Rents up as landlords leave the market – but agents remain positive

Demand is up and so are rents

Two new reports out this week look at the lettings industry. Both are revealing.  The Association of Residential Letting Agents (ARLA) and digital referencing company Goodlord put the current state of the lettings industry under the spotlight, now that agents have started to adjust to the changes brought in by the Tenant Fees Act.

According to ARLA, rents rose to their highest-ever level in June, with demand also on the increase. Year-on-year, the number of tenants facing rent increases is up from 31% in June 2017, and 35% in June 2018. At the same time, the number of properties under management fell. ARLA chief executive David Cox expects this to be a continuing trend.

 “In addition to the repercussions of the Tenant Fees Act, the proposed abolition of Section 21 coupled with the Mayor of London’s recent call for rent controls, will only cause the sector to shrink further. In turn, this will increase pressure on the sector because it will discourage new landlords from investing in the market, causing rents to rise for tenants as less rental accommodation is available.” He said.

Ever since the Government proposed the ban, ARLA has warned that tenants would continue to pay the same amount, but the cost would be passed onto tenants through increased rents, rather than via upfront costs.

Goodlord also surveyed letting agents around the country to take the pulse of the industry during the summer months. They reveal that agents are largely optimistic despite the issues raised by the ARLA survey. The agents surveyed admit they expect to lose revenue following the fees ban in June but they are taking a positive stance, with almost half (47%) of those polled planning to expand their managed portfolio in response.

But perhaps the most interesting feature of this survey is that while letting agents continue to deal with the familiar pain points of the rental business from carrying out referencing to sourcing tenants, more than 80% of them are increasingly looking to Proptech to make these processes easier. This is the trend to watch and we’ll be blogging on this again in the coming weeks.

Renting – what do you think about it?

Despite all the bad press that renting often seems to attract, most people are happy with their rented home and have no complaints about their landlord. This is the good news for the rented sector from the latest English Housing Survey Private rented sector report, published yesterday.

Private rentals are the second biggest housing sector in England. The government estimates the PRS at 4.5 million households compared to 14.8 million owner occupiers, with about one in five households in England renting their home.

Most renters are happy in their homes says the latest English Housing Survey

According to the survey, the vast majority (84%) of private renters say they are ‘satisfied’ or ‘very satisfied’ with their current accommodation, though satisfaction levels are higher among owner-occupiers (95%).  Private renters are also less happy with their tenure, at 69%, compared with 98% of owner-occupiers. In a country where owning your own home is a key aspiration for most people, this is not unexpected.

Compared with social renters and owner-occupiers, private renters spend the most money on housing. On average, they spend a third of their household income on rent. And there are no surprises in the fact that Londoners spent more on rent than people living outside the Capital. What is more unexpected is that despite the often high cost of renting in comparison to paying a mortgage – and the number of renters who receive Housing Benefit –  the majority of people polled said they found it ‘easy’ or ‘very easy’ to pay their rent.

And despite the difficulties of getting onto the house-buying ladder, more than half of private renters thought they would eventually buy a home – even though a sizeable proportion freely admit they have no savings. Younger renters were more likely to think they would eventually become home owners. But without any clear idea of how this might happen, this sounds more like the optimism of youth, rather than a sign of increasing affordability in the housing market!

Is it time to ditch licensing schemes?

Passports are fashionable in the rental sector right now. Last month we had deposit passporting and now we have the concept of a so-called rental property passport.

This is the suggestion of  Theresa Wallace, head of lettings customer relations at Savills and current chair of The Lettings Industry Council. Speaking at The Property Ombudsman Conference last week, she told delegates the passport “could rapidly improve the quality of accommodation and landlords, and would be far fairer than the slew of licensing schemes now in force”.

Could the idea of rental property passports signal the end of licensing schemes?

It would be based on the DVLA model which manages the details of almost 50 million drivers and 40 million vehicles. Letting Agent Today outlines how the passport might work.

  • Each rental property would have a unique reference number. These are already allocated to properties by the Land Registry;
  • Any property without a reference number would not be ‘official’, so may have been illegally converted;
  • Every advertisement for a rental property must include its reference number and would also include the equivalent of a ‘property MOT’ certificate to ensure it had passed appropriate tests. 

Delegates at the conference were told that Hunters have already successfully piloted the scheme and that the Lettings Industry Council has found a not-for-profit supplier who may be able to operate a PropTech portal. This would mean the properties could be quickly and easily viewed by the public and Trading Standards.

