What’s Ahead for the Lettings Industry in 2024?
2024 is looking like it could be one of the most significant years for the lettings industry in recent history. In this report we will take a look at some of the most important developments that landlords, agents and others in the business need to know about.
Property prices in 2024
It would be fair to say that, after around 15 years of consistently rising prices, property prices in the UK are very much on a knife edge in 2024. How prices perform in 2024 could affect whether more investors decide to enter the market, exit it or hold tight.
A straw poll amongst experts suggests most believe property prices will fall slightly in 2024 or stay broadly the same: The OBR forecasts a 4.7% fall. Knight Frank forecasts a 4% fall. Halifax forecasts a 2% fall. Nationwide and estate agency Hamptons both forecast property prices will stay flat this year.
Lettings market supply and demand in 2024
Supply and demand is a key factor which determines rent levels. In recent years demand for rented accommodation has been high with around 4.6m private renters in the UK according to ONS figures. However, supply in the PRS has reduced as landlords have exited the market – CBRE estimates that 125,000 properties were lost from the market in 2022-23 alone.
It seems likely that demand will remain high but supply will fall further in 2024. So, whatever else happens in the market, landlords who enter or stay in the industry should benefit from high demand and minimal voids.
Rents in 2024
Rents have been relatively stable until the last couple of years and this, together with rising property prices, means letting yields have come under strain. In some places, particularly the pricier parts of London, average yields dipped under 2% between 2020-23.
However this state of affairs could change during 2024. Rents have risen sharply in 2023 and further rises seem likely. So, moderating property prices alongside continuing strong rent levels could improve rental yields for landlords in many areas.
Knight Frank forecasts rents nationally will rise 6.5% in 2024 (7% in Greater London). Savills forecasts they will grow 6% (5.5% in London) in 2024 – but will be more limited beyond that due to affordability constraints.
Interest rates and mortgage costs in 2024
A series of interest rate (bank rate) rises since mid-2022 have increased many landlord’s costs significantly. They have almost certainly encouraged some landlords to leave the market – and discouraged others from entering it.
In the recent past many experts have forecast that interest rates would be 5.25% or above until 2025 or even 2026. However, latest estimates suggest that rates could fall sooner. This could potentially encourage more landlords to invest, as well as encourage existing ones to remain in the market in 2024.
For example, analysts Morgan Stanley have forecast that interest rates will begin to be cut this May and will fall to 4.25% by the end of 2024.
Regardless of the official interest rate (bank rate) actual mortgage lenders’ rates have been reducing over the last few months in any case. The average residential two year fixed rate is currently around 5.8%, a fall of 1% since summer 2023. Market leaders Halifax and Leeds Building Society have both cut their residential mortgage rates in the first week of 2024.
The legal environment for lettings in 2024
New legislation affecting the property business has been coming thick and fast in recent years. But 2024 could be a particularly significant year for new legislation. (Whether it will actually come into force in 2024, or at all, is a different matter however.)
The Renters (Reform) Bill
The Renters (Reform) Bill proposes the most significant changes to landlord-tenant law in England in decades. It could become law in 2024 …. but see later!
The Renters (Reform) Bill proposes major changes including the introduction of new periodic tenancy contracts to replace ASTs and new procedures for possession. These include the abolition of Section 21 no fault evictions (although the government has said this will be delayed pending reform of the court evictions system). Other measures include a new mechanism for increasing rents, new rules on pets, and the introduction of a property portal and database for landlords and rental properties. There could also, potentially, be a Decent Homes Standard for the PRS.
The Renters Reform Bill: What’s In It And What Does It Mean For Landlords?
The Renters (Reform) Bill is currently working its way through parliament. Depending on how long this takes it may (or may not) receive Royal Assent and become the Renters (Reform) Act in mid 2024. The earliest it could actually come into force would be around six months after Royal Assent. Even then, many of its provisions would likely not come into effect for at least six months for new tenancies and 18 months for existing tenancies.
The important takeaway for landlords in 2024, however, is that landlord and tenant law will almost certainly change in the next few years. But exactly how or when is unclear.
The rise and rise of selective licensing
Selective licensing schemes are not new, but both the number and size of selective licensing schemes has increased rapidly in the last two or three years. Proptech company Kamma estimates that 20% of local authorities now have selective licensing schemes – but in London two thirds of councils have them. Some of these are substantial (and far from limited to selected areas) such as Birmingham’s 25-ward scheme.
Selective licensing schemes are often regarded as a source of easy revenue for local authorities. Given that many of them are severely cash-strapped it seems likely more new schemes will be proposed over 2024.
The possible regulation of short term lets
During 2023 the government ran a consultation on introducing a registration scheme for short term lets in England. They also ran a parallel consultation on giving local authorities powers to require owners of short term let property to obtain planning permission for this use. This would be accomplished by introducing a new use class for these types of lets, along with permitted development rights to create them without planning permission. But local authorities would be able to withdraw these rights in specific areas using an Article 4 direction.
