Category: Tenants

Section 21: Finding the right balance

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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?

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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.

Right to Rent: unfair to landlords and tenants?

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Should landlords be expected to act as border control officials when renting to a new tenant? This is the question that a Judicial Review of the government’s controversial Right to Rent policy, which obliges landlords to undertake immigration checks on prospective tenants, will be asking as it gets underway today.
The Right to Rent scheme was rolled out nationwide in 2016, meaning that landlords must now check the immigration status of would-be tenants. Understandably, this initiative has proved really unpopular. Landlords are already under pressure from the government (see my blog Landlords under fire, posted on 11 December) and certainly don’t want to take on responsibility for ensuring that tenants have a legitimate right to rent a home.
When the scheme came into effect, the Joint Council for the Welfare of Immigrants (JCWI) thought it was so potentially discriminatory that it put forward – and won – a legal challenge, gaining the right to launch a High Court case against the Home Office. As I write this blog, a full hearing is taking place before the High Court today and tomorrow.
The JCWI’s legal challenge is being supported by the Residential Landlords Association (RLA), which has carried out research to find out how landlords feel about the scheme. The RLA found that, as a result of the Right to Rent policy, 44% of landlords are now less likely to rent to someone without a British passport, mainly because they are scared they may be prosecuted if they get something wrong. Landlords also say that, as a result of Brexit and the continuing uncertainty around the future status of EU nationals in Britain, they are now less likely to rent their property to anyone from the EU or the European Economic Area.
According to Landlord Today, the RLA is calling for Right to Rent to be scrapped, arguing that it discriminates against those unable to easily prove their identity and foreign-born nationals who have documents unfamiliar to landlords. It is also calling for urgent guidance for landlords to be issued by the government, explaining clearly the rights of EU citizens to rent property, especially in the case of a no-deal Brexit.
The whole situation is reminiscent of the Windrush scandal that came to light earlier this year. Landlords are not government officials and shouldn’t be expected to act on behalf of the Home Office or to make a judgment call around who is and isn’t legally entitled to rent a property. Landlords are under enough pressure from excessive taxation and a new raft of regulations without being expected to act as immigration officers too.

Renting for life – what’s the problem?

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Letting Agent Today claims that a third of millennials will never own their own home. The report quotes new research from interiors firm Thomas Sanderson showing why the rental market is seeing such strong demand: it reveals that 28% of people under the age of 35 have no money set aside for a deposit on a house. Of the remaining 72%, the average amount people had saved was just over £6000 – that’s under a fifth of the average deposit for a house in the UK. And 30% of Britons aged 18 to 35 years old say they have given up on the idea of owning their own home completely.

What all this adds up to, is that large numbers of us will be living in the rented sector, not only while we are young and single but once we’re married and start a family, into middle-age and beyond. Research from the Resolution Foundation and Shelter predicts that by 2025, 33% of families with children living in London will be renting.

So given that more of us will be renting for longer – or for our whole lives – should we be moving to a regime more like the European model. In Germany for example, tenants have extensive rights including security of tenure, assured rental rates and protection from hardship caused by unfair practices.

These aspects of a highly-regulated rental market are great for tenants but may be viewed less favourably by landlords the majority of whom, understandably, want to be in control of their own property. They want to be able to decide who lives in it and for how long. If tenants prove troublesome they want to be able to evict them. Conversely, if tenants are happy in their home, easy to deal with and pay their rent on time, most landlords will let them stay for as long as both parties are happy.

Getting the balance right by ensuring legislation works for both sides of the renting equation is the job of government – but it’s not an easy task. New legislation coming forward aims to tackle some of these issues and stronger regulation around property agency will undoubtedly help too. Dealing with the fall-out when landlords and tenants clash is part and parcel of our role as property managers. Alongside our technical and professional role as agents we often feel we should win prizes for diplomacy too!

Vidhya Alakeson, director of research at the Resolution Foundation, said recently that families who rent need security in a regulated market. “With children attached to schools and parents to work, it is critical for households – and for society – that families can find stable and secure rented accommodation to raise their children in.” That sounds about right to us. What do you think?

Take-aways from National Residential Investment Conference

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Today I have been talking about the rental market at this year’s sold out National Residential Investment Conference, held each year in London.

