The Government’s new Section 21reform could put private tenants in a “weaker position” in the long run, according to a Partner from property law firm Collyer Bristow.
On Monday (15thApril 2019), the Government announced radical Section 21 reform, which will create open-ended tenancies in the private rental sector and restrict a landlord’s ability to evict their tenants.
The Section 21 reform to so-called no fault evictions under the Housing Act 1988, together with recent changes to taxation on buy-to-let landlordsand the upcoming ban on lettings fees, could make investing increasingly difficult for private landlords, and may dissuade institutional landlords from making further investments, Collyer Bristow believes.
Paul Henson, a Partner in the Real Estate Litigation team at Collyer Bristow, says: “The Government has a Dickensian view of private landlords offering substandard homes for extortionate rents. Whilst the market is far from perfect, this view is outdated. Private landlords want tenants in their homes, and most tenancies are, in fact, ended by the tenants themselves.
“The demand for rented homes continues to grow, particularly in London and the South East. The market is attracting considerable investment from financial institutions with smart and professional build to rent offers. This professionalisation of the rental market is needed and desirable.”
He continues: “Government reform must focus both on the needs of the tenant and the landlord. Any reform that makes the market less desirable for private and institutional landlords could leave tenants in a much weaker position in the longer run.
“We wait to see the full detail of the Government’s reforms and particularly the suggested amendments to Section 8 (fault based) procedures, and how they intend to expedite the court possession process.”
Landlords, do you agree that Section 21 reform could leave your tenants in a weaker position in the long-term?
By Marc Trup, the Founder and CEO of Arthur Online
In a city that hosts around 15m tourists each year, short-stay rentals are not a new phenomenon for London. However, with the rise of marketing portal Airbnb, there is now a growing number of landlords who are choosing to offer short stay rentals over traditional long-term lets.
A big reason for their increase in popularity is due to short-term lets being able to achieve much higher rental returns for landlords than longer-term lets. On average, short-term lets can bring a massive 30% more in returns than the same property being let on a long-term tenancy. However, unless you have another stable revenue stream, it’s best not to rely on short-term lets as your sole source of income. They can be unpredictable, and, while returns can be greater, there is a risk of actually losing out on income due to the number of void periods.
While there is greater flexibility, through the greater turnover of tenants, there is a bigger chance of things being damaged in the property, and therefore more maintenance issues. If you are looking to get into short letting, be prepared for a more hands-on approach to property management. Responsibilities will include: cleaning, handling check-ins, dealing with general tenant queries and issues, as well as maintenance of the home.
It is also worth noting that the success of short-term lets is heavily dependent on where your property is located. Highly desirable areas, and areas popular with tourists, are much more likely to have success as a short-term rental. If your property isn’t situated in an area which receives a high volume of visitors all year round, there is a risk that you will face long void periods. Rent from short-term lets is not as easily guaranteed as for longer-term tenancies. On top of this, even while your property isn’t occupied, you will still have to pay for the running of the property, e.g. gas/electric bills and insurance costs.
For homeowners who want to make some extra cash from their property during high season, short-term lets are a good way to go. However, for the full-time landlord, a more cautious approach may be more appropriate to help limit the amount of void periods in the property.
Short-Term Lets vs. Long-Term Lets
It is also possible to try a combination of the two and offer both short and long-term lets. This will enable you to charge higher rent prices during high season and, for the rest of the year, your property will be occupied by a long-term tenant. You will also need to check with your mortgage lender that your policy allows you to take on short, as well as long, term tenancies. Even if you have a buy-to-let mortgage, many lenders require a tenancy agreement to be an Assured Shorthold Tenancyof at least six months.
In spite of their new popularity, short-term lets are unlikely to replace long-term lets anytime soon. Long-term lets offer consistency – a guaranteed income for a set period every month. With long-term lets, you are more likely to get professional tenants who treat your property like a home, instead of holidaymakers who may care less about the condition they leave your property in.
Marc Trup is the Founder and CEO of Arthur Online
After selling his business to BUPA in 1998, Marc started investing in rental properties in London. Over the next 15 years Marc grew his portfolio to over 85 properties. While successful, self-managing his portfolio became increasingly difficult. With technological advances and greater connectivity, he assumed there was software available that would allow him to manage his business from his smart phone, while sipping espresso at the local coffee shop. Following a long search, he found that nothing quite cut the mustard. So being an entrepreneur, he started Arthur Online to make not only his life easier, but also that of other property managers.
