Buy to let news to Thursday, July 11th, 2019

S21 abolition threatens vulnerable tenants; BTL fixed rates fall;
Eviction notice

Benefits tenants more vulnerable if S21 is scrapped

Scrapping Section 21 evictions would prompt many landlords to be far more selective when choosing tenants, and put those on benefits in a vulnerable position.

That claim comes from the National Landlords Association (NLA), who recently surveyed just under 3,000 landlords, 43% of whom would be more discerning when deciding which tenants to accept, should Government plans to end Section 21 come to fruition.

The motive for added stringency, lies in data surrounding the reason eviction has been necessary – rent arrears – and the groups most vulnerable to this issue.

57% of landlords, who had tried to evict a tenant in the previous 5 years, said that this was because of rental arrears.

Further NLA data shows that, of 829 landlords asked, 76% who rented to Universal Credit tenants, 66% who rented to Housing Benefits tenants and 63% who rented to migrant workers had experienced rent arrears in the last 12 months.

A Section 21 eviction currently offers a fall-back in the event of unresolvable unpaid rent issues. Without it, the pressure to mitigate the risk of losses is greater.

The fear for benefits claimants, in the event Section 21 is scrapped, is that landlords looking to protect themselves against financial loss will be biased against those on benefits; through experiences that show the risk of unpaid rent is highest in these groups.

Richard Lambert, NLA chief executive, commented:

"Rent arrears are the biggest problem that landlords face, and the main reason why they use Section 21 to evict a tenant.

"So if the government removes what they see as their only safety net — Section 21 — they will have no option but to become more selective.

"That will hit people on Universal Credit, Housing Benefit and other state benefits which have fallen way behind rents.”

Red house with an arrow coming out of it, pointing downwards

Boost to landlords as buy to let mortgage costs fall

Amid fierce lender competition, a new report has revealed that the cost of a buy to let mortgage fell during the second quarter of 2019, giving landlords fresh impetus to borrow.

Fresh data from financial information provider Moneyfacts, showed an average 0.1% reduction (from Q1) in the cost of a 2-year fixed rate buy to let, from 3.11% at the beginning of 2019, to 3.01%.

At a 75% loan to value, the average 2-year fixed rate was 3.16% in January, but has come down to 3.02%.

At 80% loan to value, a 2-year fixed rate has reduced on average from 3.81% to 3.75% and at 70% loan to value, from 3.49% to 3.45%.

There have also been reductions in the average rates for 3-year and 5-year fixed buy to let mortgages from Q1 to Q2.

In January, the average 3-year fixed rate was 3.02% but that has fallen to 2.75%.

For 5-year fixed rate buy to let mortgages, the average is currently 3.5%, having been 3.56% at the start of the year.

Andrew Turner, chief executive at specialist buy to let broker Commercial Trust Limited, said:

“With stunted house price growth and reduced fixed rates for buy to let mortgages, there remains plenty of incentive for landlords looking to borrow and take advantage of current market opportunities.

“The buy to let mortgage industry remains competitive and is trying to offer stimulus for those willing to borrow.

“However, it is important for borrowers to look beyond the headline interest rates at other charges, incentives and lender criteria to make the right choice for them.”

Older couple sat on a sofa looking at a laptop

Huge rise in tenants aged 45+

There has been a sharp rise in the number of tenants aged 45 or more, with a 700% increase over the last decade.

That is the standout headline from a new set of figures from flat-sharing site SpareRoom, which says that the increase in older tenants looking to flatshare, is more than double the growth of people aged 18 to 44.

Data from a new report, shows that from 2008 to 2018, the site saw a 640% rise in the number of tenants aged 45-54 years-old.

However, the figures were even more pronounced for older tenants, with the aged 55-64 demographic seeing a near-900% increase, while those aged over 65 have increased by in excess of 1,800%.

The data did not reveal how many individuals that equated to.

Matt Hutchinson, director of SpareRoom, commented:

"People think of flatsharing as only a young person’s game, but that’s no longer the case.

"Older flatmates might not be the largest group but they’re by far the fastest growing."

SpareRoom believes that the huge increase in the number of older people renting is largely down to the issue of affordability. with rising rents trapping some into becoming ‘lifelong renters’.

The older market has also seen an influx of people in their 40s and 50s, who have returned to renting.

Welsh flag

Concerns over plans to make 12-month tenancy agreements compulsory in Wales

The Residential Landlords Association (RLA) has reacted with anger over Welsh Government plans to amend the notice period for no-fault evictions in the Principality, to 12 months, calling the concept “scandalous”.

Present rules, falling under Section 173 of the Renting Homes (Wales) Act 2016, the Welsh equivalent of Section 21, prevent private landlords from repossessing a property within the first six months of the tenancy.

However, the Welsh housing minister, Julie James, AM, has announced that the Welsh Assembly intends to extend the subsequent notice period from two to six months. As a result of this, it will take landlords a year to repossess, effectively creating mandatory 12-month tenancy agreements.

In response to the plans, the RLA claimed it was “scandalous the government is planning such changes without first reforming possession routes for the vast majority of landlords who have legitimate reasons to repossess their property.”