If you are a landlord – or a tenant – we’d like to know what you think about this idea, so do leave your comments below.

Deposit passporting – have your say

In June we blogged about the idea of rental deposit passporting. The idea is to make it easier for renters to transfer deposits directly between landlords when moving from one property to the next,

Housing Secretary James Brokenshire MP has now announced a Call for Evidence on tenancy deposit protection in England that, among other things, invites views on passporting.

Deposit passporting – what do you think?

The government hopes to get a better understanding of the problems tenants face in providing a second tenancy deposit when moving from one tenancy to the next. It is also searching for ways to speed up the return of deposits to tenants at the end of their contract. The Call for Evidence will look at whether current thinking on making deposits affordable are meeting tenants’ needs and whether the market can offer improved products.

The results from the Call for Evidence will help the Tenancy Deposit Protection Working Group. This is looking at whether improvements can be made to deposit protection to the benefit of tenants and landlords. ARLA Propertymark is part of the working group – which has been running for the last 12 months. ARLA supports the idea of moving deposits between tenancies. But it says any solutions that the government comes up with must consider the interests of all parties.

“For deposit passporting to work, we need to ensure that both the outgoing landlord’s deposit can be used if needed, while the incoming landlord has certainty they will get the full deposit they have agreed by the tenant,” said ARLA this week.

“Affordability for tenants of any bridging loan or insurance policy will be key if deposit passporting is going to be a workable and affordable solution for the future of deposits.”

So if you are a landlord, a property manager or a tenant with strong views on how this could work in future, you can download the Call for Evidence and have your say by email to DepositReform@communities.gov.uk or online by 5 September.

Making rental deposits easier to transfer

Good news for tenants today. In future it could be made easier to free-up rental deposits when moving from one property to another via “deposit passporting”. Speaking at a major housing conference in Manchester, Communities Secretary James Brokenshire said this was one of  the ways that the housing market could be made fairer.

Deposit passporting sounds like good news for tenants but what about landlords?

“Ministers are inviting proposals to make it easier for renters to transfer deposits directly between landlords when moving from one property to the next,” he said.

This is because some tenants find it a struggle to provide a second deposit to their new landlord. Until their original deposit – on the home they are moving out of – is returned by their current landlord, many renters find themselves in danger of getting into debt or becoming trapped in their current home. With more than 4 million people living in the private rented sector, the government want to understand the scale of this problem.

Shelter welcomed the news. “A deposit passporting scheme would help the country’s hard-pressed renters avoid having to stump up a fresh deposit before they’ve got the old one back, ” said the housing charity in The Times.

But what about landlords? There is a reason why deposits are withheld until the check-out process has been completed – and that’s because not all renters leave properties in good order.  It may not always be possible to inspect a property until after the tenant has left. And any damage may not be immediately obvious. If the deposit has already been “passported” that could leave the previous landlord high and dry.

The suggested solution set out by James Brokenshire today is that the previous landlord should still be able to claim part of the deposit for any damages, and the tenant could top up the deposit if necessary. So could it work? Maybe.

The next step is a Call for Evidence. The industry will be asked to consider whether the scheme should be government-backed, or whether existing deposit schemes could be tweaked to take passporting on board. The Secretary of State told the press today: “We need to do this thoughtfully”. Let’s hope he means it.

The focus is now on property management – but make sure you get it right!

Letting agents have been told today, that by not including property management in their services, they could be losing out on “thousands of pounds of potential income”. New research from outsourcing supplier ARPM, reported in Letting Agent Today, shows that many agents typically offer let-only. By offering a full management service too, ARPM calculates they could boost average annual income by up to 80% per tenancy. That’s big money.

The report reveals an untapped market of almost one million landlords in London alone who just use letting agents to find them tenants – or don’t use one at all. With private rentals expanding across the country year-on-year and many landlords living remotely from their investment property, there is huge potential for growth. And a chance to claw back the estimated £400 per letting that agents are expected to lose as a result of the tenant fees ban.

Property management is a business that shouldn’t be entered into lightly

But – and this is a big but – property management is a serious business. The government has property agents in its sights right now and poor service in our sector is soon to be outlawed by the advent of stronger regulation and the need for recognised qualifications. So, like marriage, this isn’t a client relationship to be entered into lightly.