Among other topics, in the spotlight during the course of the day was JLL’s recent research on the institutional (non-Housing Association) sector.  Having analysed seven residential developments comprising 911 units with an average scheme size of 130 homes, JLL reveals that average gross to net is 26.6% with an average rent premium of 9% for high quality build-to-rent developments and 3% rental growth.

The average tenant across these schemes is 31 years old, achieving circa 30% more than the mean UK salary.  Tenants are prepared to pay to be in a BTR or multi -family scheme and are not over extending themselves with rent to income at 28%, compared to the UK over-burdened rate of 40%.

JLL also identified these net initial yields:

  • London Zones 1-2 suggested yields 3.5%
  • London Zones 3-6 suggested yields 3.75%
  • Regions 4.15 to 5%
  • Glasgow the highest at 5%

Urbanisation remains the trend, with 4bn of world’s 7.5bn now living in cities.

The conference also threw up some interesting statistics on the changing nature of UK households. The number of people getting married is on a downward trend. In tandem with this, the average number of children per couple is reducing and people continue to start their families later than previous generations.  The knock-on effect of all this is that two thirds (or 17 million) of UK households do not contain children.

In terms of future property provision, this means that what the  UK needs are more homes suited to couples with no children, retirees and single sharers.   As a result, we anticipate that micro-living solutions and co-living will get more air space going forward.

The Collective at Old Oak is one of the first purpose-built co-living developments in the UK.

So what is micro-living, I hear you say. Isn’t that just an HMO?  Rightly or wrongly, for most of us HMOs tend to conjure up visions of badly converted, poorly maintained housing stock – not the purpose-built, thoughtfully designed new spaces now coming on line.  The Collective at Old Oak is a good example, although arguably it could be termed student accommodation for grown-ups!

So the answer is surely not more HMOs, but well-designed spaces concerned largely with common, outside-the-apartment space.   This puts me in mind of 1930s mansion blocks with their own restaurant and no individual kitchens to speak of.

At Ringley we manage some of these, which – without all the original amenities that have gradually been lost over time – are often now just cramped flats.  I trust in future these shared spaces will be better designed and the ‘outside-the-home’ spaces will be more about living than eating.

Landlords beware – Don’t believe everything you read!

Lesley Davis 2 Comments

 

A property management company that promised a guaranteed rental income to landlords, even if tenants failed to pay, has come under scrutiny from the Advertising Standards Authority (ASA). An advertisement running on the company website has been judged to be misleading following a complaint and has been banned from future use.

Always read the small print may be an overused phrase but it continues to be good advice, particularly when money is involved. Where this advertisement was concerned, the ASA judged that there was a particular problem with what wasn’t included in the small print.

Letting Agent Today reported this week that, in February, the website www.reliancepropertymanagement.co.uk carried a banner stating: Relax while your rental income is guaranteed! Receive your rent on time, every month, even if your tenant fails to pay. That’s a guarantee that would make any landlord sit up and take notice. None of us wants to miss out on a good deal but was this promise really one that could be relied on?

In fact someone did query whether or not rent really would be guaranteed in all circumstances and asked the ASA to investigate the claims. The advert in question stated that landlords would be paid each month whether or not the property was tenanted and claimed to be “taking away the risk” for landlords. The key phrase used was “giving you confidence in your rental income so you can rely on it, whatever happens”. Landlords were referred to the Ts & Cs for further explanation of the service but on investigation the ASA ruled that the company did not make clear each significant limitation that applied to the promise of guaranteed rent.

Nor was it made clear to landlords that the guaranteed rent was based on an agreement through which the property manager became the tenant and then sub-let the landlord’s property to other tenants. The ASA determined that this information was likely to be critical to any decision whether or not to sign a contract and the advert was therefore in breach of the ASA’s advertising code.

There are important lessons to be learned here. First, when advertising a product or service, any limitations must be made absolutely clear in marketing communications otherwise they will be in breach of the ASA code. Second – and this is a lesson for life, not just for property – if something sounds too good to be true, it probably is!

Ensuring your home is fit to live in

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Here’s an interesting situation. In a recent case that ended up in the High Court, a tenant had signed a two year tenancy on a house and paid £34,000 in rent for the full term of the contract. After the tenant moved in, part of the front garden wall collapsed, blocking a side passage. This caused internal damage to the house and as a result the tenant complained that the property was not habitable. A structural engineer’s report, obtained by the tenant, showed that part of the retaining wall could collapse at any time, posing a risk to the house. He concluded the property wasn’t safe to live in.

