The Renters’ Rights Act 2025 (“RRA25”) is widely being discussed as a tenant-focused reform.
For lenders, however, it should be viewed differently.
At its core, this is a structural shift in enforcement, recoverability and risk across residential-backed lending. From 1 May 2026, the removal of Section 21 and the move to periodic tenancies will materially change how quickly and how predictably lenders can recover value from residential security.
For those with exposure to buy-to-let portfolios, residential investment property or mixed-use lending secured on residential assets, this is not simply a regulatory development. It is a credit issue.
A Shift in Control Over Possession
At the centre of the changes is the abolition of Section 21 “no-fault” evictions. In its place, landlords and by extension lenders must rely on Section 8 grounds. These require a higher evidential burden, involve longer notice periods and are more likely to be contested.
While Ground 2 (mortgagee repossession) remains available, it now sits within a more complex and adversarial framework and requires four months’ notice. The overall effect is a loss of control over timing, introducing greater uncertainty into enforcement strategies.
Longer and Less Certain Enforcement Timelines
Even before these reforms, delays within the court system were already a challenge. Contested possession claims can take many months, and in some cases years, particularly in high-volume courts. The changes introduced by RRA25 are likely to exacerbate this, with greater reliance on contested grounds, increased tenant engagement and additional procedural requirements.
For lenders, this has direct consequences. Time to vacant possession is likely to extend, asset sales may be delayed, and holding costs will increase. Most importantly, recovery modelling becomes less certain.
The Transitional Window: A Hidden Risk
There is also a more immediate risk that should not be overlooked. Section 21 notices served before 1 May 2026 can still be enforced but only if proceedings are issued by 31 July 2026, and only where notices are fully compliant.
In practice, many advisers are already encouraging landlords to act early, given the risk that procedural defects could invalidate claims entirely. However, given typical landlord behaviour, it is likely that some borrowers will miss this deadline or fail to meet the required standards.
For lenders, this creates a short-term but material exposure. Borrowers who do not act in time may lose enforcement options altogether, leaving lenders with slower and more limited recovery routes. This “window risk” is unlikely to be fully reflected in current portfolio assessments.
Recovery Assumptions Under Pressure
More broadly, the changes introduced by RRA25 mean that traditional recovery assumptions may need to be revisited. Slower possession processes, combined with enhanced tenant protections and a greater likelihood of disputes, are likely to extend timelines and reduce net recoveries through increased cost and complexity.
In addition, the income profile of residential assets is becoming less predictable. Tenants now have the ability to challenge rent levels and tenancy terms from the outset via Tribunal, introducing a more contested and potentially adversarial dynamic.
This is likely to increase dispute frequency, delay rent adjustments and create greater variability in income streams. For leveraged borrowers, even relatively modest disruption can impact Debt Service Coverage Ratio (DSCR) compliance and accelerate financial stress.
Compliance Risk and Operational Dependencies
Overlaying this is an additional layer of compliance risk. The introduction of the Private Rented Sector (PRS) Database creates a new point of failure within the enforcement process. Properties must be registered before they can be marketed or repossessed, and courts may refuse possession orders where registration is incomplete.
In practical terms, this means that a technical compliance failure could prevent enforcement entirely, regardless of the underlying borrower default. For lenders, this introduces a new operational dependency that must be considered as part of any recovery strategy.
Asset Quality and Value Divergence
Looking further ahead, asset quality will play an increasingly important role in determining value. The introduction of the Decent Homes Standard and EPC requirements (minimum C by 2030) will drive higher capital expenditure requirements and create a widening gap between compliant and non-compliant stock.
This divergence is likely to affect valuation robustness, exit pricing and buyer demand, particularly in enforcement scenarios where timing and certainty are already under pressure.
A Changing Landlord Landscape
During this period, broader market behaviour is also likely to shift. When combined with tax changes from April 2027, which are expected to reduce net yields, the overall impact of regulation, taxation and administrative burden is likely to place increasing pressure on landlords.
This may lead to portfolio rationalisation, increased disposals and reduced ability to absorb financial shocks. In turn, this creates a growing cohort of “reluctant sellers” landlords exiting under pressure rather than as part of a planned strategy.
Where Risk Is Concentrated
Importantly, not all residential exposure will be affected equally. Higher-risk areas are likely to include highly leveraged portfolios, older or non-compliant housing stock, landlords with multiple properties facing cumulative regulatory and tax pressure, and borrowers who are heavily reliant on consistent rental income to service debt.
For lenders, the ability to identify and segment these exposures early will be critical.
Implications for Lenders
In this environment, a more proactive approach is likely to be required. Earlier engagement with borrowers, reassessment of recovery timelines and a greater focus on operational and compliance risks will all form part of an effective strategy. Portfolio segmentation will also become increasingly important as the impact of these changes is unlikely to be uniform.
How Moorfields Is Supporting Lenders
At Moorfields, we are already supporting lenders in navigating this evolving landscape. This includes assessing exposure across residential-backed portfolios, advising on early-stage borrower stress, developing enforcement and recovery strategies, and executing accelerated asset realisations where required.
Our focus is on helping lenders protect value in a market where both timing and certainty are becoming more difficult to achieve.
Author: Michelle Sanchez
