Queen to confirm scrapping of Section 21

Queen to confirm scrapping of Section 21. RLA and NLA seek reform of eviction process. Rightmove predicts 2% property price rise in 2020.;
Richard the lion heart outside Parliament

On Thursday 19th December the Queen is set to make her second speech of 2019. It is strongly suspected that she will confirm the removal of the Section 21 eviction process.

This announcement is said to be one four new items to be added to those bills raised at the previous speech in October this year.

It has been debated in the press that Mr Johnson may be making this move to appeal to “Generation Rent”.

The other three anticipated new laws include:

  • A ban on all-out public transport strikes
  • Tougher prison sentences for convicted terrorists
  • A law to stop public bodies boycotting products from countries such as Israel

The speech is also expected to include a reiteration of bills discussed in the October version.

Eviction notice

RLA and NLA seek reforms from Boris

Both the Residential Landlords Association (RLA) and the National Landlords Association (NLA) have renewed their call for reform of the repossessions process, now Boris Johnson has retained the position of Prime Minister.

The Conservatives were amongst the political parties who said they would put a stop to the Section 21 “no fault” eviction process.

However, this leaves only the Section 8 route to eviction.

What is the difference between Section 21 and Section 8?

The Section 8 notice is used when tenants have broken the terms of their tenancy agreement.

A Form 3 “Notice seeking possession of a property let on an Assured Tenancy or an Assured Agricultural Occupancy” is issued to the tenant. This form informs the tenant when and why they must leave the property and for what reason.

The form also tells the tenant that the landlord needs to secure a court order to secure possession of the property and that the tenant cannot be made to leave without one, though they can choose to.

The key challenge for landlords using this process is the time and, invariably significant, costs involved. The legal process can easily be delayed by the tenant.

A Section 21 notice does not require the tenant to have done anything wrong. Nor can the tenant challenge the request, if there is a valid reason for it.

These cases rarely involve the courts and therefore are far less time consuming and costly.

What is each association asking for?

In an article published by the RLA, the organisation reflected on Conservative promises to landlords on the subject of repossession:

“…if you’re one of the many good landlords, we will strengthen your rights of possession.”

Source: Conservative manifesto 2019

David Smith, Policy Director at the association had this to say:

“We look forward to working constructively with the government as it develops its plans for the private rented sector.

“With the demand for rented housing remaining strong it is vital that the Conservatives’ plans for the sector, whilst being fair to tenants, have the full confidence of landlords.”

The NLA want the government to:

  1. “Create a housing court that would unblock the logjam of possession cases that would almost certainly build up when Section 21 is abolished.
  2. “Update the terms of Section 8 — which allows landlords to pursue cumbersome “fault-based” evictions—so that landlords can swiftly reclaim their property when tenants fail to pay their rent or commit antisocial behaviour.”

As a stark warning if this does not happen, the NLA cite data from analysis they commissioned on the subject.

Their warning to Mr Johnson is that there would be:

  • 20% reduction in privately rented homes due to landlords selling off property
  • 59% reduction in homes for benefits claimants due to landlords fears of unpaid rent from this demographic
  • Rent increases across 13%/600,000 homes in the private rental sector due to reduced supply

With news that the scrapping of Section 21 is likely to be announced in the Queen’s speech, the matter is ever more pressing.

Semi-detached modern homes

2% property price rise for 2020

Rightmove is predicting a 2% increase in average property prices by the end of 2020, a percentage increase of 150% on the current average of 0.8%.

The company explained the reason for such a generous prediction on prices. It puts it down to two things, the result of the General Election, which has ended a significant area of political uncertainty; and a lack of supply which will favour sellers.

Demand is reportedly high, property sales in 2019 are only 3 % lower than in 2018, where properties for sale are down 8%.

There are also other factors at play. Landlords will be aware that the cost of borrowing has been exceptionally low for some time and remains so.

Lenders too are keen to offer favourable incentives and rates to property investors in order to compete in the marketplace.

Employment and wage growth have also contributed to a positive sellers’ market.

Miles Shipside, director and housing analyst at Rightmove, had this to say:

“While this is over twice the current annual rate of 0.8%, it’s still a relatively marginal increase as it’s a price-sensitive market. There will be regional variations. London is finally showing tentative signs of bottoming out, and we expect a more modest price rise of +1% in all of the southern regions where buyer affordability remains most stretched. In contrast, the largest increases will be in the more northerly regions, repeating the pattern of 2019 with increases in the range of 2% to 4%.”

Rightmove originally predicted 2019 to see no upward property price movement, but the tail end of 2019 has been stronger than anticipated. December 2019 has in fact seen the smallest fall in house prices on the run-in to Christmas than all other years, since 2006.

Going into 2020, the company acknowledges the clear, ongoing, impact of Brexit and affordability, as factors which will see the housing market fall short of capacity.

Downward trend house graphic

Good news as buy to let costs are still reducing

Mortgage technology firm, Mortgage Brain, has released its latest analysis of buy to let mortgage rates. The data clearly demonstrates a fall in costs over the last three months.

The cost of borrowing in the buy to let mortgage space has been dropping over the year as a whole, which is an ongoing trend in Q4 2019.

In real terms, this means that on a two-year 60% loan to value (LTV) fixed rate mortgage, the reduction in cost equates to an annual saving of £126 on a £150,000 mortgage.

Whilst rates on tracker mortgages have not significantly changed, the cost associated are 4% lower than a year ago, which represents a £324 annual saving on a £150,000 mortgage.

Mortgage Brain has identified that the greatest reductions are found amongst longer term fixed rate mortgages.

On a mortgage loan of £150,000 a 70% LTV five-year fixed mortgage is 1.8% lower than just 3 months ago, and 4.4% lower than a year ago.

The annual saving in each scenario is £144 and £360 respectively.

Andrew Turner, chief executive of Commercial Trust had this to say;

“Buy to let mortgage products currently available in the marketplace are exceptional. Lenders are doing their utmost to offer a breadth of opportunity to landlord investors.

“This does not just go for the mainstream deals, as a specialist broker, we are in a position to help those landlords who may historically have struggled, successfully secure a buy to let mortgage.”

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