As chartered surveyors and professional managing agents, we have long-standing experience in this market. Our lettings division Life by Ringley, based in Manchester and servicing clients across the region, has a clear understanding of the wide-ranging needs of landlords and tenants. We provide both basic and full management services, with fees clearly stated from the start. Click here to find out more. o.uk/

As well as managing rental property, Ringley specialises in leasehold blocks. Rather than a one-size-fits-all approach, our Blockcare offer has something for everyone, from a basic service to fully managed options. Fees are charged according to the level of management you require. Sign-up is easy and almost everything from site reports, minutes, invoicing and accounts can be done online. We can take us much or as little of the hassle out of your management requirements as you want us to.

We even have a tailor-made package for you to use if you can’t afford a managing agent! So click here to find a package that suits your needs.

Tenant Fees Act now in force

The Tenant Fees Act came into force in England on 1 June. This is a very important change in the law for everyone living and working in the private rented sector.

The key change is that landlords and letting agents can’t charge tenants a fee for anything that isn’t listed in the Act as a permitted payment. Allowable payments are:

  • Rent
  • Tenancy deposit
  • Holding deposit
  • Payment in the event of a default
  • Payment on variation, assignment or novation of a tenancy
  • Payment on termination of a tenancy

Also, landlords and letting agents can still take payments for council tax, utilities, TV licences and for communication services such as telephone and internet. Fees can’t be charged on anything that isn’t on the list above, including:

  • Credit checks
  • Inventories
  • Cleaning services/professional cleaning
  • Referencing
  • Admin charges
  • Gardening services

Landlords and agents do need to read the small print – or in this case, the Act – because there are some other changes you will need to know about. Go to https://www.gov.uk/government/collections/tenant-fees-act to see the Act in full.

There are now a number of limitations on the way rent is paid. Holding and tenancy deposits are capped at one week’s rent and five or six weeks’ rent accordingly and it is not acceptable to ask for an additional deposit to be paid by renters with pets. It is permissible though to charge a higher rent if a tenant moves in with their cat, dog or rabbit.

Fees are still allowed for replacing lost keys or electronic fobs but charges must now be evidenced in writing to demonstrate that they are reasonable. Landlords and agents are also still able to charge interest on overdue rent but the caveat here is that the fee only kicks in when the rent is more than 14 days late. Interest can only be charged at 3% above the Bank of England’s annual percentage rate for each day the rent is outstanding.

Tenants can no longer be charged a penalty for contractor call outs or missed appointments but deductions can be made from the tenancy deposit if there is a clause in the tenancy agreement that has been broken, such as not returning the property to the state it was in at the beginning of the tenancy.  Charges can also be made for work or repairs that are deemed necessary before the end of the tenancy if the damage is the fault of the tenant and the landlord or agent needs to provide accurate evidence of any costs incurred.

To be absolutely certain that landlords understand the new rules, ARLA has developed a toolkit that explains the new legislation in detail. Go to https://www.arla.co.uk/tenant-fees/ to download a copy.

Later in the week, we will take a look at the industry response to the new Act and asking what will be the likely impact on landlords and agents.

Right to rent update

Earlier this month, the Government issued new guidance on right to rent checks post-Brexit. Like most things Brexit-related, there has been a lot of uncertainty about what will happen next and landlords and letting agents have been rightly confused as to what their rights and responsibilities will be once the UK leaves the EU later this year. In response, the Home Office has now confirmed that there will be no changes made to existing legislation until 1 January 2021.

Under the law as it stands, anyone letting a property must check that prospective tenants have the legal right to rent a home before a new tenancy agreement is signed.

Until 1 January 2021 EU, EEA and Swiss citizens will continue to be able to prove their right to rent in the UK as they do now, for example by showing their passport or national identity card.

There will be no change to the way EU, EEA and Swiss citizens prove their right to rent until 1 January 2021. This remains the same if the UK leaves the EU with or without a deal. Letting agents and landlords do not need to check if new EEA and Swiss tenants arrived before or after the UK left the EU, or if they have status under the EU Settlement Scheme or European temporary leave to remain. Nor will they need to retrospectively check the status of EU, EEA or Swiss tenants or their family members who entered into a tenancy agreement before 1 January 2021.

Irish citizens will continue to have the right to rent in the UK and will continue to prove their right to rent as they do now, for example by using their passport.

