70% of landlords expect more legislation
- Published: Thursday 05 March, 2020
- Updated: Tuesday 05 May, 2020
- By: Nicola Eaton
Minimum tenancy terms, blanket individual licensing, tightening of HMO and multi-unit block regulation and rental caps. These are all areas landlords believe the government might further intervene, according to a survey conducted by specialist buy to let lender, Foundation Home Loans (FHL).
791 landlords were surveyed in January 2020. The research conducted by consumer insight consultancy BVA BDRC.
Of those surveyed the majority, 70%, expect more intervention from the government in the private rental sector (PRS).
Strength of feeling
The findings from the survey highlight significant volumes of landlords showing concern:
- 73% expect minimum tenancy terms to be introduced;
- 73% expect further scrutiny of Houses of Multiple Occupation (HMOs) and Multi-Unit Blocks (MUBs);
- 72% believe the government will introduce individual licensing of landlords and their properties.
A smaller proportion of those surveyed, 38%, anticipate a cap on rent for the PRS.
As we reported in mid-February, this is a subject that has been debated in Scotland. However, 54% of consultation responses, from a Bill being proposed on the matter in Scotland, were against rental caps.
January’s survey from FHL, had similar results on the subject of rental caps:
- 77% of landlords surveyed are against rental caps;
- 12% said they may be in favour of caps;
- 9% did not know how they felt on the matter;
- 2% supported rent caps.
If the government did introduce rent caps, the action landlords said they would take in response, were as follows:
- 35% would increase all rents to the maximum amount possible;
- 33% would consider selling some of their portfolio;
- 20% didn’t know what they would do;
- 19% would consider selling up all properties or would look at other methods of investment;
- 10% said they would not take any action.
The government in the eyes of the landlord
Historically, the Conservatives have been the friend of the landlord. But, at the moment, landlord’s perceptions of the government are currently mixed.
Just over a quarter of landlords, 26%, thought that the Conservative win at the December election was positive for them. 28% felt the result was negative.
The greatest cohort, 38%, did not see the Conservative win as positive or negative. Only larger portfolio landlords were likely to see the outcome as favourable.
Sentiment more positive, except on Section 21
A key area of concern is the removal of the Section 21 ‘no fault’ eviction.
No-one would support any landlord using this measure on a whim. But, clearly those who use it in genuine circumstances, do not view the prospect of having to use the court process to regain possession favourably.
It is costly, time-consuming and stressful.
83% of landlords expressed varying degrees of concern on its removal. 53% surveyed said it was a major concern.
However, this latest update does demonstrate a greater degree of optimism amongst landlords. It is the first time in over 12 months where landlord optimism experienced an uptick.
Rent controls are Khan’s re-election promise
Incumbent Mayor of London and member of the Labour Party, Sadiq Khan, is promising rent controls for the city of London, if he is re-elected.
Amongst those running against him to secure the role is Shaun Bailey, for the Conservatives, Siobhan Benita for the Liberal Democrats and Sian Berry for the Green Party.
“Referendum on rent controls”
Speaking on Twitter, Mr Khan led his campaign message with a focus on renting:
“Private renting in London needs to change and over two-thirds of Londoners support rent control.
"That’s why I’m making the Mayoral election on 7 May a referendum on rent controls.”
Whilst this is an impassioned declaration by Khan, at present he does not have the power to impose rent controls.
Khan has expressed a great degree of confidence, in his ability to secure the power to implement his proposed change to rents in the capital, saying:
“The prime minister will have to give us the powers we need, because if he refuses to do so he will be denying the express democratic will of millions of Londoners.”
Shaun Bailey has dismissed Khan’s plans for rent controls:
"This idea has failed around the world where it has been tried, leading to higher rents and longer waiting lists.”
He also levelled the following criticism at the Mayor in reference to his plans:
“This is a transparent attempt to distract from Sadiq Khan’s abysmal record on building the homes London needs. Despite being given £5bn from the government to build them, he has only delivered a tiny fraction of the new homes he promised.”
The rent control reality
Back in October 2019, the RLA released research into the implementation of rent controls and the outcome from countries both across Europe and around the world.
The most recent evidence came from Sweden, where they were implemented rent controls back in 1947.
