The tenant fees ban which came into force in England a month ago could prove to be a headache for landlords for the next two to three years, it is claimed while a new analysis suggests that tenant applications are being rejected.
Not good news you might think. The ban was well publicised and a similar situation has been in place in Scotland for some time, so it may be a surprise that the latest research from agents Chestertons has found that a large number of landlords are likely to still be in the dark.
In particular it is the issue of the legislation looking back as well as forward. This means that sections referring to extra costs on agreements drawn up before 01 June 2019 may not be binding when it comes to a tenant moving out of a property, or once the tenancy renews.
It appears that many landlords are unaware that if a tenant moves out after 31 May 2020 costs cannot be charged to the tenant, even if these were written in to a tenancy agreement so they could be in for a shock next June when services, such as an end of tenancy professional clean, cannot be charged to the tenant despite a clause in the contract.
Meanwhile an analysis of rental figures from HomeLet by online letting agent MakeUrMove has found that landlords and letting agents have seen 67% of tenant applications rejected since the ban came into force.
These unsuitable applications could include tenants applying for a property they cannot afford, or not disclosing the possession of a CCJ or previous history of bankruptcy. As a result, landlords now face the prospect of two unsuccessful applications on average for every successful one, resulting in an increase in the length of time it takes to fill a property, according to the firm. It says that this could lead to landlords having to increase rents in order to cover the cost of properties sitting empty for long.
But let’s not assume that the lettings fee ban is having an impact on a broad scale. We can look to Scotland where a ban on fees has not had a severe impact. Indeed, the private rented sector North of the border is doing better than in the rest of the country. Rents in Scotland increased by 1.7% in the year to May 2019 with four out of five regions recording growth, according to new figures from Your Move.
Landlords in Scotland are also seeing strong returns with average yields of 4.7%, higher than most of England. Your Move figures show that only the North East of England at 5% and the North West at 4.8% are higher.
The index also shows that rents in England and Wales increased by 0.2% in the 12 months to May 2019, much lower than the average on Scotland with some locations, such as the East of England on a slowdown with rents falling by 2% year on year. The West Midlands recorded the biggest rent rise at 4.1%, followed by the South West at 2.8% and the North West at 2.4%.
So parts of England do have a strong lettings market. So it is no surprise that new figures from UK Finance show that the mortgage industry is doing well in the North, the same places where the rental market is doing well. There has been a steady growth in home movers across the region, in contrast to overall decline across UK and attractive rental yields in Northern Powerhouse cities has driven a growth in buy to let lending, again bucking the national trend.
The figures from UK Finance also shows that overall, the North of England saw greater growth in first time buyers than anywhere else in England outside the Midlands and its analysis report says that this reflects better affordability in regions of the North, with average deposits and income multiples lower than elsewhere in England, particularly London and other English cities.
The Northern Powerhouse cities of Newcastle, Liverpool and Hull all saw strong growth in buy to let lending, bucking the national trend and the industry body says that this has been driven by lower house prices coupled with a healthy labour market and strong rental demand, meaning that landlords can achieve higher yields than the UK average. Hull saw particularly strong growth of 12.8% in buy to let lending, along with a steady increase in first time buyers and home movers.
Whatever happens with landlords and the letting fees ban in England, it is certainly not clear that the legislation is having a blanket effect. Good, business-like landlords will know what is what and if they are in certain regions of the country they will be part of a re-generated lettings sector. Depending on location buy to let is providing good yields and is likely to continue doing so. Even in London the lettings market is showing signs of improvement to add to the buoyancy in places like the Northern Powerhouse cities and Scotland.
Ray Clancy
Editor Property Wire
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