Landlords and letting agents are bracing for a surge in tenants giving notice on their properties now that the Renters’ Rights Act has come into force.
Two in five renters are considering giving notice to end their current tenancy, exclusive data for This is Money shows.
The Renters’ Rights Act, which came into force on 1 May, has shifted the balance of power away from landlords towards renters in the largest transformation to the private rental sector since the 1980s.
One of the most groundbreaking changes is the end of fixed-term contracts.
Until now, renters commonly signed a one-year fixed tenancy agreement, which meant they had to pay rent for the whole 12 months even if they left. This is now illegal.
All fixed-term assured tenancies and assured shorthold tenancies have been abolished and replaced with rolling periodic tenancies.
This applies retrospectively and includes fixed tenancies agreed prior to the rules changing. This means renters are no longer tied into long contracts and have the right to end tenancies with two months’ notice.
Fixed-term tenancies have been abolished and replaced with rolling periodic tenancies, meaning renters are no longer tied into long contracts
The study, carried out by lettings platform Goodlord surveyed 2,000 renters. It found that 41 per cent of tenants were very or somewhat likely to give notice on their current tenancies soon given the new rules.
This would unleash a wave of tenants giving notice at once – something that will come at a time of year when rental prices are already heading towards their annual peak.
Only a third of tenants said they were very or somewhat unlikely to give notice. One in four tenants said they were unsure or haven’t yet decided.
‘Until now, the rental market has relied on the rhythm of fixed-term contracts,’ said Oli Sherlock, managing director of insurance at Goodlord.
‘Tenants and their landlords have had clear timelines about when they’ll be moving on, or looking to renew. The Renters’ Rights Act could completely upend this norm.
‘This Act means tenants have far more control over how long they stay in a property, giving them more security for the long-term.
‘But as this data shows, alongside our conversations with agents and tenants in recent weeks, it’s clear that many renters are gearing up to give notice on their properties now that these new rules are in force. This could mean that the Renters’ Rights Act becomes the Renters’ Flight Act.’
Some landlords fear renters will now serve notice on tenancies that were previously agreed for 12 or even 24 months.
Student landlords are especially worried about the changes. Mike Matthews is one such investor. He owns three student HMO houses with 20 rooms between them.
‘Currently, the student contracts run from September to the end of August for 11 months,’ says Matthews.
‘Banning (fixed) contracts will mean students can give two months notice at any time, therefore, I will most likely have empty rooms throughout the year.
‘This happens when students fall out with each other or decide to quit university among other reasons.
‘I won’t be able to remarket the property because most students will have already secured a property before the beginning of term.
He adds: ‘Landlords may face longer void periods between tenancies because of the changes to fixed term tenancies, meaning rents will have to rise to cover the lost income and higher financial risk.’
Andy Graham, host of The HMO Podcast, says he is already seeing renters serving notice on tenancies that were previously agreed for 12 or even 24 months.
‘I’ve seen this happen in several instances already,’ says Andy. ‘This is especially problematic where they are a group of students because the landlords will have to wait until the next group move in, which in some cases will be 1 July, leaving them with a several months of the property being empty, which costs many thousands of pounds.’
Going forward, landlords also fear savvy tenants will use their properties as short term rentals – handing in their notice period as soon as they arrive and leaving after just two months.
One landlord, who wishes to remain anonymous said: ‘Why, when we have fixed term energy and broadband contracts, can you not have a fixed term rental contract. It’s insane.’
What does this mean for rents?
Tenant exodus will cause an additional layer of disruption for landlords at a time when they are grappling with a vast array of regulatory change.
After several months where the market has seen rent increases dropping off – and even falling in some locations – a mass spike in demand for new homes from July onwards could drive up rents for tenants across the summer, according to Goodlord.
‘If this comes to pass, it could be very disruptive for landlords who’ll find themselves having to re-let properties at short notice and absorb the costs of any void periods that incurs,’ adds Sherlock.
‘Likewise, for tenants, this could mean a higher number of people looking for a new property all at the same time.
‘July is already the start of the busiest season for lettings and the time of the year when we start to see prices spike, meaning tenants could unwittingly be walking themselves into an overheated market.
‘My advice for anyone planning to give notice this month would be to consider whether giving notice immediately is essential.
‘Supply of new homes remains behind demand and, in a market where rents continue to increase, it could prove a more costly move than first thought.’
Oli Sherlock, managing director of insurance at Goodlord says the abolition of fixed term tenancies could mean that the Renters’ Rights Act becomes the Renters’ Flight Act’
Why are renters moving?
Two in five tenants surveyed by Goodlord said their motivation to move from their current rental property would be to reduce their rental costs, as cost of living pressures continue to bite for households.
And one in four would move in order to access a better quality property, or one in better condition.
Briany, 25, is one of the tenants planning to give notice this month.
She said: ‘My partner and I are handing in the notice on our property. We moved into this property last summer and since then it’s felt like a never-ending series of problems; over-flowing gutters, mould, broken windows, dodgy appliances.
‘The landlord has been very slow to action anything and it’s been a constant fight to get things repaired.
‘We previously discussed leaving our tenancy early, but the letting agent and landlord wanted us to cover certain fees and any rental payments between us moving out and new tenants moving in. That was something we simply couldn’t afford.
‘So we’ve been hanging on until we could give notice without incurring any additional expense.’