2025: The year ahead for housing
As with previous years in recent memory, 2025 promises to be an interesting year in the Social Housing sector. Here, Kevin Edwards, a partner in Sharratts’ development team, looks at some of the key matters predicted to impact sector over the coming 12 months.
Government implementing its Housing Policy/Spending Review
The Labour government has been in power for 6 months so should now be able to begin to ratchet up the implementation of its housing policy. The immediate re-implementation of mandatory local housing targets was a good start, which was further reinforced in the Labour budget by increasing the Affordable Housing Programme by £500m to £3.1bn and the commitment to a five-year rent settlement, along with the reduction in Right to Buy discounts from 21 November 2024. This acts to begin to mend the present situation, now we also need to look to the future policy direction.
An announcement on the new government housing strategy is due in the spring of 2025, which is expected to set out details of new investment to success the current 2021-2026 AHP and all eyes will be on the Spending Review in this regard to see what the government proposes. A renewed focus on social rent is expected as a result of this.
Renters’ Rights Bill
There are a number of potential changes to be aware of in 2025 stemming from the Renters Rights Bill that will affect the sector, including:
Abolition of Section 21 ‘no-fault’ evictions:
This will result in evictions being undertaken by Section 8 only, meaning landlords and agents will need to give a valid reason and justify this either in arbitration or to the court. This process carries longer notice periods and a more complex legal process and is likely to result in more failed eviction claims, longer timescales for evictions and higher costs. This is anticipated to be brought into effect in summer 2025 so Landlords need to be prepared and have processes and timescales in place to deal with evictions under s8 instead.
Proposed abolition of fixed term tenancies:
When the proposed change is enacted all tenancies – given a transition period – will become periodic and not fixed. This means Assured Shorthold Tenancies will no longer. This will give tenants greater security and flexibility. It will allow them to provide only two months’ notice to end their tenancy at any time. However, Landlords will have less certainty and will be required to give at least four months’ notice before evicting a tenant for reasons such as rent arrears, anti-social behaviour, selling the property or the landlord or family moving back in. There are also new rules for providing a “written statement” of the terms of each tenancy, so regulations prescribing terms setting out tenants’ rights, which will have to be included in tenancy agreements, should be expected as well.
Rent controls:
Formal rent controls have been ruled out by government consistently, however the Bill will introduce measures to control rent inflation by:
Banning bidding wars – rent amounts will have to be advertised in advance (though how well this can be policed remains to be seen!).
Limiting rent increases – Rent can only be increased once a year and such increases cannot be contractual so can only be undertaken via the s13 procedure of the Housing Act 1988. Landlords will now also have to provide at least two months’ notice before implementing any increase. The new rent must also align with current market rates.
Allowing Tenants greater power to challenge excessive rent increases – Tenants have the right to appeal to the First-Tier tribunal but currently it is too much of a risk for Tenants to utilise (as the award can be backdated to the date of expiry of the s13 notice and can even be higher than that proposed by the Landlord in the first place!) so it is rarely undertaken. There are changes proposed whereby:
- The Tribunal cannot award a rent higher than that originally proposed in the s13 notice;
- The new rent (once confirmed by the tribunal) will only take effect from the date of the Tribunal’s decision (i.e. NOT backdated); and
- The Tribunal will now have the power to defer the increase by up to two months where the Tenant is in financial hardship.
Of course, while the above are measures to be applauded in terms of protecting tenants, for registered providers this means the risk a change in rent (more specifically a lower rent than they expected) passes to them. The Tribunal aims to send out its written decision and reasons within 6 weeks of the hearing or written determination – there will also be a period beforehand while the hearing date is awaited. This means that a registered provider whose Tenant applies could go 2 months at a rent lower than it had planned for. On a case-by-case basis this may not be a lot, but it could have impacts if it happens on a wider scale – and could also lead to a snowball effect where more tenants see a rent increase having been challenged (especially if it is upheld). Providers will need to bear this new risk profile in mind.
Non-discrimination:
The Bill will make it an offence for landlords and agents to discriminate against those tenants’ claiming benefits or those who have children. The aim is to make sure there is equal access to housing for all applicants. This is unlikely to affect registered providers who already have a number of tenants within this group, but it is still to be borne in mind.
Request for Pets:
Tenants will be given a right to request permission to keep pets in their rented homes, not to be unreasonably refused. Landlords will only be allowed to refuse pet requests with a valid reason but will be allowed to insist on pet insurance.
Consultation on Community Benefit Societies (losing exempt status)
The Law Commission has undertaken a review of the Co-Operative and Community Benefit Societies Act 2014 and issued a consultation. The consultation closed on 10 December 2024. Among the proposals being considered are whether Community Benefit Societies (“CBS”) (which a large number of registered providers are) should lose their exempt charity status. It is hoped that the registered providers will be exempt from these changes, but that remains to be seen.
