Concerns mount over Tenants’ Charter

Plans to introduce a Tenants’ Charter, to improve standards in the rental sector and encourage longer fixed-term tenancies for families, could be counter-productive for the market, warned rental servicers Landlord Assist.

It believes the Tenants’ Charter, announced by the communities secretary Eric Pickles, will work against landlords in many areas and potentially force rents beyond record levels and result in a reduction of quality accommodation.

But while agreeing that families should be afforded more stability in the rental sector, Graham Kinnear, managing director at Landlord Assist, is concerned that landlords face significant barriers under the proposals.

He said: “Most Buy-to-Let mortgages will only permit a six or 12 month tenancy. This is because it is much easier for banks to repossess a property if the landlord defaults on a buy-to-let loan.

“Extended tenancy agreements may impact a bank’s security especially in the event of a property repossession and the bank wishing to sell it with vacant possession.

“If lenders face greater risks then this may force them to increase the rate they charge landlords and therefore, perhaps, an increase in the rent that is charged to the tenant. This would clearly fly in the face of what the government is trying to achieve.”

The idea behind the new measures is to enable tenants to request longer tenancies in order to provide stability for families and avoid hidden fees when renting a home whilst helping to root out rogue operators in the sector.

But Kinnear wants to see new possession rules introduced to protect the interests of landlords before the new scheme goes ahead.

In some cases it can take landlords months to enforce a repossession order and regain the keys to the property. If a landlord has granted a tenancy of several years they could have to wait this period of time before they can evict the tenant.

He added: “Should the new scheme get the go-ahead we also expect letting agents to increase their administration fees for longer tenancies when compared to, say, six month lets.

“Letting agents rely on new tenancies as a continual revenue stream so inevitably they are likely to increase their charges for longer tenancy agreements. Again landlords will have little alternative but to pass on these costs to tenants through rising rents.”

Kinnear said landlords are also likely to try and predict future rent levels and include those rent increases within the agreement to ensure it remains in line with the forecast for the market.

He believes there is a likelihood that landlords are likely to overestimate rent increases and therefore the longer term tenancy is likely to create rent inflation which will reduce the choice and quality of accommodation available.

Stephen Parry, commercial director at Landlord Assist, said: “There will always be a few rogue operators in any industry and the sector has shown that quality of accommodation is always driven by demand and supply in the market at any given time.

“We accept that a landlord may enjoy reduced void times through the introduction of longer tenancies but the cost of such comfort could mean increased mortgage payments, changes to insurance premiums and enormous letting agency fees where the agent calculates their fee as a percentage of the term that is agreed.

“Such costs and uncertainty will do little to incentivise landlords to invest further in the sector at a time when the country is witnessing a housing shortage.”

Parry wants to see the government provide tax incentives to landlords who invest in the buy-to-let sector.

He added: “By increasing supply rental prices will stop rising beyond the means of tenants whilst landlords fighting for the same tenants will lead to an increase in the quality of accommodation that is offered.

“As is so often the case it appears that the best solution is to leave the matter alone and let the market regulate itself.”

Article courtesy of Mortgage Introducer

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