"With no rent coming in during that time, how will the mortgage continue to be paid? It’s as if the Government thinks all sales of PRS properties are almost guaranteed."
When it comes to the protections afforded to tenants, most people would agree with certain measures.
Ensuring the property is habitable. Absolutely. Ensuring the property does not have damp or anything else that might impact the health or well-being of a tenant. Again absolutely. Eradicating the private rental sector of ‘slum landlords’ who prey on the vulnerable, who have overcrowded properties, who don’t provide the services or attention that tenants deserve. Thrice absolutely.
So who could argue with some of the measures in the Renters Reform Bill which will beef up the legislation to do all of this? Not us and it’s absolutely right and proper that tenants are able to choose from, and live, in properties which are of the very highest standards.
No quibbles there, but then you delve a little further into the Renters Reform Bill and you realise that what we are also likely to have is a situation where in terms of tenant non-payment, possession, tenancy agreements, selling properties, providing notice, rental levels, the Government is effectively taking away a huge degree of autonomy from landlords, and the consequences of this are likely to be huge, not just for landlord borrowers, but advisers and, very seriously, lenders.
To provide a brief run-down of the above, the Bill will:
• Allow tenants non-payment arrears of three months, not two, before a landlord can service notice to repossess a property, and who knows how long that might take.
• The tenant need only give two months’ notice to the landlord to move out, while the landlord has to give four. Landlords will need to have a reason to end a tenancy with the only ones on offer being; rental arrears of three months; antisocial behaviour; and to occupy or sell the property.
• On selling the property, if you try and can’t sell, you’re unable to let the property out for 12 months after the four months’ notice period. If you do let it out you can be issued with a civil penalty of £7k and the previous tenants can reclaim the rent they have paid for a somewhat staggering 24 months.
• AST rental agreements will be a thing of the past. There will be no fixed-term tenancies allowed, for those who are living there as their main residence at least, and instead we will have periodic or 'rolling’ monthly contracts. It will be a criminal offence to even suggest having a fixed contract with a tenant.
• Over-offer rents are outlawed. The property must be marketed at a fixed price and they can’t accept bids over this. We may well be about to see a lot of new rental properties being put on for a much higher rent and tenants will effectively bid up to that.
These are just some of the measures and it’s fair to say that the, shall we say, ‘intended’ rather than ‘unintended’ consequences of this are going to be some pretty worried landlords, who once again, are having significant levers taken away from them, but also lenders who are already scratching their heads and wondering how this is all going to work.
Take the three-month arrears from tenants, for example, and the potential implications of this feeding into landlords missing mortgage payments. That doesn’t appear to have been considered at all. Perhaps the Government merely thinks that landlords will be quite happy to pay their mortgage during such a period, even if they are not receiving any rent to cover it?
Of course, the very mortgage they have is based on a rental agreement showing the monthly rental cost and the percentage applied by the lender above this. A rolling, rather than a fixed, contract is also going to appear to lenders as a much less tangible and certain agreement between landlord and tenant on which to base any sort of lending decision.
We’ve been talking to buy-to-let mortgage lenders who are scratching their heads about how this is going to work in practice, particularly the extra month grace period on arrears, the inability of the landlord to be able to act quickly on possession, the hold on legal remedies to do this, and of course, the selling legislation which could leave a landlord legally unable to let within 12 months if they can’t actually sell that property.
With no rent coming in during that time, how will the mortgage continue to be paid? It’s as if the Government thinks all sales of PRS properties are almost guaranteed. What if the landlord genuinely wants to sell but, for a whole host of reasons, it never happens, and now they won’t even have the opportunity to re-let should they not get the transaction they want.
Make no bones about it, lenders have no appetite to be repossessing many thousands of empty PRS properties, which could actually be used for tenants, simply because landlords can’t legally put new tenants into them, for fear of huge fines and reclaimed rent from the last two years.
This feels like a huge number of accidents waiting to happen, and while we shouldn’t be surprised that landlords are being cast in the role of arch-villain again – apparently there is no such thing as a good landlord in political circles - the consequences could be devastating for many, plus for the supply of PRS property overall.
We suspect we’ll see a significant push back on this from lenders and landlord associations, but a Government with this size of majority, which wants to see results after a pretty disastrous first 100 days in power, is unlikely to be rowing back.
The pendulum has truly been swung too far in the wrong direction. Once again, we have a Government that seems to believe tenants exist in some kind of vacuum; not understanding that tenants need landlords, they need the properties they provide, and they need an engaged community willing to keep on doing this.
If more continue to fall out, if landlords decide buy-to-let is not worth the hassle or the cost – as many already have done - then it will be tenants who suffer the most because falling supply with strong demand, is only going to lead to rising rents. Paid by the very people the Government says it is trying to protect. Go figure on that one.
