What Does The End of No Fault Evictions Mean For Buy To Let Mortgages?

What Does The End of No Fault Evictions Mean For Buy To Let Mortgages? The latest King’s Speech outlined a bold step towards greater tenant protection by ending no-fault evictions (also known as Section 21). This pivotal announcement marks a significant shift in the rental housing landscape, promising enhanced stability and security for millions of […]

July 30th, 2024

What Does The End of No Fault Evictions Mean For Buy To Let Mortgages?

The latest King’s Speech outlined a bold step towards greater tenant protection by ending no-fault evictions (also known as Section 21). This pivotal announcement marks a significant shift in the rental housing landscape, promising enhanced stability and security for millions of renters across the country.

That’s what it means for tenants, but where does that leave buy to let lending?

Landlords have expressed concerns about the potential for increased difficulty in reclaiming properties when needed. To address these concerns, the government has proposed reforms to the court system to expedite legitimate eviction cases, ensuring that landlords can still regain possession of their properties in a timely manner.

What it means though is that the end of an AST period no longer gives the landlord the opportunity to take back the property or sell it with vacant possession, rather a tenanted property could, in theory, be forever tenanted so long as the renter pays on time and decides not to leave.

For buy to let mortgage lenders it generates a problem.

The Issue For Buy To Let Lenders

The majority of buy to let lending is based on the assumption that a standard AST is in place, therefore the lender could take possession of the property, give notice on the AST and sell their security with vacant possession.

What now needs to happen is a greater appreciation for the value of any property without vacant possession. This further brings into the equation how valuers will treat these valuations, especially if the overall buy to let market is ever less attractive to investors.

In theory, if a property is sold with vacant possession it is worth it’s bricks and mortar value. When sold with a tenant it is income generating and carries and ‘investment value’. Which is higher or lower? That really depends on the property, the income and the local market.

Lenders are likely to lend against the lower valuation figure, so don’t assume a sitting tenant adds value here when it comes to applying for borrowing.

Perhaps the biggest change will come with lender criteria. There are many buy to let lenders who currently don’t like sitting tenants, that will have to change. The likelihood is that the more commercially minded lenders will flourish and the selling landlords who cannot produce a full tenancy pack finding that that limits the value of their asset when it comes to financing.

The Future

As a rule lenders, like valuers, benefit from experience. Whenever anything changes it tends to generate a lethargy or hesitancty.

As ever, there are lenders who are commercially minded and won’t have any issue with the end of Section 21. If you are looking at financing a new purchase or refinancing existing assets it may be prudent to take good advice and get all the tenancy documents in order.

The good news for landlords (and there rarely is any) is that the buy to let mortgage market is healthy enough to absorb changes such as this with enough competition who will see the opportunity to keep your finance options open.

Any questions or if you want to talk financing your next buy to let then get in touch.

By Dave Farmer

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.