Investing in Residential Property

The Market:

At the start of the 20^th Century, nearly 90% of the population lived in rented accommodation. By 1987, this figure had dropped to around 7%, partly as a result of shortage of accommodation brought about by two World wars, but mainly due to tenant protection legislation in the form of Rent Acts, which froze rents and gave the tenant security of tenure. Combined with high inflation, which diminished value of rent, tax incentives given to those who wished to purchase their own property and the ‘right to buy’, the private rented sector continued to retract and letting was viewed as a poor investment.

With owner occupation levelling off at 65%, but 40,000 new homes required each year, demand for rented property in the private sector has increased. Instability in employment with more short-term contracts, student loans and tuition fees having to be re-paid prior to house purchase, fewer ‘right to buy’ sales to existing council tenants, and landlords exiting the market due to introduction of the Renters’ Rights Act 2025 has contributed to this demand.

The Housing Acts:

The Housing Act of 1980 gave tenants in the public sector the right to buy but introduced the concept of private landlords being able to regain possession at the end of short-term leases through the protected shorthold tenancy and the assured tenancy. Landlords of newly built homes would be unfettered by the Rent Acts in relation to rent, provided they contracted to adhere to strict conditions. Neither scheme was successful.

The 1988 Housing Act brought about incentives for private landlords to let, free of Rent Act restraints as to a ‘fair rent’. The ‘assured shorthold’ was born, allowing a ‘market rent’, subject to one appeal to the rent assessment committee (now first-tier tribunal in England) during the first six months of the tenancy and annual review, together with security for the landlord by having the right to obtain possession of their property. This allowed residential letting to be considered as a worthwhile investment.

Successive Government have brought in subsequent measures, including tax changes and most recently the Renters’ Rights Act 2025 which have substantially reduced the powers and rights of the private landlord including the abolition of the assured shorthold tenancy.  This has removed the landlord’s right to get a property back under the so-called ‘section 21’ no fault eviction route, and added stringent penalties which apply to landlords, even for minor infringements.  Some landlords have left the sector as a result, but this may open up opportunities for new landlords to enter the market.