Most of us would assume that this would be enough to entitle the tenant to at least part of his rent back and for the landlord to immediately carry out the repairs needed to make the house safe. But under the law as it stands this isn’t necessarily the case. What is known as ‘significant disrepair’ is enough to make a case against your freeholder under section 11 of the Landlord and Tenant Act 1985, but – shocking though it sounds –  if a property is ‘not safe to live in’ that is not, at the moment, a basis for a claim.

In this particular case the tenant was lucky. The tenancy agreement contained a clause headed Premises uninhabitable, which stated,

“The rent or a fair proportion of the rent shall be suspended if the Premises or any part thereof shall, at any time during the tenancy, be destroyed or damaged by any risk insured by the landlord so as to be unfit for occupation and use…

After an appeal by the landlord, which was judged unreasonable, the tenant won. And rightly so but it was only the clause in the tenancy agreement that kept the law on the tenant’s side. In future we hope that tenants won’t have to rely on a clause like this to be treated fairly and to be reassured that their home is safe. The Homes (Fitness for Human Habitation) Bill is due for its second reading in the House of Lords on 23 November. If enacted, this new legislation will give tenants the right to take landlords to court if their home is unsafe. A recent report in The Guardian quoted figures from Shelter, revealing that more than a million homes are thought to pose a serious threat to the health or safety of the people living there. That’s a staggering one in six of the privately rented homes in the country.

This is nothing short of scandalous and change is badly needed. With cash-strapped local  councils responsible for chasing up any requests for repairs that are ignored by landlords, inspections by environmental health officers to investigate problems such as mould, damp and fire risk take far too long.

The changes set out in the Bill will make no difference to landlords’ existing obligations but will simply make it quite clear that rented property must meet certain standards. Let’s hope Parliament lends its support to a change in the law that is long overdue.

Wages and rents go up – but is that the whole picture?

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Figures released today by the Office for National Statistics reveal that after almost a decade in the doldrums, wages are finally on an upward trend. Compared with a year earlier, says the BBC, wages excluding bonuses rose by 3.2%. This is the biggest rise since the end of 2008.

This is great news after years of wage stagnation. But for renters, less encouraging is the news that rents have also increased. According to the latest figures from HomeLet, the average cost of renting a property outside London rose by 1.7% in the 12 months to October. And tenants in the capital faced an even bigger jump of 4%, according to the referencing firm.

HomeLet’s rental index is based on new rental contracts agreed by landlords and agents using its referencing service. It reveals that the average rent in the UK hit £928 per calendar month in October – up 2.1% on the same month in 2017. Outside London, the average rent in the UK is now £768pcm. Within Greater London tenants are paying an average monthly rental of £1,543pcm. Perhaps most surprising is that rents are increasing even faster than London in Northern Ireland and Scotland – which showed a 4.5% and 4.2% rise respectively over the last 12 months. The average rent in Northern Ireland is £653 pcm and £647pcm in Scotland.

However, rent rises are not the whole story. In the last 10 years the Consumer Price Index, which measures the average cost of goods and services, has overtaken rents, with the East of England and London the only areas where rental growth has outpaced inflation.  What this means is that in real terms, in most parts of the country, rental payments have actually become more affordable. According to Hamptons International, which monitors the rental market, in the last decade rents have actually risen 22% but inflation has risen by 24% over the same period.

Letting Agent Today reports that in the East of England, real rents have risen 7.5% during the last 10 years.  And in London, real rents are up a mere 0.5% since October 2008. However, inflation has outpaced rents in all other regions across Great Britain, resulting in negative real rental growth.

However, Aneisha Beveridge, Hamptons International’s head of research thinks this is only temporary, predicting that over the next few months inflation could begin to fade. Then rental growth will pick up pace.

If this is likely to be the case then ensuring your landlord is providing best value for money is paramount. Are your rental needs flexible or do you need to be in a particular area for work or schools? A good letting agent is always your first port of call to help you find the rental property that best meets your needs – and your finances.

Pay your rent on time – and boost your credit rating!

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Do you always pay your rent on time? If so, your on-time payments could soon improve your credit rating in exactly the same way that homeowners benefit by keeping up their mortgage payments.

