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New Tenants’ charter to have detrimental effect on landlords

Plans to introduce a Tenants’ Charter, aimed at improving standards in the rental sector and encouraging longer fixed-term tenancy agreements for families, could be counter-productive and destabilise the market instead.

The warning has been issued by Landlord Assist, the nationwide referencing, rent collection and tenant eviction firm, which says the introduction of a Tenants’ Charter announced by the Communities Secretary Eric Pickles MP will work against landlords in many areas and potentially force rents beyond record levels and result in a reduction of quality accommodation.

The idea behind the new measures is to enable tenants to request longer tenancies in order to provide stability for families and avoid hidden fees when renting a home whilst helping to root out rogue operators in the sector.

But while agreeing that families should be afforded more stability in the rental sector, Graham Kinnear, Managing Director at Landlord Assist, is concerned that landlords face significant barriers under the proposals and will be left facing the possibility of greater rent arrears, increased costs and difficulty in obtaining possession if a tenant defaults on payments.

In many cases, Mr Kinnear says landlords will also have little alternative but to pass on the increased costs to tenants through rising rents.   He also highlights that allowing tenants to request longer tenancies will force landlords in breach of their buy-to-let mortgages as most lenders currently won’t allow borrowers to rent out their properties beyond 12 months.

Mr Kinnear says: “Most buy-to-let mortgages will only permit a six or 12 month tenancy. This is because it is much easier for banks to repossess a property if the landlord defaults on a buy-to-let loan.

“Extended tenancy agreements may impact a bank’s security, especially in the event of a property repossession and the bank wishing to sell it with vacant possession.  If lenders face greater risks then this may force them to increase the rate they charge landlords and therefore, perhaps, an increase in the rent that is charged to the tenant. This would clearly fly in the face of what the government is trying to achieve.

“Likewise, we believe it is essential that new possession rules are introduced to protect the interests of landlords before the new scheme goes ahead. In most cases it can take landlords months to enforce a repossession order and regain the keys to the property. If a landlord has granted a tenancy of several years, then in principle they could have to wait this period of time before they could get the tenant to leave.

“Should the new scheme get the go-ahead, we also expect letting agents to increase their administration fees for longer tenancies when compared to, say, six month lets. Letting agents rely on new tenancies as a continual revenue stream so inevitably they are likely to increase their charges for longer tenancy agreements. Again, landlords will have little alternative but to pass on these costs to tenants through rising rents.

“Landlords are also likely to try and predict future rent levels and include those rent increases within the agreement to ensure it remains in line with the forecast for the market. In all likelihood landlords are likely to overestimate rent increases and therefore the longer term tenancy is likely to create rent inflation which will reduce the choice and quality of accommodation available.”

Stephen Parry, Commercial Director at Landlord Assist is also concerned by the introduction of a Tenants’ Charter. He says:

“The Government says it will increase the quality of accommodation and remove rogue operators from the market but we think it will achieve neither.

“There will always be a few rogue operators in any industry and the sector has shown that quality of accommodation is always driven by demand and supply in the market at any given time.

“We accept that a landlord may enjoy reduced void times through the introduction of longer tenancies, but the cost of such comfort could mean increased mortgage payments, changes to insurance premiums and enormous letting agency fees, where the agent calculates their fee as a percentage of the term that is agreed. Such costs and uncertainty will do little to incentivise landlords to invest further in the sector at a time when the country is witnessing a housing shortage.

“We believe the Government should provide tax incentives to landlords who invest in the buy to let sector. By increasing supply, rental prices will stop rising beyond the means of tenants, whilst landlords fighting for the same tenants will lead to an increase in the quality of accommodation that is offered. As is so often the case it appears that the best solution is to leave the matter alone and let the market regulate itself.”

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