RLA warns of electrical safety loophole

RLA warns of electrical safety loophole. Do 4.8% average yields make two-bedroom properties best? Tenant demand at record high, more landlords needed?;
Electrical socket

The Residential Landlords Association (RLA) has raised a warning with the government, that new electrical legislation, does not mandate rules for Houses of Multiple Occupation (HMOs).

Keen to guard against unscrupulous landlords, RLA has flagged their concerns regarding The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020, put to parliament in January.

What are the proposed changes?

The regulations affect properties in England.

The objective of the new regulations is to tighten electrical safety standards. The government is seeking to make sure the new rules are aligned with gas safety standards, already in existence.

The rules would apply to new tenancies from 1st July 2020. Existing tenancies would come under the new regulations from 1st April 2021.

Landlords with private residential tenancies would be affected, if the plans go ahead.

The requirements state that:

  • Electrical wiring and fixed electrical installations must be inspected by a qualified electrician;
  • Secure a report from the electrician with the results of the tests and date for the next test;
  • Within 28 days of the inspection and testing, give all tenants a copy of the report;
  • Within 7 days of a written request, give a copy of the report to the local housing authority;
  • At the date of the next test, give a copy of the report to the person conducting the inspection;
  • Before a new tenant occupies the property, give them a copy of the report;
  • Within 28 days of a written request from a prospective tenant, give a copy of the report.

What must be done in the event of a problem?

If the inspection and testing identifies a breach, or potential breach, in electrical safety, further investigation and/or work must be completed.

The work must be done by a qualified electrician. It must be completed within 28 days of being identified, or within the timeframe specified in the report if less than 28 days.

The landlord must get written confirmation that either safety standards are now met, or that more work is required. This must come from the electrician doing the investigations or work.

A written copy confirming the work or investigations described above must be sent to all tenants and the local housing authority within 28 days of completion.

What happens if more work must be done?

If more work is required, the same steps must be repeated to investigate and resolve them, with all written confirmations sought and issued to tenants and the local housing authority.

Local housing authority intervention

Local housing authorities will have rights to take action, as necessary, to enforce the legislation. They would be able to step in and instruct works to be done, with the consent of the tenant(s), if the landlord failed to do so.

Costs would then be recovered from the landlord.

Penalties for a breach

The local housing authority will also have powers to serve financial penalties to landlords guilty of a breach of up to £30,000.

Where is the loophole?

RLA has alleged that the proposed 2020 regulations do not encompass Houses of Multiple Occupation.

Their concerns are that, whilst the majority of landlords wouldn’t dream of allowing failings in electrical safety, ‘rogue’ landlords may take advantage of the loophole.

RLA’s policy director, David Smith, described the action the Association has taken to urge the government to delay passing the regulation, until it is robust:

“Good landlords don’t need to be told to carry out safety checks but these changes to regulations leave tenants vulnerable to those landlords who are not so responsible.

“It is essential for the safety of tenants that the loophole being created is closed and we urge the government to delay implementation until that happens.”

Do 4.8% average yields make two-beds best?

According to new data from letting agent, Howsy, analysis of rental property sizes found two bedrooms came out top for yields, with an average of 4.8%.

The analysis looked at one-, two-, three- and four-or-more bedroomed properties in England, with the following results:

Property size

Average yield

1-bedroom

4.1%

2-bedrooms

4.8%

3-bedrooms

4.5%

4 or more bedrooms

3.6%

Yields were calculated by comparing the average cost of buying the property, with the average rent the property could secure.

Location is also a strong influencing factor on yields, given that the upfront cost of purchasing property, can vary so widely across the country.

London, for example, is the only location where yields for one bedroom properties are ranked top.

Yields in the city, for a one-bedroom rental, average 4.6% over two-bedrooms with 4.5%. Costlier property prices and higher rents for smaller properties, clearly have an impact.

Elsewhere, the North and Yorkshire and the Humber achieve the best yields from two bedroomed properties in England:

Location

Average yield on 2-bedroom property

North East

5.5%

North West

5.3%

Yorkshire and the Humber

5.2%

Is gross yield the correct measure of success?

Howsy’s interpretation of the data misses some key factors that, if you are planning an investment, are fundamental to your decision making process.

First of all, they do not accommodate in the data the cost of running a property.

Whilst you may secure a greater rental income from two smaller properties versus one larger one, there are costs that may be per property. Therefore, with two properties versus one, where costs were per property, they would double.

Tenant demand is also a key consideration. There would be little point investing in a two-bedroomed property in an area where the demand for one was limited versus the demand for different type of property.

Local facilities and transport links are also key to maintaining high occupancy.

Two bedroomed properties may, on the whole, be more accessible price wise. They may well offer good yields, but it is unwise to make any investment decision without proper research and planning.

Family with moving boxes

Tenant demand at record high

Tenant demand is at a record high whilst rental stock dwindles, according to ARLA Propertymark’s (Association of Residential Letting Agents) January 2020 Private Rented Sector Report.

To compound the issues facing tenants, rents are rising as a result.

Tenant demand highest on record

ARLA measures tenant demand by the number of requests per branch that are received by their members.

In January 2020, there was a 57% uplift in tenant demand, from December. Naturally, seasonal trends will have an impact.

However, when referring to the same statistic for December 2018 to January 2019, the uplift was far less, at 46%. Which highlights that this is not just a seasonal factor.

Month

Tenant requests per branch

% uplift

December 2018

50

January 2019

73

46%

December 2019

56

January 2020

88

57%

Proportion of rent increases jumps up to 42%

In January 2020, 42% of tenants incurred rent increases. This was up from 32% in December 2019.

A look back to the previous year again, highlights that this is not just a seasonal trend.

In December 2018 this figure was 18% and in January 2019 it was 26%. So, year on year, the percentage of tenants experiencing rent rises was significantly higher.

Regional variance demonstrates the outliers in the data. In Yorkshire and Humberside, 56% of ARLA lettings agents reported that landlords had increased rents.

By contrast, Scotland saw the lowest number of increases in rents, at only 10%.

Rental stock on the wane

The number of properties being managed by letting agents dropped from December 2019 to January, from an average of 206 per agent branch to 191, down 7%.

This is the lowest the volume of rental stock has been since July 2019.

To build a picture of how this compares year on year in December 2018 this figure was 193; which increased to 197 on average in January 2019, an increase of 2%.

Scotland faired the best with 338 properties per member agent, whereas London was worst with 114 properties per member agent.

Tenancy length maintained

The average tenancy length sits at just over a year and a half, which was unchanged from December to January. In 2018/19, there was uplift from December, at 18 months, to January with 20 months.

Tenant movement is lowest in the East Midlands, with average tenancies nearly reaching 2 years.

In the North East, tenants are on average retaining their tenancies for just 12 months.

Read the ARLA Propertymark report in full here.

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