Buy to let news to Thursday, August 8th, 2019

Latest guidance on Right to Rent encourages landlords to break the law, says RLA;
Royal courts of justice

Implications of banning Section 21 need further thought

An eviction specialist with a unique insight into the Section 21 process, feels the existing justice system needs a complete overhaul before the Government carries out its planned abolition of the controversial notice.

Paul Shamplina, founder of Landlord Action, revealed the results of a recent landlord survey, which reported that 58% of Section 21 notices are issued on account of rent arrears.

So-called ‘Retaliation Evictions’ – where a landlord serves repossession notice after a tenant has made a request for repairs to the property, comprise just 0.5%.

Writing for LandlordZone, Shamplina stated:

“Most of the time tenants will not know the reason because landlords do not have to give one. There has never been any specific data, but The Lettings Industry Council is calling on its members to send out surveys to their landlords and letting agent databases to find out how many Section 21s are being sent out and for what reason.

“As I have said in previous articles, from sitting in various meetings with trade bodies and landlord associations, the industry is coming together and has one clear message to the government: ‘Do not ban Section 21 until we have a clear understanding that the Court System or Housing Courts have sufficient investment to cope with the extra hearings, judges, administration and portals. We need better education tools for tenants and an overhaul of the bailiff system so that landlords are confident they can gain possession if required.”

Shamplina is adamant that the proposed abolition of Section 21 represents the “biggest change and threat to landlords in years”.

He believes that the ending of Section 21, the introduction of longer-term tenancies and the creation of a new Housing Court should all be linked together to create industry synergy.

He added:

“Next week, I have MHCLG coming to our offices to shadow our Landlord Action solicitors, case workers, paralegals and support staff. We want to demonstrate the positives but also the challenges faced with the current system and offer our thoughts on what is needed for landlords in terms of better lead times, so that landlords can have confidence in buy-to-let in the future. The Ministry of Justice must invest.”

He also outlined the impact of councils advising tenants to stay put in properties after they have been served an eviction notice, due to the chronic shortage of social housing.

As a consequence, he said, the pressure is put back on landlords as this causes delays in the repossession process and often adds further rental arrears and stress.

“So, my point is, what will happen to these tenants if Section 21 is banned? Although many Section 21 cases are down to rent arrears, this is not stated. If landlords are told to use Section 8 with a hearing and obtain a money order, the councils will then see that a tenant has incurred rent arrears and made themselves homeless, they will therefore be under no obligation to re-house them. What impact will that have?

“In addition, I predict that Section 8 hearings will double because landlords who would previously have used Section 21 will use Section 8. This will double the amount of court time before judges that is required, also meaning that a major recruitment drive of judges to deal with the increased number of hearings will be necessary.”

HM Revenue & customs

Think tank calls for sweeping stamp duty and tax reform

A right wing think tank has called for sweeping free market reforms to address the nation’s housing crisis and bolster the private rental sector.

The report, titled ‘Raising The Roof’, written by Jacob Rees-Mogg, the new leader of the House of Commons, and Radmir Tylecote of the Institute of Economic Affairs, calls for changes to the classification of the green belt, amended planning permission rules and the reform of stamp duty and capital gains tax.

The paper suggests that state interference has led to too few houses being built, in the wrong places and in ways that are not appealing, with local authority powers limited in their powers.

The report also indicates that stamp duty is limiting property transactions by adding costs which put people off downsizing, whilst also harming labour mobility.

It says that the Government’s flagship Help to Buy scheme has contributed to inflating house prices by exacerbating demand whilst not increasing supply.

At the same time, punitive changes to the landlord tax regime have hurt the private rental sector, causing landlords to sell-up and as a consequence, reducing the availability of rented homes.

To address these issues, the report suggests trialling a number of measures in two major cities, such as Birmingham and Manchester, to see how the proposed measures perform.

These include decentralising and reducing the tax burden, with a suggestion that stamp duty should be reduced to 2010 levels and devolved, to give local government the ability to cut it further, giving buyers and downsizers greater motivation to act.