The challenges faced in Sweden include:
- Tenants subletting at a profit, rather than returning local housing agency properties for re-letting
- Huge waiting lists for housing agency properties
- Rents twice as high for secondary tenants
- Illegal renting, in highly competitive areas where available rental stock is painfully lacking
- Bribery in order to secure a tenancy
- A lack of employees for local businesses due to recruitment difficulties related to a lack of housing
The struggles in Sweden have been referenced again more recently, by the Institute of Economic Affairs. Emma Revell, head of communications at the think tank, had this to say on Sadiq Khan’ plans:
“Rent controls might make sense as an election pledge — what renting voter wouldn’t like the promise of extra money in their pocket? — but we need to steer clear of gimmicks, learn lessons from countries like Sweden, and turn our focus on cutting red tape and building more homes, rather than artificially meddling in the market.”
MP wants tougher action for rogue landlords
Christopher Chope, MP for Christchurch and West Dorset, has proposed a new law which seeks to take tougher action on rogue landlords and unregistered HMO’s.
Last month, Chope challenged former Housing Minister Esther McVey, on how many landlords had made it on to the rogue landlord database.
Only 18 parties are named on the database, which means only 6 have been added since August 2019, when the number was reported as just 12.
Speaking in support of decent UK landlords, Mr Chope said:
“This ineffectual regulation is driving good private landlords out of the market without deterring or penalising the rogues.”
When the database was first introduced, questions were raised as to whether local authorities had the resources to enforce action.
This remains a question mark over a lack of people being taken to task. It has also been suggested that perhaps the PRS is not in as sorry a state as had been feared.
Mr Chope has also raised strong concerns on HMO (Houses of Multiple Occupation) licensing. He claims that rather than tackling those HMOs that are not licensed but should be, councils are tackling only those that are registered.
The MPs’ claim is that 76,000 HMO properties, half of the total number that should be registered, are not:
“Local authorities are ignoring all properties that should be incorporated into the licensing system while trying to penalise those that have already applied for licensing.”
Rule of Law (Enforcement by Public Authorities) Bill
Christopher Chope’s proposed Rule of Law (Enforcement by Public Authorities) Bill 2019-21, encompasses a range of proposals calling for greater action from local authorities.
Those include, enforcement of traveller communities, park home operators and illegal immigrants.
However, with the lack of resources to do it, the subject most lacking are plans for financing the work required, a subject which Mr Chope does not cover.
The second reading of the Bill will be made in the House of Commons on 11th September 2020.
Landlords spend 28% of income on property maintenance
Recent figures produced by Howsy (letting management platform) reveal that buy to let landlords are spending over a quarter (28%) of their income on property maintenance.
The findings show that the estimated cost of maintaining a typical BTL property within the UK stands at £2,313.
Of course, property maintenance is inevitable for any buy to let property. To prepare for this type of expenditure, Howsy suggests budgeting to spend 1% of the property purchase price, to cover upkeep on a yearly basis.
Needless to say, property costs and rental income differs across the UK, meaning that maintenance costs vary both regionally and nationally. As a result, the study has been broken down into locations to understand these costs on a geographical scale.
The East of England has the greatest costs, with 28% of average rental income being spent on property maintenance, shortly followed by Wales accounting for 27%, whilst the North East came in at the most affordable at 20%.
Notably, and maybe more surprisingly London’s buy to let maintenance costs accounted for 23% of the annual average rent, meaning they placed fourth-lowest.
Interestingly, Glasgow had the lowest buy-to-let maintenance costs, requiring only 13% of the average annual rental income. However, looking at it from a national perspective, Scotland’s estimated annual maintenance currently sits at £1,519 accounting for 17% of maintenance costs.
Calum Brannan, founder and CEO of Howsy, stated:
“Covering maintenance costs is an essential part of managing your buy-to-let investment as failing to do so will not only reduce the profitability of your investment as tenants look elsewhere, but it can also land you in hot water legally if your property is not fit for purpose.
“Using the one per cent threshold of the purchase price of your property is a sensible place to start when budgeting for maintenance and although it acts as a rough rule of thumb, it should cover everything but the very worst damage to your property.
“Of course, the government’s consistent attack on the profitability of the buy-to-let sector could have alternative consequences as landlords cut corners on maintenance to get by, but as our research shows, this doesn’t have to be the case.
“The UK rental sector is a vast and varied one and investing in the right property, in the right place, will see operating costs remain palatable and profits remain robust.
“However, with technology changing the face of the industry, landlords now have even more options at their disposal when it comes to keeping their investment profitable and all of their costs under one roof.”
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.