Roma Finance has predicted that landlords with fewer than five properties will disappear as the cost of managing their properties and keeping up with ever-changing legislation will prove to be prohibitive.
It also thought that, while there won’t be less properties available to rent, extra administration costs could ultimately increase the rents charged to tenants.
Two areas of concern are the EPC ratings which came into force April 1 and the HMO regulations which will come into force on 1 October.
Scott Marshall, managing director of Roma Finance, said: “Clearly a barrage of regulation and legislation is moulding a new breed of landlords.
“The days of the hobbyist landlord are numbered as the upkeep and management of rental properties becomes more onerous.
“The private rental sector is due for another shake up in 2018, and beyond, and only the larger players will be able to cope, as they can benefit from their scale of operation.
“With the HMO rules coming into force in October, maybe more affordable housing is needed more than ever as an alternative.”
Marshall added: “However, as a lender we’re still experiencing a high level of finance demand for rental property, and in the wider market there are many product updates being introduced as lenders seek to adjust criteria to keep pace with a changing market.
“But it seems clear that the future will be driven by professional landlords rather than the armchair investors of the past.”
The HMO regulations means the number of storeys will be removed from the definition and minimum room sizes come into force.
Those landlords with one or two storey HMOs will be subject to mandatory licencing requirements by their local council. It is estimated that in the UK this will affect an extra 177,000 properties.
Roma expected that there will be some casualties in terms of compliance with the new HMO rules and there are likely to be a period of adjustment in the shared facilities housing sector, for example in London some landlords are moving into Airbnb letting instead.
The EPC ratings which came into force on 1 April mean that rental properties need to be rated as E or above, those rated F and G can’t be let to new tenants or have tenancies extended.
This provides bridging lenders with a new opportunity to back professional landlords to acquire ‘un-rentable’ properties with a view to improving their EPC rating, which in turn will make them eligible for longer term buy-to-let mortgages.
With the new legislation on room sizes and EPC efficiencies, there is also the argument that once the market has settled, the benefits to tenants will be seen, as ultimately the aim of the legislation is to drive up the quality of rental stock for tenants.
From a lending perspective, there will be new product types to cope, more individual considerations on portfolios, with more lenders opting for unique or tailored rates and criteria for each transaction.
There are big opportunities for innovative lenders willing to look at how they can provide funding for more complex cases and update their underwriting requirements to take the new legislation requirements into account, while at the same time maintain service standards.