Why lenders should be paying attention to the Renters' Rights Act

Purporting to deliver on its manifesto commitment to transform the experience of private renting, the Government implemented the principal tenancy reforms under Renters’ Rights Act on 1 May 2026. This Act introduces an additional regulatory burden which significantly alters the commercial balance between the landlord and the tenant, with consequences which lenders to residential real estate schemes need to be aware of. This article summarises three key changes brought by the Act, identifies the issues arising from a lender’s perspective and suggests practical mitigating steps.

End of “no fault evictions”

Perhaps the best known element of the Act is the conversion of all existing assured shorthold tenancies into periodic tenancies terminable by two months’ written notice by the tenant. No longer can a landlord serve a section 21 notice (Housing Act 1988) following the expiry of the initial fixed term, as was possible under the previous assured shorthold tenancy regime. Delivery of a section 21 notice entitled a landlord to remove a tenant without having to prove a specific fault. A section 21 notice could also be used where a tenant was in arrears because it avoided the requirement to establish one or more statutory grounds under Ground 8 of the Housing Act 1988.

Revised timescales

As a result of the implementation of the Act, the only option available for a landlord wishing to evict a tenant is now to rely on the statutory possession grounds set out in section 8 of the Housing Act 1988 under which notice periods for termination have been extended. For example, the notice applicable to the monthly rent arrears grounds has increased from two weeks to four weeks, while the notice period for the sale by mortgagee ground, which is particularly important for lenders, has increased from two months to four months. In addition, the threshold for eviction has also been extended from two to three months’ arrears.

Restrictions on rent increases

Another important consideration for real estate scheme lenders is the landlord’s ability to increase rent. Previously rent review clauses could be used to determine the frequency and amount of rent increases. This practice has now been abolished. Instead, landlords intending to increase rent must rely on the section 13 Housing Act 1988 procedure which requires two months’ notice, is limited to once per annum and capped at the open market rate. Tenants are also entitled to challenge increases at the First-tier Tribunal if the tenant considers that the proposed rent exceeds the market rate, which may be used as a means to further delay the increase.

Implications for lenders

The changes outlined above have generally increased risk for lenders to residential real estate schemes in that:

The removal of no fault evictions and the extended timescales for termination mean that it is now more time-consuming for landlords to evict tenants who are in default on their rental payments. This in turn increases the likelihood that a greater percentage of the tenants of a scheme will be in arrears.
The abolition of contractual rent reviews mean that lenders can no longer, at the outset of a financing, be assured of specific levels of rent increase which reduces the ability to create financing structures on the basis of assumptions of future material rent increases.

We suggest that the result of the above is that lenders may need to be more conservative in forecasting the amount of rental income a scheme will generate to service its interest payments, as a result of decreased rent collection rates, reduced future rent payments and greater enforcement costs. In the absence of countervailing economic factors this may result in fewer residential schemes satisfying lenders’ credit criteria, and therefore being viable for financing.

Practical steps

Given the macroeconomic impact of the factors discussed in this article there are unfortunately limited ways in which a lender can mitigate the increased financial risk caused by this on a deal-by-deal basis. Practical steps can however be taken at a strategic level including:

1. More intensive monitoring of rent collection rates, rent arrears rates and tenant default rates at a portfolio level in order to detect whether the Act is having an impact and resetting these rates in respect of future modelling assumptions.
2. More selective lending to landlords with strong, established portfolios and lower loan-to-value ratios to align with the increased risk.
3. Applying more conservative rental-growth, arrears and void assumptions in portfolio cash-flow models.

The Renters’ Rights Act creates new considerations for lenders financing residential real estate, making it increasingly important to understand how the reforms could affect individual transactions and wider lending strategies. Blake Morgan’s Banking and Finance and Real Estate teams can help lenders navigate these changes, assess their legal implications and identify practical ways to manage risk across their residential lending portfolios.