RLA Vice Chair and director for Wales, Douglas Haig, commented: “This is [a] scandalous move that is essentially introducing 12-month contracts by default.

“Creating a situation where a property cannot be repossessed within the first six months and then introducing a further six-month notice period could cause huge problems for landlords.

“They will be left powerless when it comes to problem tenants, who will be legally allowed to stay in the property for a year. If tenants are not paying rent, huge arrears could build up in this time.

“We will be warning government that this move could cause serious damage to landlord confidence and the availability of homes to rent in Wales, at a time when demand continues to increase.”

The Welsh Government is set to consult on whether or not it should increase the minimum notice period of Section 173 from two months to six months, whilst restricting the landlord’s right to issue a Section 173 for six months after the start of the contract.

A housing estate

Report shows geographic rental disparity

June saw average rental increases from May, in half of the 8 regions reviewed by PropTech business Goodlord.

The report revealed significant rental growth disparity, with Wales and the South West seeing rental increases of 6% from May to June, while the South East saw a 6% fall.

London still commands the highest average monthly rent, which in June stood at £1,621. Despite seeing a drop in average, the South East had the next highest monthly average, at £980. The national average was £907 per calendar month.

The North East recorded the lowest average monthly rent in June, at £657.

Tom Mundy, COO and co-founder of Goodlord, commented:

“It’s been another interesting month across the UK. We continue to see a range of market factors affecting average rental prices.

“As we move into the summer - typically the busiest season for lettings - it will be interesting to see what the impact of student housing churn and the repercussions of the tenant fee ban have on rental costs and void periods.”

The Houses of Parliament at dusk

Imla calls for Government to leave buy to let alone

The Intermediary Lenders Association (Imla) has called for the Government to desist from further changes to the buy to let sector, fearing intervention is already having an adverse effect on landlords.

The past few years have seen a number of significant changes to the taxation of buy to let and also the obligations that a landlord must meet. The combination of these changes has affected many landlords’ finances, forcing many to leave the industry.

Imla has reported that the PRS continues to absorb the demands of new legislation and that if landlords decide to leave the sector, this will reduce rental stock, putting upward pressure on rent for tenants.

Data indicates that the changes have most deeply affected landlords with fewer properties, with Imla reporting that the number of landlords owning one property, now represents 21% of the PRS, compared to 40% in 2010.

At the same time, “professional” landlords now make up 48% of landlords, a 10% increase on 2010 statistics.

Imla said that the limitations of the mortgage market, imposed during the financial crisis, plus an increasing number of large institutions investing in build-to-rent, have contributed to the changing dynamics.

However, the report made it clear that Government changes have hit the pockets of smaller-scale landlords, with the effects of the 3% stamp duty surcharge and the reduction of mortgage interest tax relief among initiatives to have an adverse effect.

The theory was backed up by the 2018 English Private Landlord Survey, which revealed 61% of landlords planning to sell some or all of their properties, blamed legislative changes for forcing their hand.

Imla is predicting that the changes made by Government will lead to a smaller PRS in the next decade.

This may already be happening, with the report showing that buy to let mortgage lending for purchases, fell from £15.6 billion in 2015, to £9.1 billion in recent times, since the Government changes.

Kate Davies, executive director of Imla, said:

"The UK’s private rental sector is under significant pressure.

"Landlords up and down the country are effectively having to fill the gap left by a shrinking social housing sector that is struggling to accommodate demand from lower income households.

"At the same time, it must continue to meet the needs of people who either want the flexibility of renting or who are not yet able to step onto the housing ladder in the face of increasing house prices and tighter mortgage regulation."

She added that the trade association had "repeatedly called" for the Government to "put the brakes on" regulating and taxing landlords, urging a more moderate approach to sustain a robust sector.

Man completing a document

Review of Right to Rent to include landlord input

A court review of the Government’s controversial Right to Rent scheme will include landlord input, after the court of Appeal agreed to the Residential Landlords Association (RLA) providing a written and oral submission to the case.

Right to Rent requires landlords in England to check the immigration status of prospective tenants, under the threat of harsh penalties if they fail to do so. This has allegedly led many to discriminate, by playing it safe and only accepting British tenants.

A Judicial Review said that discrimination by landlords was “logical and wholly predictable”, given the penalties in place.

Home Office plans to roll out Right to Rent in Scotland, Wales and Northern Ireland, have been delayed, following a High Court ruling that the scheme is discriminatory, breaches human rights and needs re-evaluation.

The Home Office has appealed that ruling, whilst announcing its intention to reassess the scheme.

The Court of Appeal has announced that it is permitting the RLA to provide written and oral submissions to the case, so that landlord views are fairly presented.

David Smith, policy director for the RLA, commented:

“The Right to Rent has been a failure. No one has been prosecuted under the scheme but it has created a great deal of anxiety for landlords who do not want to go to prison for getting it wrong.

“We will ensure that the views of landlords are well represented as we send a message that they should not be used to cover for the failings in the UK border agencies.”

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