The Renters’ Rights Act 2025 (the “Act”) received Royal Assent on 27 October 2025 and represents the most significant change to the private rented sector in England for nearly 40 years. Phase 1 of the Act came into force on 1 May 2026, with further phases expected from late 2026 onwards. The Act delivers on Labour’s manifesto commitment to reform the private rented sector and has wide-ranging implications not only for landlords and tenants but also for lenders with exposure to residential property. In this update we consider the key provisions of the Act and their impact on lenders, and the practical issues arising on both new and existing loans.
Key reforms
The Act fundamentally reshapes the regulatory framework for assured tenancies in England. The vast majority of tenancies in the private rented sector were formerly let on assured shorthold tenancies (“ASTs”) which have now converted to assured periodic tenancies (“APTs”). The key reforms include:
- Abolition of Section 21 ‘no fault eviction’ notices and the strengthening and rebalancing of possession grounds – all possession now grounds-based only under section 8 of the Housing Act 1988;
- End of fixed term tenancies and conversion of all ASTs to APTs, meaning tenants can leave on two months’ notice at any time and landlords can no longer rely on fixed terms;
- Removal of contractual rent review clauses, with rent increases limited to once per year in accordance with the statutory procedure set out in section 13 of the Housing Act 1988 - in addition, increases can be challenged by tenants;
- Prohibition on landlords demanding multiple months’ rent in advance and the ending of rental bidding practices, alongside stronger anti-discrimination provisions;
- Strengthening of local authority enforcement powers, including new fines and extended rent repayment orders;
- Introduction of a PRS Database and PRS Landlord Ombudsman (expected from late 2026), and the future application of the Decent Homes Standard and Awaab’s law to the private rented sector.
Who does it apply to?
The Act applies to assured tenancies in England – the vast majority of residential lettings in the private rented sector. Tenancies which cannot be assured tenancies and are not affected include tenancies for no rent, tenancies where the rent exceeds £100,000 per year, holiday lettings and tenancies granted to companies.
Licences to occupy are not assured tenancies and so are outside of the Act, although the court will look at substance over form when assessing whether an arrangement is a genuine licence. If in doubt, caution should be taken given the consequences of getting it wrong.
What about students?
University lettings are outside of the Act but private lettings to students are affected by the Act.
New tenancies granted by purpose built student accommodation (“PBSA”) providers are not affected from 1 May 2026 onwards, provided that the provider satisfies the new statutory exemption requiring, among other things, membership of the ANUK/Unipol code.
However, historic ASTs granted by PBSA providers before 1 May 2026 converted to assured periodic tenancies on that date and will be within the Act, meaning that there is a transitionary period affecting PBSA providers where students may terminate on two months’ notice and fixed terms no longer apply.
Impact on lenders
The Act raises a number of significant concerns for lenders with exposure to residential property.
- Possession uncertainty and delays – all possession routes now require evidence and a court process. Most grounds for possession are subject to minimum notice periods and for some there is a 12-month moratoria at the start of a tenancy.
For lenders, this means enforcement strategies are less predictable, timelines to recover security are longer and costs may be higher if possession is disputed by the tenant.
- Income stability – tenancies are now open-ended periodic tenancies with no contractual end date and no fixed terms. Tenants can leave on two months’ notice at any time, and landlords cannot “wait out” a fixed term for the tenant to leave. Contractual rent review clauses are void, with rent increases limited to once per year and being subject to tenant challenge. The Tribunal has no power to backdate a rent increase, even if they side with the landlord.
For lenders, there remains uncertainty as to whether the net result will be overall longer periods of occupation (given there are no fixed end dates) or shorter periods (given tenants can terminate on two months’ notice, potentially leading to longer void periods). This makes cashflow forecasting more difficult and potentially makes income less stable. Rent projections may need to be more conservative.
- Regulatory compliance – the Act introduces heightened compliance obligations for landlords. When the relevant provisions take effect, borrowers will need to ensure compliance with mandatory PRS database registration, compulsory PRS Ombudsman membership and the Decent Homes Standard and Awaab’s law. Fines and enforcement action apply for non-compliance.
For lenders, non-compliant borrowers may be unable to let their properties lawfully, letting restrictions or penalties may impair the borrower’s income and ability to service the debt, and compliance failures by the borrower can frustrate possession claims by the lender.
Loan documentation
As yet, we are not seeing lenders undertake a wholesale review of existing loan books, and we would not expect lenders to call a default solely because a borrower is non-compliant with undertakings or representations in the loan agreement as a result of the changes made by the Act. However, lenders should update their standard form loan agreements to reflect the new regime, and new loans in the private residential sector will need to account for the Act’s provisions. We are seeing that, where existing loans are being amended for other reasons (for example, a term extension), lenders and borrowers are taking the opportunity to amend provisions that are inconsistent with the Act. We are also seeing borrowers updating their template forms of tenancy agreement and requesting lender agreement to use the updated form going forward.
Conclusion
The Act fundamentally reshapes the private residential sector and the impact for lenders is significant: possession will be slower and requires a court process, and the rules around rent and the tenant’s ability to end the tenancy on short notice will make cashflow less predictable. There remain a number of uncertainties in the sector, including the approach to secondary legislation and court interpretations, the impact on financial forecasting and the extent to which enforcement and avoidance attempts will be addressed. We will continue to monitor developments as the remaining phases of the Act come into force and market practice evolves.
For further information, please see our series of legal updates on the Act here, here and here.
