affected by the proposed ending of ‘no fault’ evictions through the Section 21 notice route under the Renter’s Rights Bill.

The Lenders’ perspective on its distressed debt

Faced with a defaulting borrower, the lender’s objective will be to recover their outstanding loan and ongoing interest as efficiently and cost-effectively as possible through the sale of the property. Once recoveries through in-house collection and workout procedures have been exhausted, the final route will usually be through the appointment of a Receiver under the Law of Property Act 1925. The lender does not need to get a court order to appoint a receiver.

The lender or the Receiver can exercise a power of sale without obtaining a possession order against the borrower. The power of sale allows the property to be sold to a third party, but this will normally require the lender acting on its own behalf or through the Receiver to maximise the realisations by gaining vacant possession prior to sale through the termination any existing tenancy.

The practical issues in controlling repossessed properties, obtaining vacant possession and completing a sale can be significantly challenging, with all manner of factors (some often unknown at the outset) potentially impacting the outcome. The role of Receiver is not for the faint-hearted and requires considerable experience and determination.

AUTHOR

This article was written by Property Specialist Hayley Tregarthen, Director at Opus.

Hayley heads up the specialist Property team at Opus, which has extensive experience of working with lenders, landlords and tenants to find solutions for financial and commercial problems. The team deals with Law of Property Act Receiverships and other types of property appointments, as well as negotiating consensual workouts where appropriate.

If you would like to contact the Opus Property Team, you can call us on 01908 087 220, or email property@opusllp.com.