Additionally, the report states that adding VAT to the costs of property maintenance and restoration also acts to the detriment of the industry and should be scrapped.

Rees-Mogg commented:

“Once Brexit is delivered, resolving the problems of the UK’s housing market will be the most important political challenge we face. Many young people, already struggling to afford to pay rent in the big cities, can only dream of buying their first home, and those who wish to downsize cannot afford to because of the inherent costs of doing so. It is clear the central planning of housebuilding does not work and something has to change.

“This important report sets out a number of ways in which our sclerotic planning laws can be reformed to free up land for development in the places homes are needed, how tax can be cut and decentralised so as not to clog up or distort the housing market, and how planning powers can be devolved to local authorities to build and beautify our towns and villages.”

Tylecote added:

“It is creating inequality and harming opportunities for young people. Radical action to build houses and increase home ownership is desperately needed. This report proposes a programme of decentralisation, tax cutting and releasing State owned land that can unlock the promise of property ownership for a new generation.”

You can read the report in full by clicking here.

welsh flag

Renting Homes Fees Welsh Act edges closer

Lettings agents have been reminded that the Renting Homes Fees Welsh Act is imminent and becomes law from September 1st, 2019.

The warning comes from ARLA Propertymark and prompts agents to be prepared for a number of important changes.

From the above date, tenants can no longer be charged for the following:

  • receiving an inventory,
  • exit fees,
  • an accompanied viewing,
  • signing a contract,
  • renewing a tenancy

David Cox, chief executive, ARLA Propertymark, commented: “Sunday marks the four-week countdown to when the Welsh Tenant Fees ban comes into effect.

“It is essential that agents get to grips with this legislation, understand the impact it will have on their business, and prepare for September 1st.”

Letting agents and landlords will still have a limited number of events for which they can charge tenants, relating to holding deposits, utilities, television licences, rent, security deposits, communication services, Council Tax and payments in default.

The new Act will limit holding deposits to the equivalent of one week’s rent.

It will also create a regulation-making power to limit how much can be charged for security deposits.

There will also be new powers to robustly enforce the new rules, when an agent or landlord breaks them.

This will include Fixed Penalty Notices of £1,000 to be issued against anyone requiring a banned payment.

If those penalties are not paid, the enforcement authorities have the power to prosecute the offender through the Magistrates Court.

Police car

‘A new low’ for Right to Rent

The government recently issued “A short guide on right to rent”. With so many questions in the air around this matter, clarification was very welcome. However, the RLA has flagged a very serious problem.

If landlords follow the guidance, they would be breaking the law.

The July 2019 guidance itself has no legal standing, however, the Code of Practice published in 2016 - which is legally binding - conflicts with directions given to landlords.

The key issue is the evidence a landlord can accept, to demonstrate that a prospective tenant has the right to rent in the UK.

The most recent guidance on the matter suggests that, for individuals only planning to stay for a maximum of 6 months, who are from Australia, Canada, Japan, New Zealand, Singapore, South Korea and the USA (known as B5JSSK nationals); an airline ticket with passport would be acceptable evidence.

However, the RLA has argued that this simply is not the case, based on the Code of Practice. Furthermore, if the tenant stays longer than 6 months, there is no legal cover for landlords within the guidance, unless an equivalent change is made to the Code of Practice.

David Smith, policy director at the RLA, expressed his disappointment:

“This represents a new low in the sorry saga of the Right to Rent.

“Having already been ruled to be discriminatory by the High Court, the government is now putting out guidance which could leave landlords open to prosecution.

“It reinforces once against that the Right to Rent policy needs to go and go now.”

Hoses of Parliament

Should Cabinet MP landlords set a better example?

Cabinet minister landlords are back in the press. Details have been released on the rental income they are receiving from property in their ownership, whilst they concurrently claim an allowance to rent in London.

Eight cabinet MPs have been claiming an allowance for renting property to live in, in London, whilst receiving rent from property they own, some of which is also in London.

