Buy to let news to Thursday, July 25th, 2019
- Published: Monday 22 July, 2019
- Updated: Tuesday 05 May, 2020
- By: Commercial Trust
Government confirms end of Section 21 and launches consultation
Government plans to scrap the Section 21 eviction process will go ahead, with the removal of Assured Shorthold Tenancies from the Housing Act 1988.
Confirmation came with the launch of a new consultation, which says:
“Once we abolish Section 21, there is no longer any significant legal distinction between an assured shorthold tenancy and an assured tenancy.”
Going forwards, any landlord wishing to reclaim their property will need to provide a “valid reason for taking back possession of the property and would need to be able to satisfy a judge of the validity of their claim”.
The consultation, titled: “A new deal for renting: resetting the balance of rights and responsibilities between landlords and tenants”, concentrates on issues such as improving the court system and Section 8.
It relates only to England and will be open until October 12th.
It considers the lengths of tenancy agreements and questions if fixed terms should have a minimum length.
The consultation also raises concerns that some landlords could attempt to encourage tenants to leave at the end of a fixed-term agreement, by forcing rents to high levels. New legislation could stop this practice by inserting clauses that prevent rent changes after the fixed term.
The consultation also raises a number of other issues which could cause grounds for evictions. These include
- Situations where a landlord or family member wishes to live in the property – could this be permissible grounds for eviction within the first two years of a tenancy?
- When the landlord wants to sell the property.
- Where rent arrears have built up over two months. Would it be acceptable for a landlord to serve a two-week notice at that point?
- In the case of anti-social behaviour, present laws make it hard for a landlord to prove this has taken place. Is there good and fair reason to strengthen tenancy agreements.
- Where domestic abuse has taken place, the consultation proposes giving landlords the right to evict the tenant who caused the abuse, but not the rest of the household. Within that plan, would be considerations for providing protection for the victim.
- Where a property has fallen into disrepair, on account of tenant neglect, the landlord could have fair grounds to evict.
Under the consultation, the above changes would not be retrospective, which would mean that Section 21 could still be implemented on existing ASTs after the legislation comes into force.
ARLA Propertymark responded with caution, stating:
“This is big news for the sector and we cannot under-estimate the impact.
“We cannot accept amendments to the Section 8 eviction process unless all grounds are mandatory and include persistent rent arrears and anti-social behaviour.
“Only after a full impact assessment and conclusions from a pilot should the Government abolish Section 21.”
Chris Norris, director of policy and practice at the National Landlords Association, added:
“The court system has been in dire need of reform for a long time, so we’re happy to see action on this.
“Any improvements to this system need to be in place, properly funded and fully functional before the Government even contemplates changes to Section 21.
“If the Government want to deliver a fairer, better quality and more affordable private rental market, as they claim, they should try listening to the concerns of landlords, not just court the voting renters.”
The Government has also launched a consultation proposing greater public access to its database of bad landlords and agents.
At present, the database is only available to Government at local and central levels.
London Mayor criticised for rent cap proposals
London’s Mayor, Sadiq Khan, has made public his wishes to introduce rent controls, in the capital’s private rental sector.
The call comes in a City Hall report in which the Mayor requests further powers over the rental market.
The report suggests that existing powers should be devolved, enabling London to create a universal register of landlords and a Private Rent Commission, which would both manage the register and formulate rent controls.
City Hall recommends introducing incentives which would ensure there is sufficient rental stock for tenants, including a proposed exemption of controls for build-to-rent homes and possible tax incentives for landlords who invest in new properties or improving existing ones.
It also acknowledges that in some circumstances, the changes could cause landlords financial problems and that there may need to be an appeal system.
“It is high time for private renting in London to be transformed. Londoners need fundamental change that is long overdue.
“Unlike other mayors around the world, I have no powers over the private rented sector. That’s why this landmark report sets out a detailed blueprint of what the Government must do to overhaul tenancy laws, and what powers City Hall needs from them to bring rents down.
“We have made important progress over the last three years by working closely with councils and renters – from ‘naming and shaming’ rogue landlords and banning letting agents fees for tenants, to being part of the successful campaign to scrap Section 21.”
However, Khan’s proposals have been met with stern opposition from the housing industry.
Marc von Grundherr, director of London property agent Benham and Reeves, said:
“There is no doubt that we need to address the issues surrounding the London rental market, but to attempt to remedy said problems through a freeze on rents isn’t far short of idiotic and demonstrates a real lack of understanding when it comes to the rental sector and wider property market.