Arthur Online is a cloud-based platform that enables property managers to respond instantly and solve problems fast from anywhere in the world, be it with tenants, contractors, property owners or letting agents. Since launching in 2015, it has helped thousands of property managers like Marc run their portfolios in the cheapest, most efficient way possible by using the full potential of new technology and cloud computing. Start your free trial today by going to www.arthuronline.co.uk
If you’re letting to students, you may be worried about whether they’re going to pay the rent on time and look after your property. However, we’re dispelling the top landlord concerns when letting to student tenants.
Being a landlord can be one of the most satisfying careers, but it isn’t without its concerns. Whether you’re a new landlord or seasoned professional, the potential issues are likely to be the same – particularly with student tenants, who are living away from home for potentially the first time.
Broadband and utilities provider Glide has looked into the top concerns for landlords, to dispel the myths around letting to students:
Payment issues
It’s no secret that rent payments are a concern, especially for student tenants, who may not have had to deal with the responsibility of regular bills before. However, the stigma around students being irresponsible is outdated and not reflective of the current generation.
CPS Homes of Cardiff states: “Students make for reliable, almost guaranteed tenants each year, due to the academic cycle. You know that, if the current tenants are planning to leave at the end of their tenancy, a new group is just around the corner, ready and waiting to move in at the start of the next academic year. And, contrary to the beliefs of many, they are usually very prompt payers of rent, because they’re in receipt of a student loan that they receive termly.
“Having confirmation of this student loan is far stronger than an employment reference, because people are far more likely to quit/lose their job than drop out of university. If they ever do get into trouble with their rent payments, a parent or guardian will have usually agreed to act as a financial guarantor at the start of the tenancy. This means a landlord can approach said person and demand full payment of the balance owed.”
Dispelling the Top Landlord Concerns when Letting to Students
Property damage
A quick reaction to the thought of letting to students is raucous house parties that end in damage to the property. However, with higher fees than ever and the rising cost of living, students are drinking and partying less, which means that there is less chance of property damage.
Most students prefer to relax with their friends and socialise with a TV series instead. In fact, 82% of the students that Glide surveyed recently said that they would rather binge watch TV shows than go out. So, hopefully that’s reassurance in knowing that your property is less likely to get damaged than in previous years.
Noisy neighbours
Blaring music, shouting and screaming, and parties going on until the early hours are complaints that you don’t want to hear from neighbours who aren’t students and have to be up at the crack of dawn.
This generation isn’t the rebellious youth of yesterday – there’s a decline in youth crime, as well as drinking. This generation is steering to have the best future possible and doesn’t want to be derailed by connection in actions involving the police.
Finding the perfect tenants
Whether they are students or not, building relationships with your tenants is the key to success. Glide’s What Students Seek survey found that building and maintaining a good relationship with their landlord is one of the most important things when students look for a home.
If you make sure that you’re communicating with your tenants and are easy to reach, you’ll naturally build a good foundation for respect.
Landlord investment in London is plummeting – even among those based in the capital – causing rent prices to surge to record highs in the region, according to Hamptons International.
There has been a sharp decline in the number of buy-to-let landlords investing in London’s property market since the 3% Stamp Duty surchargewas introduced three years ago, new data from the estate agent reveals.
Even London-based investors, who historically purchased their properties near to where they lived, are now deterred from buying in the capital, with Hamptons revealing that 59% of London-based landlords acquired their buy-to-let properties outside of the capital during the last 12 months, which is up from 25% in 2010.
High house price growth and a clampdown on landlord taxes have left more London-based landlords with little alternative but to invest further afield in search of higher rental yields and lower Stamp Duty bills.
The proportion of London-based investors purchasing buy-to-lets in their home region has dropped by 17% since 2015 (before the Stamp Duty surcharge on additional properties was introduced in April 2016).
The research found that 34% of London-based landlords purchased buy-to-lets in the Midlands and north during the past 12 months, which is up from just 14% in 2015 and 4% in 2010.
However, the South East remains the most popular location for London-based investors to purchase buy-to-lets outside of the capital.
Some 11% of London-based landlords invested in the South East over the last 12 months – 2% fewer than in 2015.
Dartford is the most popular destination for London-based investors in the South East. Landlords living in London purchased 60% of buy-to-lets in the town during the last year.
Aneisha Beveridge, the Head of Research at Hamptons International, comments: “April marks the three-year anniversary of the Stamp Duty surcharge introduction for second homeowners.
“Following the tax hike, landlords have been adapting their strategy to find new ways to make their returns. Lower entry costs and higher yields outside of the capital are enticing investors to look further afield than they have previously.”
Following this decline in landlord investment in London, rent prices surged by an average of 3.7% in the year to March, causing growth across Great Britain to hit 1.9% year-on-year.
Hamptons’ data shows that the average cost of a new let in Great Britain rose to £969 per month in March, as rent price growth continues to rise, led by Greater London, where the average rent reached £1,737 – the highest level on record.