MPs can claim up to £22,760 per year in rent. They must declare rental income of over £10,000 per year.

A total of £145,838 was claimed over 2018 by MPs.

This clearly raises strong questions on a number of levels. Why should tax payers foot the bill for MP’s rent, whilst they reap the rewards of rent in their personal income?

It is perhaps particularly galling to see MPs with property in the capital, still able to claim for alternative accommodation.

Furthermore, where MPs are voting on matters affecting the Private Rental Sector, it is understandable that the clear conflict of interest draws a strong focus.

At a time when many landlords are reeling from punch after punch from the media and politics, whilst arguably propping up a depleted housing stock, should they not hope for a better example to be set, by those so glaringly in the public eye?

Bank notes

4 in 10 tenancy deposits exceed new cap

The Deposit Protection Service (DPS) has released figures, that show of the tenancy deposits they protect, 42.81% exceed the cap that came in on 1st June 2019.

The new stipulation means tenancy deposits must not exceed five-weeks rent (in the majority of cases, where annual rent is less than £50,000; this increases to six weeks rent, for annual rents of £50,000 or more).

This does not necessarily mean that there are a high proportion breaching the new laws, as the change is required to be made for new tenancies, not those that began before June 1st.

However, the data does imply that, as tenancies renew or new tenancies are put in place, a large number of landlords will need to adjust the deposit held for existing tenancies, or taken, for new tenancies.

With the reduced protection, for damage or missed payments, landlords may feel a greater pressure to be more vigilant with the tenants they accept.

Tenants with pets may also be affected, as the risk of damage from an animal occupying the property can be greater. In the past, supplementary deposit amounts could be added to mitigate this risk, but this has been limited by the cap.

Matt Trevett, managing director at The DPS, urged landlords and letting agents to be vigilant on this matter, to ensure they remain within the law:

“Our figures show that the tenancy deposit cap will eventually affect a significant proportion of properties around the country.

“Landlords and letting agents should be ready to make the change whenever a relevant tenancy ends in order to fully comply with the law.”

Estate agent

Diligence is essential when selecting agents

Consumer rights television programme “Joe Lycett’s Got Your Back”, recently shone a spotlight on the letting agent industry.

The comedian host took to task a London agent, who was found to be duping tenants with various underhand tactics, including fake reviews, ‘Bait and Switch’ tactics and pressure selling.

Not only was the company using these tactics in the case highlighted, but it was found that they had also received prior prosecution and fines for renting overcrowded property, not publishing fees and using misleading commercial practices in the conduct of their work.

As ever, the minority bring a shadow of reputational damage over an entire industry.

Tenants are arguably the party at greatest risk, but landlords should take note.

Where landlords are appointing a letting agent, it is vital that they take a diligent approach in their selection process. A letting agent is an extension of the landlord function, with legal and financial implications the outcome of their work.

If an agent will willingly treat a tenant or prospective tenant poorly, or worse, illegally, the implication is they could do the same to a landlord.

For rent graphic and magnifying glass

73% of landlords say buy to let is best

Fresh data has just been released from a survey, conducted by letting agent Benham and Reeves, which reflects strong confidence among landlords in buy to let as an investment.

73% of those surveyed, expressed the view that property remains the best and least volatile long-term investment, over other asset classes.

There is, understandably, uncertainty at present. The question mark over changes to Section 21 and mortgage interest tax relief were cited as reasons for this, amongst two-thirds of respondents.

Nonetheless, 43% of landlords asked were either confident or extremely confident that their portfolio would achieve adequate returns over the next ten years.

For those less confident, 51% of respondents, some good news from the new prime minister may arguably be very welcome. Time will tell if that is forthcoming.

Andrew Turner, chief executive at Commercial Trust, shared his view:

“There has been a lot of pressure on the government to find solutions for the housing crisis, for which the private rental sector has recently been paying the price.

“Brexit presents a wider sense of volatility.

“However, whilst this has dented confidence, I believe this is temporary. The statistics in this report echo my own view that property investment is a robust, long-term investment.”

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.