“To further deter landlords from the rental space by restricting the income available, having already hit them where it hurts via a ban on tenant fees, Stamp Duty hikes and tax changes, will only see a reduction in stock and further inflame the issues that we are currently seeing.
“Landlords are the lifeblood of the rental market– they need to be encouraged to remain in the sector, not to exit it.”
David Smith, policy director at the Residential Landlords Association, added:
“Rent controls are meaningless if Londoners can’t find a home to live in. Rent controls will lead to a drop in investment, and increasing supply should be the Mayor’s priority.
“Localised rent controls would also have a huge impact in the surrounding areas. With demand continuing to outstrip supply, residents would have to move out of the city and rents would be pushed up further as demand increases in the commuter belt.
“Research from the Centre for Cities has found that rent controls divide renters into the privileged and outsides, with those already renting when the controls are introduced doing well but those hoping to move into the city or for more space losing out, damaging social mobility.
“London rent rises are already well below inflation increasing at just 0.9% in the year to June compared to CPI at 2%.
“We do welcome a number of the Mayor’s proposals for improving London’s rental sector including establishing a dedicated housing court and reforming the Section 8 process for landlords to regain possession of their property in legitimate circumstances.”
David Cox, chief executive of ARLA Propertymark, said:
“At a time of demand for PRS homes massively outstripping supply, rent controls will cause the sector to shrink.
“In turn, this means professional landlords will only take the very best tenants, and the vulnerable and low-income people that rent controls are designed to help will be forced into the hands of rogue and criminal operators, who may exploit them.”
Seven-fold increase in tenant demand ahead of Tenant Fees Act
Rightmove has reported a huge surge in tenant demand in the month leading up to the start of the Tenant Fees Act on June 1st.
According to the property website, there was a 7% increase in demand between May and June 2019, a period when over the previous four years, the average was 1%.
Demand was even more exacerbated in London, where the increase was 13% and over a four-year average is normally 4%.
Whilst agents are reporting an increase in tenant enquiries on account of fees being dropped, asking rents rose to a record high of £817 a month, outside of London, for the second quarter of 2019.
At the same time, average rents in the Capital fell by £40 to £2,059 a month in Q2 – although this figure was still 3% more than for the same period of 2018.
Melanie Howarth, branch manager at Northwood in Doncaster, confirmed the surge in tenant demand as a precursor to the new law:
“We’ve seen a massive increase in enquiries and we’re having to do everything differently now, such as arranging to meet lots of tenants at a property all at once.
“We’ve seen such an influx of interest, I’d say every property is seeing double, maybe triple, the levels of interest that it would have received prior to the tenant fee ban being introduced as it’s now cheaper for tenants to move around from property to property.”
Richard Davies, head of lettings at London-based Chestertons, affirmed:
“We’ve seen a 17% increase in the number of tenants registering to view properties since the tenant fee ban came in on June 1st compared to the same time last year.
“This spike in demand from tenants has meant that there has been a lot more competition for rental properties, and tenants are often paying above asking price to secure their first-choice property.”
Landlord annual costs revealed
An overview of landlord expenditure in a year has been revealed, suggesting each is spending over £3,100 annually.
The combined total comes to just under £4.7 billion, while individually, landlords are spending an average of £3,134, according to LV = General Insurance.
Boiler replacement or repairs is the biggest cost, at £370, followed by renovations and refurbishments at £360 and then £313 on fixing structural damage and £265 on decorating.
|Issue||Average annual expenditure|
Carpets, at 66%, came out as the likeliest source of damage, followed by walls (45%), white goods (27%) and doors (24%).
Landlords spend on average £322 to replace or repair flooring and £298 on white goods.
Cleaning at the end of a tenancy is another significant cost at £178, while £149 is spent on the removal of items left behind by tenants.
The data points out that costs vary by region, with landlords in the South West spending the most on repairs, at an average of £3,461, while in the North West, the average cost is £2,738.
The research also suggested that mounting costs, including tougher tax conditions, could result in up to 600,000, or 41% of landlords quitting the PRS.
Heather Smith, managing director at LV= GI Direct business, commented:
“Being a landlord is not without its challenges and it’s clear that many are feeling the strain due to tax and regulatory changes facing the industry. Finding the right tenant is crucial.”
Rise in company landlord lets led by London
The number of company landlord-let properties has risen 42% over the past four years, with London leading the way.
New data, from Hamptons International, estimates that there are 641,480 UK homes which are now owned by company landlords. That represents a 42% increase on 2015 figures, which showed 452,600 homes owned by companies.
