The Law That Protects Tenants by Excluding Them

The Renters Right Reform Bill is upon us. As a lender one of the key aspects looks like the level of liquidity required to manage arrears. The insurance world may well be an answer for some. However strict underwriting may well exclude those tenants they intend to protect. Building in arrears projections and testing liquidity may become part of the underwriting process. Close attention will also be made to arrears on a monthly basis as the landlord cannot now manage the timeframe the property will start earning income again. Larger portfolios can withstand calls on liquidity.

The Core Shift

The Renters’ Rights Act 2025 (taking effect 1 May 2026) does not eliminate transactional risk; it shifts it. Section 21 “no-fault” evictions are abolished, mandatory non-payment rent arrears thresholds rise from 2 to 3 months, and county court timelines remain heavily backlogged. While the legal layer shifts protection toward the tenant, the financial risk multiplies for the landlord.

The Financial Exposure. The median possession timeline stands at ~27 weeks from the day rent payments stop to the day a landlord legally regains an asset. On a standard £1,750/month letting, this exposes the landlord to a £12k–£17k unsecured loss event.

Adaptive Response 1: The Liquidity Capital Buffer

To survive a single non-performing tenancy, professional landlords must now hold £10k–£20k in idle cash buffers per property.

• Small Portfolio Impact: Across a modest 5-property portfolio, this locks up £50k–£100k in dead capital.
• The Financial Drag: Forfeiting standard market returns on this cash creates an annual drag of £400–£1k per asset. Landlords require an immediate 2–5% rent uplift just to recover the opportunity cost of holding this liquidity buffer. Consequently, holding high capital buffers forces near-perfect tenant screening; liquidity and selectivity are mathematically linked.

Adaptive Response 2: Rent Guarantee Insurance (RGI) Limitations

Transferring risk via RGI (£200–£400/year) appears to be an easy out, but it presents three structural flaws:

1. 1.Passes screening back to underwriters. RGI policies strictly require a minimum of 2.5x–3.0x income multiples, immaculate credit scores, continuous PAYE employment histories, and property-owning UK guarantors. Attempting to place a marginal or vulnerable tenant voids the policy immediately.
2. 2.Capped payouts and excess barriers. Most standard policies cap aggregate losses at £25k–£50k and impose a 1-month excess period, meaning the landlord must still maintain an independent cash buffer.
3. 3.Premium escalation. Once extended 27-week court timelines are factored into actuarial models, expected insurer losses rise, and premiums will follow. Higher-risk tenant profiles will become structurally uninsurable.

The Affordability Arithmetic

When insurer requirements shift standard qualification criteria from a 2.5x multiple to a 3.0x multiple, the affordability bar jumps significantly. On a basic £1,750/month rent:

• Pre-Act Income Standard (2.5x): £52,500/year required.
• Post-Act RGI Requirement (3.0x): £63,000/year required.

This creates a £10,500/year barrier to market entry for the tenant before any organic rent increases are implemented.

Distributional and Compounding Impacts

The Act’s stated target beneficiaries—households with children, low-income earners, and benefit claimants—are precisely the demographics facing exclusion through automated screening:

• Young Renters: Face steep barriers due to a lack of property-owning UK guarantors.
• Benefit-Supported Households: RGI underwriters routinely filter out Local Housing Allowance (LHA) income.
• Non-Standard Earners: Freelancers, contractors, and the self-employed struggle to produce the continuous PAYE history required by automated screening apps.

The Compounding Effect

Each turn of the cycle tightens the next. The narrower the eligible tenant pool, the longer the void; the longer the void, the higher the rent; the higher the rent, the narrower the pool.

1. 1.Higher rents to fund cash buffers and RGI premiums
2. 2.Higher income multiples required to qualify
3. 3.Smaller eligible tenant pool
4. 4.Longer void periods between tenancies
5. 5.Higher asking rents to recover void costs
6. 6.Repeat

Conclusion Matrix

Risk doesn’t disappear. It migrates. Each adaptive response distributes its cost differently. None of them lands evenly on the people the Act named.

The Bottom Line

Structural risk has migrated directly from the legal layer to the market-access layer. A policy designed to protect vulnerable tenants ends up rationing them out of the market entirely, because the only way landlords can survive the extended eviction liquidity profile is to refuse to accept them in the first place.