At the time of writing more detailed proposals to introduce these schemes have not emerged. However, landlords should be aware that measures that could see tighter regulation of short term lets, including holiday lets, in England could come a little closer in 2024.
Enhanced MEES for rental properties postponed …. but for how long?
Under the Domestic Minimum Energy Efficiency Standard (MEES) Regulations rented properties have been required to have a minimum EPC rating of E since 2018. In 2021 the government announced proposals to reduce this to a minimum rating of C, perhaps as early as 2025. This caused something of a panic amongst landlords, particularly due to the cost of upgrading properties to meet the new standards …. estimated at £30bn nationally.
In 2023 the government announced that plans to introduce EPC C would be postponed for now. However it is unlikely that they have been cancelled completely. So, in 2024 and beyond landlords should be conscious that energy efficiency standards in rented property are likely to be raised at some point.
Leasehold reform
In late 2023 the government introduced the Leasehold and Freehold Reform Bill. The leasehold reform proposals could have both advantages and disadvantages for landlords and agents in England and Wales. Leasehold reform could make it easier and cheaper for landlords who own leasehold property to renew their leases, buy their freehold or take over management of their buildings. It could bring more transparency to management charges or even help to reduce them.
However, leasehold reform could make the work of property managers more complex and demanding. By requiring them to make their charges and commissions received more transparent it could impact their income.
The Leasehold and Freehold Reform Bill is currently working its way through parliament. Latest estimates suggest it could, possibly, become law in summer 2024.
New material information rules
Landlords and agents should be aware of new material information rules, which require certain information to be stated when they advertise property for let as well as for sale, and which were published at the end of 2023. The National Trading Standards Estate and Letting Agency Team (NTSELAT) has now introduced Parts B and C of their material information rules, to add to Part A which was introduced in 2022.
Part A requires that the Council Tax band or rate is included in letting listings as well as the rent and deposit details. Part B requires the inclusion of information such as the type of property, number and type of rooms, parking and utilities including broadband and mobile phone coverage. Part C requires that information on building safety, flood and erosion risk and accessibility is stated.
Housing standards increasingly under the microscope
It would not be unfair to say that standards in both PRS and public sector housing have been something of a problematic issue for decades. Private and public landlords alike have struggled with defining and maintaining minimum acceptable standards. Tenants have frequently been unclear about their rights, and have been reluctant to complain about deficiencies.
However, the death of Awaab Ishak in 2020 – which a coroner attributed to damp and mould in an inquest in 2022 – is likely to put housing standards very much under the microscope in 2024.
In 2023 the government published guidance documents on ‘Understanding and Addressing the Health Risks of Damp and Mould in the Home’ and ‘Damp and Mould in the Private Rented Sector’. These documents more clearly define the standards landlords must meet, and action they should take, in these areas.
Government Guidance: Understanding and Addressing the Health Risks of Damp and Mould in the Home
Additionally the Renters (Reform) Bill includes provision to introduce a Decent Homes Standard into the PRS.
Rising costs for landlords in 2024
The costs of running a rental property, including repair and maintenance costs, are sometimes overlooked. However labour and materials costs have been increasing apace since the Covid pandemic – according to trade body BCIS they rose 7% on average over 2022-23. They are likely to continue to pose a challenge to landlords and agents in 2024.
Landlords who provide bills-included accommodation, such as HMOs, should take into account utility costs. These are likely to reduce in 2024 but will still be at historic highs. Analysts Cornwall Insight forecast that the current energy price cap of £1,928 for an average consumer will fall to £1,660 in Q2 2024 and £1,590 in Q3 but rise to £1,639 in 4Q 2024. Spring 2024 could also see further, substantial rises in Council Tax.
Politics – the 2024 general election
It is now virtually a given that in 2024 the lettings industry will be dealt something of a wildcard by way of a general election, likely to be in spring or autumn 2024.
Should the Conservative party win the election current letting industry-related policies, and particularly the Renters (Reform) Bill, are more likely to proceed as currently planned.
Should the Labour party win, what they might do is uncertain. Labour have expressed doubts over the current rental reform proposals. But they have suggested they will pursue a ‘Renters’ Charter’. Proposals include a four month notice period for landlords, bans on rent ‘bidding wars’ and the right for tenants to have pets. They have suggested they will ban Section 21 evictions as soon as they come into power.
It is of course possible that neither of these parties will have overall control after the next general election.
Summary – 2024 will be pivotal but very uncertain
A good summary of what 2024 will bring for those in the lettings industry is that it is shaping up to be a pivotal year. For one reason or another the industry is unlikely to be the same at the end of 2024 as it is now. However, there are so many variables at play that uncertainty is very much the watchword for 2024.
Lastly, it’s important to remember that while some of the issues we have looked at, such as interest rates, affect the market nationally others like prices and rents vary regionally. And when it comes to legislation there are differences across the nations of the UK. In particular lettings-related laws in Scotland are becoming increasingly divergent from those in England.
