The Renters’ Rights Act 2025, which received Royal Assent in October 2025, heralds a significant transformation within the private rented sector (PRS) in England. The Act sets forth a series of phased reforms aimed at enhancing tenant protections, altering rent-setting practices, and modernising the regulatory framework. While the focus of much of the discussion surrounding these changes tends to centre on landlords and operators, the ramifications for lenders who finance living-sector assets are equally profound. This article delves into the key reforms that will be most pertinent to lenders in the context of the UK purpose-built student accommodation (PBSA) market.
Core Reforms Affecting the Private Rented Sector
One of the most significant alterations introduced by the Act is the abolition of assured shorthold tenancies (ASTs), which will be replaced by assured periodic tenancies (APTs). Under the new framework, rent periods will be capped at one month, and landlords will lose the ability to issue fixed-term tenancies. Instead, tenants will have the right to terminate their tenancies with just two months’ notice. This shift is expected to restructure the dynamics of rental agreements and could lead to increased tenant mobility.
Abolition of Section 21 “No-Fault” Evictions
An important reform within the Act is the abolition of Section 21 of the Housing Act 1988. This change mandates that landlords seeking to regain possession of their properties must now establish legitimate statutory grounds under the revised Section 8/Schedule 2 framework. Lenders and Law of Property Act (LPA) receivers should prepare for extended lead times in possession proceedings and will need to obtain more comprehensive tenancy information from borrowers to assess risks accurately.
Mortgagee Protection and Ground 2 Retention
Despite the significant changes, the Act retains the “Sale by mortgagee” possession ground, known as Ground 2. This provision allows lenders exercising their power of sale to seek court-sanctioned vacant possession with four months’ notice. However, it is important to note that in practice, lenders often opt to appoint LPA receivers instead of exercising their power of sale, which means Ground 2 may not always be applicable in those scenarios.
New Limitations on Rent Increases
The Renters’ Rights Act imposes restrictions on rent increases, limiting them to once per year. Landlords will be required to utilise the statutory Section 13 notice procedure for any proposed increases, which can be contested by tenants at the First-tier Tribunal. This change is likely to result in slower income growth for landlords, as the increase process becomes more cumbersome and regulated.
PRS Database and Enhanced Oversight
Another key aspect of the Act is the establishment of a mandatory national PRS database for landlords, along with a PRS ombudsman regime that possesses binding redress powers. This measure aims to bolster regulatory oversight and enhance enforcement by local authorities. For lenders, failures in borrower compliance with these new requirements could lead to delays or complications in possession processes, potential fines, or adverse impacts on asset performance.
Restrictions on Deposits and Advance Rent
The Act also introduces limitations on the ability of landlords to request or accept advance rent payments beyond specified thresholds. This policy change seeks to curtail practices that may inadvertently exclude certain tenants based on financial capacity. As a result, landlords may have to rely more heavily on affordability assessments, guarantors, and proactive credit control to mitigate risks.
Sector Lens: Purpose-Built Student Accommodation
For the purpose-built student accommodation (PBSA) sector, advance rent payments and academic-year fixed terms are critical to the operational viability of these assets. Fortunately for PBSA owners, operators, and their lenders, the primary institutional PBSA assets will be exempt from the new APT regime. Exemptions will apply to university-owned or managed accommodation, as well as to PBSA providers that adhere to government-approved codes of practice, including the UUK/GuildHE Code for educational institutions and the ANUK/Unipol Codes for private providers.
It is essential to note that exempt providers will be permitted to issue common law tenancies instead of APTs, provided that the accommodation is occupied solely or predominantly by full-time students. However, this exemption will only be applicable to new tenancies established after the Act comes into effect on 1 May 2026. As such, tenancies granted for the 2025/2026 academic year will necessitate careful management to navigate the implications of the Act effectively.
Summary for Lenders in the PBSA Sector
Institutional lenders focusing on financing PBSA schemes typically view these assets as stabilised income products. In distressed scenarios, lenders generally anticipate enforcing their rights through the appointment of receivers, whether over the property itself or the shares in the property-owning company, while maintaining operations and selling them as income-generating entities. However, the ability to obtain vacant possession remains vital for lenders to preserve enforcement options, enhance marketability, and manage non-performing tenancies. The Act complicates this process, but secured lenders can still pursue vacant possession under specific circumstances.
Beyond the implications for PRS borrowers who fail to comply with the Act, which may result in fines up to £40,000 or even criminal prosecution for serious infringements, there is also a significant reputational risk for lenders operating in this sector. Therefore, lenders cannot afford to overlook the Act’s provisions.
While some lenders may choose to address borrower compliance with the Act through direct representations, undertakings, or events of default, others might prefer to rely on standard Loan Market Association “compliance with laws” provisions. Nevertheless, it is evident that any conditions precedent or provisions that assume the existence of ASTs, fixed terms, or contractual rent reviews will require updates. Once the Act is operational, lenders will likely need to acquire evidence of PRS database registration as a condition precedent. Furthermore, we anticipate that quarterly property monitoring reports will increasingly focus on arrears, rent challenges, and possession activity.
When financing student accommodation, it is crucial to ascertain from the outset whether the units in question fall within or outside the APT regime. Given the availability of the PBSA exemption, it is likely that the identity and reputation of the PBSA operating company will become more relevant from a credit perspective, leading lenders to incorporate covenants that require adherence to government-approved codes.
Overall, the Act does not undermine the investment rationale for PRS assets; rather, it alters the operational landscape, placing a greater emphasis on compliance, process, and evidential rigour.