The Renters’ Rights Act is set to trigger a fundamental shift in how lenders assess risk in the buy-to-let sector, as changes to tenancy structures and rent controls impact income predictability.
Lenders are expected to face increased uncertainty around landlord cashflows, particularly as the move to open-ended tenancies and restrictions on rent increases reduce visibility over future rental income.
The changes come at a time when affordability modelling remains relatively static across much of the market, with many firms reviewing cost and void assumptions only once a year.
This approach risks falling behind the pace of regulatory change and growing volatility within the private rented sector.
COMPLEX EVICTION PROCESSES
At the same time, longer possession timelines and more complex eviction processes are likely to increase loss expectations, placing additional pressure on pricing, provisioning and collections strategies.
Katerina Sellountou (main picture, inset), managing consultant at 4most, said: “The Renters’ Rights Act introduces a structural shift in how lenders assess buy-to-let risk. Much of the focus so far has been on tenant protections, but for lenders the more immediate challenge is income uncertainty around their borrowers in the landlord community.
“Moving to open-ended tenancies and limiting rent increases reduces the predictability of cashflows, which sits at the core of affordability models.”
DYNAMIC MODELLING
She added: “In practice, many lenders still only review cost and void assumptions annually, which risks lagging behind the pace of regulatory change. As volatility increases, there is a stronger case for more dynamic modelling, with conservative assumptions on void periods, maintenance costs and rental growth.
“Longer and more complex possession processes will also feed through into impairment models, extending recovery timelines and increasing loss expectations. This has implications for pricing, as well as customer care and collections management and provisioning strategies.
“Over time, the market is likely to favour more professional landlords with the scale and capital to absorb income shocks. Lenders that adapt early in how they assess affordability and risk will be better placed to navigate that shift.”