The Creditworthiness Assessment Bill, which is now going through Parliament, will enshrine this in law. The Bill requires certain matters to be taken into account when assessing a borrower’s creditworthiness and once enacted – hopefully in 2019 – for the first time, credit providers will have to include your rental and council tax payment history when calculating your credit score. At the moment, timely rental payments aren’t necessarily reflected in people’s credit reports but – hopefully – this is all about to change. The Bill, which was put forward by Big Issue founder Lord Bird, has cross-party backing in the House of Commons and had its second reading in October.

And the change won’t only work in tenants’ favour – it will be good news for landlords too. The Residential Landlords Association says 61% of landlords support the move; it believes including rent payments in your credit rating in this way will also make it easier for landlords to make a more accurate assessment of a prospective tenant’s credit and rent payment history. In turn that would make it more straightforward for people with a good credit record to find rental property quickly and easily.

This bill is long, long overdue. With rental and/or mortgage payments being the largest and arguably most important outgoing for UK households, it has always been unfair to tenants that they have been denied the ability to have their ‘rent worthiness’ to be taken into account.

Latest estimates show that around 5.4 million UK households rent, so once this legislation is enacted it stands to make a big difference to many people’s lives, whether they wish to prove their credit worthiness to a prospective landlord, buy a new car or take out a bank loan. It will open up fairer access to more affordable credit to a wider pool of responsible borrowers and prevent people from falling into the high-cost-credit poverty trap.

Your Move’s recent Landlord Survey, which polled 1,071 landlords and tenants to learn more about their portfolios, behaviours and attitudes towards tenants, agents and the lettings market, shows that landlords vote trustworthiness as the most important quality in tenants. Just over a quarter (26%) of landlords surveyed rate tenants who pay on time as the most important consideration.

PlanetRent created by the Ringley Group will soon be making rent worthiness data available to support tenants and landlords alike.  PlanetRent is lettings automated – for landlords who want paperless deals, advertising, landlord websites, compliance sorted, protection from fines and the whole audit trail completely taken care of.  To find out more, go to PlanetRent.co.uk

Stamp duty abolished for some first time buyers – and rates relief for retail

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Yesterday’s Budget speech didn’t include many dramatic new measures to boost the property sector  but we certainly welcome the Chancellor’s first time buyers’ stamp duty abolition on shared ownership homes valued at up to £500,000. This is a good way to get normal working families into secure accommodation as an alternative to rent.  With the huge increase in numbers of homes for sale and/or part ownership developed by housing associations, we see HAs very much as the developers of the future. With a red tape, tick-box-based planning system and some developers guilty of land banking sites to maintain prices – stimulus for social housing must be the answer to the housing crisis.

With the London property market cooling we also welcome the extension of the government’s ‘help to buy’ initiative, which supports many developers and ensures that UK purchasers can buy  UK property – without that ability there is a serious risk of the remote or overseas landlord problem getting out of control.  It is absolutely vital that we don’t alienate young buyers by pushing them out of our cities in favour of yields-driven landlords who overcrowd properties that were originally designed as family homes.   The good news for renters and sharers is that increasingly there are quality, purposefully designed build-to-rent homes coming onto the market in pure rent environments.  But accidental landlords – those who, say, rent out their batchelor pad – got no comfort yesterday as tax relief and claimable allowances continue to be phased out.

We hope that the promised £400M for schools will be in part directed into ‘fit for work’ measures. On a day-to-day basis at Ringley we remain challenged by the lack of employability skills in many of the youngsters we support. We estimate the employer burden on filling those gaps is costing us up to £3,500 per employee.

Having been an Ambassador for Apprenticeships from the start, we welcome the £695M to develop apprenticeships.  However, we remain concerned and are working with training providers on a number of challenges, in particular the fact that we cannot truly offer to take apprentices through to degree level in some disciplines such as IT and that, for example, IT apprenticeships often reflect old technologies and need updating fast.

The budget did provide much-needed help for the retail property sector. Landlords of our beleaguered high streets and retail centres should be able to hold their rents and reduce the uncertainty of void units with the announcement that rates for small business are to be cut by 1/3rd over the next two years. This is a much-needed reduction and some relief from the pressures of a changing landscape and digitalisation, which falls particularly unequally on break-even small businesses.  Not sure we are ready to open our lavatories to the entire general public quite yet though!

We hope that the money local councils will receive to revive their high streets will inspire creative thinking as the reason for having a town centre continues to shift.    More on that soon…..