However, the Home Office states that letting agents and landlords should continue to conduct right to rent checks on all prospective tenants to comply with the Code of practice on illegal immigrants and private rented accommodation and the Code of practice for landlords: avoiding unlawful discrimination.

As is now the case, in order for a landlord to obtain a statutory excuse from a civil penalty when letting to the non-EEA family member of an EU, EEA or Swiss citizen, the prospective tenant will need to show Home Office issued documentation as set out in the legislation and guidance.

So watch out for new guidance on how to carry out right to rent checks from 1 January 2021 and in the meantime, if you’re still confused, go to the government website at gov.uk which has plenty of useful links and more information on right to rent checks.

Section 21: Finding the right balance

With the introduction of more regulation, reductions in tax relief on mortgage interest and 3% Stamp Duty on buy-to-let properties, landlords are really under pressure. Add Section 21 changes into the mix and there is a real risk that, having lit the touch paper, all the government has to do is stand well back and watch the rental market go down in flames.

This may be an exaggeration but according to a recent survey carried out by Landlord Action and reported in yesterday’s Landlord Today, more than a third (38%) of buy-to-let landlords will consider offloading properties if the government axes Section 21 ‘no fault’ evictions. A further 33% said they would only continue being a landlord if “significant changes” are made  to Section 8.

The study also found that 70% of landlords would be less willing to consider a longer-term tenancy if Section 21 was no longer available to them, while 85% said they would be more selective with their choice of tenant. 

This is serious. The government is attempting to reform the private rental sector in order to help tenants but is running the risk of alienating the very landlords that people rely on to provide their homes.

In response, today there has been a new call on the government to rethink its plans to change the Section 21 eviction process. The founder of Landlord Action, Paul Shamplina, has written to housing minister Heather Wheeler, inviting her to gain a greater understanding of the possession process before making drastic reforms, by attending an eviction with him.  In formulating policy and new legislation it is vitally important that any reforms present equal opportunity for everyone operating and living in the private rental sector.

With 85% of landlords telling the National Landlords Association in a recent poll that they would be unlikely to vote for any party proposing to remove Section 21, for the minister’s sake let’s hope she is in listening mode.

Section 21 changes: what’s the problem?

On 16 April this blog flagged up government plans to scrap “no-fault” evictions. The change proposed to the Housing Act 1988 means landlords will always need to give tenants a reason for ending a tenancy, such as breach of contract or wanting to sell the property. We also drew attention to the fact that the government needs to show caution if this decision, by putting tenants’ interests first, is not to have unforeseen consequences.

In fact, the results of scrapping Section 21 are not ‘unforeseen’ at all. If the proposed change is not carefully thought through and properly managed, we predict smaller landlords leaving the rental market in favour of less troublesome investments, shrinking the available rental stock as a result.

So why has the government chosen not to introduce three- year tenancies but now seeks to introduce never-ending agreements or contracts that can only end using protracted court eviction processes and proving fault? Many landlords feel more secure in renting their properties knowing that they can get to know their tenants during the first year of their tenancy and have a straightforward way out using Section 21 (a non-adversarial, no-fault process) should any kind of nuisance, behaviour or problem with late payment start to rear its head.  Housing Associations also use a one year contract before they grant long term tenancies for the very same reasons. 

Richard Lambert urges the government to look to Scotland, which scrapped no fault evictions in 2017.

The National Landlord’s Association (NLA) has been quick to slam the proposal, arguing that Section 21 “has become a backstop to overcome the ineffective Section 8 process”. Richard Lambert, CEO of the NLA, talking to Landlord Today earlier this month, said: “Landlords currently have little choice but to use Section 21. They have no confidence in the ability or the capacity of the courts to deal with possession claims quickly and surely, regardless of the strength of the landlord’s case”.

Lambert suggests that before making any major decisions, the government should look to Scotland, which outlawed Section 33 notices (equivalent to Section 21) in December 2017. Scottish landlords were just as resistant to the change as their English counterparts but the predictions of disaster have not materialised, probably due in large part to the fact that the court process was reformed in advance of the Section 33 changes. With Wales also expected to following Scotland’s lead, it is vital that the law makers tread carefully. As Richard Lambert says:  “If the government introduces yet another piece of badly thought-out legislation, we guarantee there will be chaos.” We wholeheartedly agree with that.

Tomorrow’s blog will take a closer look at what could be done to make any new proposals work for tenants AND landlords.