Meanwhile, Scotland was the only region where rent prices fell in March – down by an average of 0.1% on the same month of 2018.
Beveridge says: “Following a sluggish 2018, London rents reached a record high in March. The average cost of a new let in London rose to £1,737 per calendar month in March – 2.3 times more than the average rent outside the capital.
“Meanwhile, every region in Great Britain recorded rising rents last month, other than Scotland.”
Today, the Government announced its plans to abolish Section 21 notices in the private rental sector, in an effort to create open-ended tenancies for all tenants.
A consultation will be launched shortly, with Section 8 evictions also due for reform.
Section 21 notices are used in a low number of cases, where the landlord has a genuine reason for needing their property back, such as selling or needing to undertake major works.
Dan Wilson Craw, the Director of Generation Rent, welcomes the announcement: “It’s fantastic news for private renters, and absolutely right that the Government will abolish Section 21 no fault evictions and introduce open-ended tenancies for private renters in England. That will mean tenants who respect their tenancy agreement can stay as long as they want without being locked in.
“Landlords have been able to evict tenants from their homes without giving any reason. This allows some to intimidate tenants into keeping quiet about disrepair or poor practice. One in five households now rent from a private landlord, but insecure tenancies mean they cannot put down roots. Section 21 is a leading cause of homelessness, with flexibility for landlords paid for out of public funds and human misery.”
He insists: “Ending Section 21 means that private renter families and older tenants will have greater financial security, and are better able to thrive in their homes and communities. We look forward to working with the Government to get the detail of a new open-ended tenancy right.
“We’re so proud of the thousands of renters who’ve led this campaign, signing petitions, contacting their MPs and councillors, and sharing their own stories of Section 21 evictions and its harmful impact. The 11m private renters in England are a growing political force and, together, we can win changes that will transform private renting into a tenure that is fit for purpose in the 21stcentury.”
However, David Smith, the Policy Director of the Residential Landlords Association (RLA), has a different point of view: “Whilst the RLA recognises the pressure being placed on Government for change, there are serious dangers of getting such reforms wrong.
“With the demand for private rented homes continuing to increase, we need the majority of good landlords to have confidence to invest in new homes. This means ensuring they can swiftly repossess properties for legitimate reasons, such as rent arrears, tenant anti-social behaviour or wanting to sell them. This needs to happen before any moves are made to end Section 21.”
He adds: “For all the talk of greater security for tenants, that will be nothing if the homes to rent are not there in the first place. We call on the Government to act with caution.”
The Government’s own data shows that the average tenant lives in their rental home for more than four years and, in 90% of cases, the tenant ends the tenancy, rather than the landlord.
The RLA warns that, at a time when the demand for rental properties is outstripping supply, especially among vulnerable tenants, the Government risks exacerbating the problem if it does not ensure that landlords have complete confidence that they can repossess properties swiftly, for legitimate reasons.
With Government statistics showing that it takes over five months from a landlord applying to the court for a property to be repossessed to actually gaining possession, the RLA argues that it is vital that a reformed and improved court system is able to establish itself and the grounds to repossess properties are improved before making changes to Section 21. This would follow the course set in Scotland.
Research by Manchester Metropolitan University, on behalf of the RLA, has found that, in a large majority of cases where tenants are evicted under Section 21 notices, there is a clear reason. Half of the notices are used when tenants are in rent arrears, are committing anti-social behaviour or damage to the property. Other common reasons include the landlord needing to take back possession of a property for sale or refurbishment.
The report’s authors argue that this “raises questions” about whether the use of Section 21 notices can properly be described as no fault evictions, as some call them.
The RLA will shortly be consulting with the landlord community, to establish what measures would be needed to ensure that it has confidence in the system, before efforts are made to end Section 21 notices.
David Cox, the Chief Executive of ARLA Propertymark (the Association of Residential Letting Agents), has similar concerns: “Today’s news could be devastating for the private rented sector and landlords operating within it. The effects of the tenant fees banhave not yet been felt, and now the Government is introducing more new legislation, which could deter landlords from operating in the market.
“Although in the majority of cases there is no need for Section 21 to be used, there are times when a landlord has no choice but to take action and evict tenants from a property. Until we have greater clarity on the changes planned for Section 8, today’s news will only increase pressure on the sector and discourage new landlords from investing in buy-to-let properties. This comes at a time when demand is dramatically outpacing supply and rent costs are rising.”
ARLA Propertymark will be working with the Government to ensure that it fully understands the consequences of any changes and that all changes are based on evidence, so that landlords have the ability to regain their properties if needed.
The Brexit delay is continuing to hinder activity in the property market, according to the latest UK Residential Survey results from the Royal Institution of Chartered Surveyors (RICS), covering March 2019.
