The implementation of selective licencing schemes for rental properties could increase the risk of landlords exiting the PRS due to higher costs, several industry experts have claimed.
The statements were made in response to several new and proposed licensing schemes introduced in different areas of the UK, including Peterborough and Manchester.
In December 2023, Manchester City Council announced its proposal to expand its selective licensing schemes to nine more areas across six wards, in a bid to further improve standards in the PRS.
According to a report carried out by the council on the impact of previous licensing schemes — which ended in January 2023 in Moss Side and Rusholme, and April last year in Old Moat and Moston — 10% of the properties inspected were found to be non-compliant and 65% were found to have lower category hazards.
In total, 54 serious hazards were discovered, including fire safety issues, excessive cold or fall risks associated with stairs or steps.
An additional 1,342 other hazards were identified, including damp and mould, fire safety, and electrical issues.
As a result, 93 enforcement notices were issued to landlords, and 971 enforcement actions were served for environmental issues.
Overall, more than £86,000 of fines were handed out by the Manchester City Council under these selective licensing schemes.
“We have made a commitment through our housing strategy to continue to improve the safety, quality and management standards of PRS homes in our city and licensing is proving an effective tool to address property conditions in some of the more challenging areas of our city,” said cllr Gavin White, Manchester City Council’s executive member for housing and development.
“The results from our previous schemes show that selective licensing does improve properties and it does hold landlords to account — requiring them to undertake necessary work in homes to ensure the safety of residents.”
When asked for their opinion on the impact of selective licensing on the PRS, most industry experts interviewed by BTL Insider claimed that these schemes place additional cost burdens on landlords, which could be passed on to tenants, or could drive property investors to leave the PRS entirely.
“With the rise in mortgage rates alongside increases in prices, some landlords are having no choice but to exit the PRS — adding an extra licensing costs would exacerbate this, therefore reducing the housing available for those that cannot afford to buy,” said Allison Thompson, national lettings managing director at Leaders Romans Group.
John Phillips, CEO at Spicerhaart and Just Mortgages, agreed, adding that across the firms’ nationwide network, brokers are reporting a growing number of landlords looking to skim portfolios due to higher running costs.
“Selective licensing schemes are clearly a divisive issue — while local councils introduce these in an effort to raise standards, landlords argue that it adds further administration and cost, which ultimately gets passed on to tenants.
“A common thread [of selective licensing] is the additional red tape and costs, on top of already higher operating expenses, which forces landlords to increase rents [thus putting] additional pressure on tenants in a cost of living crisis.
“Landlords then halt any expansion plans – particularly in licensed areas, with some even going as far as disposing of properties.
“Rather than focusing on those that operate below the necessary standard, local councils run the risk of tarring all landlords with the same brush and only exacerbating the issues facing the PRS,” he added.
A spokesperson from NRLA claimed that while selective licensing schemes were necessary in some cases, these initiatives lack effectiveness.
“Instead of implementing more discretionary licensing, we believe that local authorities should use the extensive powers already available to them to root out criminal operators and tackle issues such as poor housing standards.”
Jonathan Samuels, CEO at Octane Capital, stated: “We wholeheartedly back any measures that improve the standard of rented accommodation. It is, however, worth noting the pressures that are increasingly placed on landlords across the UK, driving many of them out of the market — this often represents itself in higher rental costs for tenants and less available properties.
“The cost, timescales and requirements of obtaining a selective licence may further deter landlords, especially those with smaller portfolios.”
He argued that any initiatives that raise the quality of rental housing should also consider the impact they may have on the cost of rent, optionality and whether further support is needed for landlords alongside the new measures.
Paresh Raja, CEO at MFS, said that while the sector shouldn’t fear further licensing and standards proliferating across the country, any such reforms ought to be applied in the right way.
“In the current economic climate, it can be hard for landlords to adapt their properties or portfolios at pace. Therefore, any proposals aimed at raising standards must be brought in with due process and consultation, ensuring landlords are given fair warning, particularly if they need to invest in their properties to comply.
“Point scoring for the shortcomings of the few won’t improve standards any quicker, and further regulation should target rogue landlords without creating further challenges for responsible ones — the overwhelming majority of landlords are doing the right thing, so it’s equally important we don’t paint all landlords with the same brush for the actions of a very small minority.”
