New housing policies affecting the private rented sector in the UK have been widely welcomed regarding longer tenancies and clamping down on rogue landlords.
But landlords and the industry are warning that they still face tough challenges ahead relating to tax and letting fees and rents could rise at a time when the new Housing White Paper wants more affordable homes to be available to rent.
The document says that there should be more family friendly tenancies so that people don’t have to worry about moving home frequently as the Government believes that those renting a home should feel as secure as those who buy a home.
‘As access to ownership has become more challenging, increasing numbers of families with children are making their home in the private rented sector,’ the paper says. It points out that the proportion of households in the private rented sector with dependent children has increased from 29% in 2003/2004 to 37% in 2014/2015.
‘The predominant use of six and 12 month contracts can mean that families who are renting need to move home before they had planned to, which can mean children moving school, alongside the uncertainty and costs associated with taking on a new rental property. We are therefore keen to see more family friendly tenancies in new build private rented sector schemes,’ it says.
There will now be a consultation on a range of measures to support more Build to Rent developments which are the likely kind of properties where super three year tenancies could be offered.
The plan is to work with the National Housing Federation and the British Property Federation to encourage longer term tenancies in private rental homes delivered by housing associations and institutional investors.
‘We will be speaking to the Local Government Association about local authorities’ appetite to do the same, where they are delivering market private rented housing through local housing companies. Further to this we will consider what more we can do to support families already renting privately, while encouraging continued investment in the sector,’ the paper added.
The paper also pledges to improve the private rented sector by improving standards and safety as well as more transparent and crackdown on rogue landlords and letting agents. ‘Where housing shortages are most acute, it is creating opportunities for exploitation and abuse, unreasonable letting agents’ fees, unfair terms in leases, and landlords letting out dangerous, overcrowded properties,’ it says.
New measures will be introduced in the Housing and Planning Act 2016 which will introduce banning orders to remove the worst landlords or agents from operating, and enable local councils to issue fines as well as prosecute
But not everyone wants three year tenancies and there should be flexibility, according to the Association of Residential Letting Agents (ARLA). ‘We welcome any attempt to improve stability in the housing market and it is important that tenants feel that they are secure in their homes and are able to plan for the future,’ said managing director David Cox.
‘We welcome the Government’s approach to this, and have been working closely with the Department of Communities and Local Government on proposals for incentivising longer term tenancies,’ he explained.
‘After all, it is in the best interests of landlords, tenants and agents to have long, well maintained tenancies. It is a fallacy that a regular churn of tenants benefits anyone,’ he added.
Steve Bolton, founder of Platinum Property Partners, believes that more can be done to make longer tenancies more common. ‘Long term tenancies benefit both renters, who have greater security and peace of mind, and investors, who can manage their portfolio more successfully knowing they are less likely to face void periods,’ he said.
But not everyone is convinced that longer tenancies are what people want. ‘Whilst more homes being built specifically to rent certainly come as good news for many across the country, the suggestion of longer term tenancy agreements are definitely a concern,’ said Sarah Bush, director of Cheffins.
‘Despite that these are intended to give renters more security, they will in fact be unnecessary and unpopular with many sectors of the market. In transient marketplaces such as Cambridge or London, tenants are not looking to be tied into one property for more than six or 12 months, mainly due to work commitments or plans to buy property. Longer tenancies are not actually what all renters want and flexibility continues to be key in many of our markets,’ she pointed out.
‘We don’t know how or where these longer term tenancies will actually be enforced and the Government needs to take into account how different UK cities and towns actually work. With a market which is predominantly jobs driven, Cambridge tenants will not benefit from tenancies which enforce long periods in the same location and this needs to be taken into consideration when or if these new policies are rolled out,’ she added.
There was also a feeling that private landlords are not appreciated for the role they have in the housing market and disappointment that there is no indication that arguments to reduce the tax burden have been listened to.
Many have pointed out that the extra 3% stamp duty introduced for additional homes last year and changes to mortgage tax relief for buy to let landlords being introduced this April as well as a proposed ban on letting agents fees are driving up rents at a time when affordability is a major issue.
‘Many people won’t be able to, or indeed don’t have the desire to, buy a home for some time, so ensuring we have a fair and affordable rental market is crucial, not least because excessive rents only delay the eventual step onto the property ladder,’ said Steve Bolton, of Platinum Property Partners.
‘Improving property supply, both in the home owner and rental market, is key if we are to slow rising house prices and rents. Yet, while the Government commits to increasing the availability of homes in this paper, buy to let tax changes due to come into effect in a matter of months threaten to seriously derail investment in the rental sector,’ he pointed out.
‘The proposed tax changes will hit private landlords’ profitability and inevitably cause some to leave the market altogether, restricting the number of rental homes available. How can the Government say they are committed to improving home ownership and reducing rents while simultaneously introducing a tax that will only result in higher rental costs, and therefore making it harder for people to save for a deposit,’ he added.
He also pointed out that the White Paper states that 65% of private tenants are happy with their tenure now compared to 48% in 2004/2005 yet landlords often feel they are being punished for providing what is an essential service.
‘If the Government truly wants to improve homeownership levels, and make renting more affordable for all, they need to abolish this ludicrous tax change sooner rather than later,’ he concluded.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA) accused the Government of being inconsistent. ‘On the one hand they claim to be supporting renters by backing institutional investment, promoting longer tenancies and improved conditions, while on the other they are making changes to buy to let regulation which will put a squeeze on landlord costs and investment appetite. Indeed there was little in the White Paper that made substantial property investment more attractive or affordable, which in turn might support more affordable rents,’ he said.
Shaun Church, director at Private Finance, also believes that the tax situation for landlords needs a re-think as does the stamp duty charges. ‘The Government needs to ensure that property investment remains an attractive and viable proposition for landlords. The direction of policy in the last 18 months has made it more difficult for landlords to support their existing portfolios, which could be a major stumbling block to the delivery of high quality rental accommodation at affordable prices,’ he said.
Landlords costs have a big impact on the rent they charge and this is not being taken into account, according to Steve Olejnik, chief operating officer of Mortgages for Business. ‘More needs to be done to help private renters certainly but I doubt that banning letting fees or extending the length of tenancies alone will help private landlords turn a profit and provide the best possible service at rents people can afford,’ he said.
‘Ultimately, landlords’ costs have a huge impact on their tenants’ rents, and policymakers must therefore ensure that property investment remains an attractive proposition to all landlords, and not just institutional investors. The regulatory environment has become more challenging for private landlords over the past year, and supporting them should be on policymakers’ radar,’ he added.
And Patrick Littlemore, director of lettings at Marsh & Parsons, pointed out that while extra protections and safeguards are welcome news for renters, especially those who’ve experienced dishonest landlords, it is important to note this works both ways.
‘Legitimate landlords must also have protection against rogue tenants, retaining the right to lawfully evict and any restrictions on this could spell disaster. Three year family tenancy agreements are a good move to provide greater security and stability for renters that want it, so long as the tenant abides by the Housing Act,’ he explained.
‘The Government should make sure that measures announced do not dent enthusiasm in the private rental sector among landlords. The buy to let sector took a substantial hit with the increase of stamp duty in April last year and additional burdens could make this unattractive, reducing investment and the supply of stock in the much needed private rental sector,’ he added.
‘Greater stock levels are required to meet the ever-growing demand we’re witnessing and discouraging investment would have huge ramifications for the many young professionals that rely on renting. Renting gets a bad name but in reality, many appreciate the flexibility, freedom and choice that comes with it,’ he concluded.