The most recent report shows little departure from the subdued picture seen across the property sales market for several months now. Forward-looking indicators suggest that this lack of momentum is likely to continue for a while longer, possibly due to a further Brexit delay, although perceptions on the 12-month outlook are a little more positive.
The new buyer enquiries gauge returned a net balance of -27% in March – the eighth successive negative monthly reading (albeit slightly less downbeat than -40% previously). When disaggregated, demand reportedly fell to a greater or lesser degree across all parts of the UK in the month.
This recent decline in buyer appetite continues to weigh on agreed property sales, with a net balance of -24% of respondents citing a fall at the headline level in March. Alongside this, the average time taken to sell a home, from listing to completion, remained unchanged, at 19 weeks – the joint longest since this series was introduced in 2017. The South East continued to record the longest time to sell, at an average of 21.5 weeks.
Looking ahead, near-term sales expectations remained broadly stable on a monthly basis, as respondents envisaged transaction volumes dwindling somewhat further through to July, amid the Brexit delay. Beyond then, there is a little more optimism, with sales still expected to rise over the coming 12-months – although anticipation was down slightly on February’s results.
The ongoing decline in new instructions being listed for sale has intensified of late. Indeed, the supply indicator has now become progressively weaker in each of the past four RICS surveys, falling from a net balance of -20% in December to -30% in March.
As a result, despite the softening in sales activity, average stock levels on estate agents’ books remained unchanged, at 42 properties per branch. That said, stock levels are currently a little higher in London and the South East when compared to 12 months ago.
Meanwhile, the survey’s headline price net balance came in at -24%, from -27% previously. Although still negative, this does bring to an end a streak of eight consecutive months in which the net balance had further deteriorated. Even so, this measure is still pointing to a modest fall in house prices at the national level over the next couple of quarters.
London and the South East continue to record the weakest sentiment regarding house price growth, while feedback across the South West also remains subdued. Scotland and Northern Ireland are the only parts of the UK to have seen sustained price growth on a consistent basis over the past two months.
Brexit Delay Continues to Hinder the Property Market
Despite this, nationally, 15% more respondents anticipate house prices will be higher in 12 months time – the strongest reading since August 2018. Furthermore, prices are expected to return to growth across most parts of the UK in the coming year, with Northern Ireland, Scotland and Wales leading the way in terms of projections.
London and the South East were the only areas where contributors expect prices to continue falling over the next 12 months. That said, the outlook is now only marginally negative in both cases, posting net balances of -11% and -12% respectively.
In the lettings sector, tenant demand continued to rise for a third consecutive month in March, while landlord instructions slipped further. On the back of this, respondents are pencilling in rent price growth of approximately 2% in the coming 12 months. At the five-year horizon, the imbalance between supply and demand is expected to lead to an acceleration in rent price growth, which is expected to average around 3% per year through to 2024.
Comments
Steve Seal, the Director of Sales & Marketing at Bluestone Mortgages, comments on the report: “Whilst the RICS continues to pinpoint the sluggish nature of the market, we must not forget the areas that are experiencing promising levels of activity, such as first time buyers. With solutions like the Affordable Homes Guarantee announced in the Spring Statement, this pool of borrowers will hopefully benefit.
“However, whilst the Government sets up solutions to help boost the number of affordable homes, the industry ought to be doing more to reassure borrowers that securing a mortgage can be affordable as well. The average UK household debt currently stands at a record £15,400, making it even more likely that customers with a not-so-perfect credit score will become a bigger part of an adviser’s portfolio.”
He adds: “According to our research, only 10% of brokers believe high street lenders have become more understanding towards non-standard borrowers. There is clearly a fundamental need for specialist lending – it provides vital support to these borrowers and affordable solutions for those wanting to step onto the housing ladder.”
However, James Hyman, the Head of Residential at Cluttons property consultancy, believes that the Brexit delay is irrelevant to the London housing market: “There has been a lot of discussion about the recovery of the London property market once there’s a resolution to Brexit. This simply won’t be the case. There’s effectively three years’ worth of people who haven’t put their house on the market, creating a Brexit bottleneck, which will lead to a sharp correction when they do. If people are serious about selling, they should market their properties now to beat the rush of supply. However, they do need to be realistic about the price – nothing has changed in terms of affordability. Buyers haven’t suddenly got bigger salaries and they still must contend with the tighter lending criteria imposed by the CML [Council of Mortgage Lenders].
“Sellers who are prepared to price their properties sensibly will get offers. For example, we marketed three properties last week at 15-20% lower than the original price – within 48 hours, we had multiple offers. There’s activity out there, but only at the right price.”