The proposals are to be retrospective so if enacted all existing CBS would be required to comply. This would, among other requirements (including more stringent restrictions on interest rates payable on investments, etc.) involve registering with the Charities Commission to retain charitable status. This would make significant changes to the requirements when disposing of assets (including intra-group) where the Charity Commission consent may need to be obtained. On a governance note, there may also be differing requirements when executing documentation in such matters.
Long-term rent settlement/rent convergence
Rent Settlement – The government closed its consultation on a new long-term rent settlement at the end of December. As part of the Autumn Budget, the government confirmed that the social rent cap would be raised by CPI plus 1% per year over the five-year period from 2026-27 to 2030-31. While higher rents support more housebuilding, the government is wary of making too high an increase as this would adversely affect tenants (and in turn would lead to a higher benefits bill for the government).
For the sector, calls have long been made for a longer-term settlement. Longer settlements offer greater security (as the future rents can be calculated and capitalised) and therefore encourage investment to the sector at a more beneficial rate therefore providing much more stability. The government response to the consultation is awaited, but many providers have argued for a longer 10-year settlement for this very reason, along with a higher level of government grant.
Rent Convergence – The term ‘Rent convergence’ will also be likely to be heard over the coming year. A number of providers (including the G15 group and the CIH itself) have argued for a rent convergence mechanism to be put in place if a longer-term settlement is not possible. Rent convergence allows rent for homes which rent falls below the national “rent standard” to be increased at a higher rate than the rent cap, so as to “catch-up” and bring them all in line. Convergence was scrapped in 2015 and the G15 estimates that some 67% of its members’ homes covered by the rent standard are below the full permitted rent and this has cost its members some £2bn in the intervening period. The argument for rent convergence is that this will alleviate some of the pain caused by the rent cap and shorter rent settlement. MHCLG recently appeared to rule out convergence in its rent settlement consultation paper, but it remains to be seen if this remains the case, and this mechanism will stay on the agenda for the sector in the short term.
Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 (“LFRA 2024”) received royal assent on 24 May 2024 and the remaining parliamentary stages of the bill were fast-tracked in the wash-up period before the 2024 general election but the provisions are yet be enacted via secondary legislation.
Key proposals are the establishment of Commonhold as the default tenure by the end of the parliament, and the abolition of new leasehold interests. The provisions for abolition of long leases are set out at paragraph 1 of the LFRA. Permitted leases are set out in Schedule 1 and include shared ownership leases and retirement leases. These provisions have yet to be brought into effect.
The Housing Minister, Matthew Pennycook, set out the proposed timescale to bring these into effect in a written statement to parliament on 21 November 2024[1]. In the second part of 2025 the government proposes to publish a new Leasehold and Commonhold Reform Bill. This will accompany a consultation on banning new leasehold flats and houses. This (along with reforms to ground rent and enfranchisement) will be awaited later this year.
Loss of First-Time Buyer relief for SDLT above £500k (5% on properties from £350k-£500k)
In September 2022, the threshold on which you don’t pay Stamp Duty Land Tax (“SDLT”) was raised to £425,000 for first time buyers – saving the average buyer some £2,500. However, as of April 2025 the 0% threshold will drop back down to £300,000. First time buyers between the thresholds of £300,001 and £500,000 will pay a slightly reduced rate of 5% and will pay the full rate on anything above £500,000. This will impact the affordability for buyers in the market and have a negative effect on sales, post-April 2025 (though it will inevitably mean the usual rush prior to April to avoid the uplift).
Merger activity?
From 2012 to the 2023 there were some 70 housing association mergers and this continued into 2024. Wreking Housing Group merged with, and because part of, the Housing Plus Group; and Grand Union and Longhurst merged to form the new provide ‘Amplius’. Bromford and Flagship have already begun the countdown to merge in 2025 and it is extremely likely that more will follow as acquisition and maintenance costs, with increased management obligations, push more small and medium associations to look to consolidate.
Another interesting year to come
The recent increased focus on housing has been welcome (as has the cessation of the revolving door of Housing Ministers!). The government will of course need time to increase housebuilding levels to anywhere near those required to achieve the ambitious targets though it has already committed to a focus on social rented affordable accommodation, and the supply side reform of planning and increases to the Affordable Housing Programme are a good step in the right direction.
The enactment of the Leasehold and Freehold Reform Act (and further Leasehold and Commonhold reform) will certainly pose challenges and providers will need to utilise their advisers to navigate these and develop new processes for dealing with evictions under s8 following the abolition of s21 evictions. However, with new housing policies, a spending review, legislation and a rent settlement conversation on the horizon, and housing experts predicting an upturn in the housing market this year, 2025 looks set to be another year of strong focus on housing, and social housing in particular, which after many years of feeling like an afterthought is really a nice position for the sector to be in!
KEVIN EDWARDS
PARTNER
[1] https://hansard.parliament.uk/commons/2024-11-21/debates/24112139000012/LeaseholdAndCommonholdReform