The report suggests that many private landlords have switched to a company model, as a result of the loss of mortgage interest tax relief, which was revealed by Government in 2016 and does not impact on companies.
The changes have been most keenly felt in London, where 13% of new lets in the first half of 2019, were attributed to company landlords.
Wales has the fewest number of let properties in a corporate structure, while Scotland has seen a 6% increase since 2015.
Aneisha Beveridge, head of research at Hamptons International, commented:
“More than one in 10 rental properties are now owned by private companies, an indication that the sector continues to professionalise.
“Increasing taxation for private landlords combined with the growth of the build to rent sector has meant that more companies are letting homes than at any time since our records began.
“London, where landlords tend to have higher levels of debt and often the most to gain from corporate ownership, has the largest proportion of homes let by a company.
“However, it’s not always more profitable to put a buy-to-let into a company as other associated costs come into play.”
Andrew Turner, chief executive at specialist buy to let broker Commercial Trust Limited, added:
“This interesting data highlights how many landlords have been impacted by the Government changes to the tax regime.
“But, rather than just leaving the sector, many have sought to adapt and continue to provide much-needed housing, at a time of record tenant demand in the PRS.
“This is also reflected in the number of company buy to let mortgages now available through lenders.
“However, private landlords should not just take a leap of faith into corporate ownership. I always recommend speaking to a tax specialist before making such a significant decision, as this may not be suitable for every set of circumstances."
Could licensing be on the cards for Scotland’s short term lets?
The short term lettings market in Scotland could be subjected to stricter regulation, following news that the Government north of the border, has launched a consultation on the issue.
Among the proposals is the introduction of a registration or licensing scheme, with different regions having the scope to tailor their approach in accordance with local circumstances.
Scottish Land & Estates (SLE), a membership organisation for landowners, rural businesses and rural professionals, wants the Scottish Government to bestow powers on local authorities only in areas with a recognised track-record for anti-social behaviour or housing shortages.
Marcelina Hamilton, policy advisor at SLE, commented:
“Over regulating the short term let accommodation sector poses a risk for rural tourism and is looking to fix a problem that does not exist in many places. Too much red tape could mean it is no longer viable for some operators in rural areas to offer self-catering accommodation which brings in much needed tourist spend to the area.
“We support the idea of regulation, but a one size fits all approach will not work. We want to see a distinction between the type of accommodation and the impact of that short term let on the area. Properly targeted regulation could positively impact on communities that suffer from a housing shortage brought about by too many short term lets as well as helping to tackle the anti-social behaviour associated with some accommodation.”
At present, Scotland has no clear definition of what constitutes a short term let.
Self-catering holiday accommodation is currently defined as a property available for let for 140 days or more in the financial year.
Such properties do not have a Council Tax liability, but will be subject to non-domestic rates.
Will Boris Johnson change Stamp Duty rules?
Boris Johnson has been handed the keys to 10 Downing Street, with the housing industry anxiously awaiting any policy changes.
One of the big hopes is that Johnson will make good on previous comments in which he indicated he would make changes to the present Stamp Duty regime.
Whether amendments are aimed directly at the residential market or will encompass buy to let too, remains to be seen. But the hope is that any changes would help to stimulate housing transaction movement, particularly in London and the South East, where business has been stymied by the higher prices of properties and therefore a greater Stamp Duty liability.
Neil Cobbold, chief operating officer of property software company PayProp, commented:
“The buy-to-let market has stalled due to tax changes like the stamp duty surcharge and cuts to mortgage tax relief under Section 24. If Boris Johnson is able to remove all stamp duty and land tax surcharges for buy-to-let landlords, he could reinvigorate the sector – especially in areas with high-value homes where we’re not seeing a lot of movement at the moment.
“Although this could help the market, a pledge to cut stamp duty alone won’t be enough to counteract losses from Section 24 and bring the leveraged buyer back into the market. However, the emotional impact of some good news from a new government would have a positive impact on the sector.”
New housing roles as Johnson reshuffles the Cabinet pack
The appointment of Boris Johnson as Prime Minister has quickly resulted in changes at the top, as far as housing is concerned.
Robert Jenrick has become the new Secretary of State for Housing, Communities and Local Government, replacing James Brokenshire in the position.
Jenrick has been a Member of Parliament since 2014 and is the MP for Newark.
Meanwhile Esther McVey has been appointed Housing Minister.
McVey, replaces Kit Malthouse.
She is a former Secretary of State for Work and Pensions and as such, was responsible for the controversial Universal Credit system.
McVey is the 17th housing minister since 2000.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.