In her blog of 4th January 2018, we heard from Woodfines’ Claire Potter about the legal changes affecting “no-fault” (S21) possession proceedings. In this blog we examine what these and other changes mean for the rental market in general. Is the tide turning against so-called “rogue” landlords or are the cards still stacked against innocent buy-to let investors?
Virtually all commentators agree that there is a housing crisis. With house prices typically 8 times the average salary, increasing numbers of people have no option but to rent long term. At the same time, the Joseph Rowntree Foundation has reported a surge in rental evictions between 2003 and 2015. With increasing numbers of tenants homeless and landlords with significant legal bills and/or empty properties – it is difficult to identify any winners in today’s market.
Political pressure is growing to further regulate the (already complex) rental market. Calling for the virtual abolition of “no fault” evictions (save in limited circumstances) labour leader Jeremy Corbyn stated his determination to “bring order and stability to [tenants’] lives”, advocating longer tenancies and evictions “that can only be therefore good reason”. Landlords will be relieved to note that the government has so far shown no inclination to go that far, though Housing Minister Alok Sharma stated that the government would target “unscrupulous landlords who profit from offering overcrowded, squalid and sometimes dangerous homes”.
Few could argue with that sentiment, but Woodfines act for conscientious landlords already getting to grips with a raft of new legal/tax measures. These include the following:
- The Deregulation Act 2015 – As Claire explained, by October 2018, the “no fault” eviction procedure set out in S21 of the Housing Act 1988 (used by many clients as a fuss-free means of concluding tenancies at the end of the fixed term) will be subject to additional requirements in all cases. Our view is that the measures designed to simplify this procedure, including a standardised form and the removal of the need for a notice to conclude at the end of a “term” are largely offset by the need to serve prescribed information on all tenants, before a valid S21 notice can be served on tenants.
- “Right to Rent” - Since 1st February 2016, all landlords must check the immigration status of their tenants or lodgers, or face a potential criminal prosecution.
- Reduction in landlords’ tax relief - Since 6th April 2017 landlords have been restricted in the amount of income tax relief that they can claim on mortgage interest payments.
- A restriction on letting agents’ fees - since 26th March 2015, S83 of the Consumer Rights Act 2015 has restricted the rights of letting agents to recover their fees from landlords or tenants. Now the draft “Tenants’ Fees Bill” proposes a complete ban on fees to tenants. If implemented as drafted, this bill could have a detrimental effect on landlords with agents perhaps demanding increased upfront fees from landlords or that their fees be paid from deposits otherwise due to be released to landlords.
- “Naming and shaming” of landlords – the Mayor of London has already commenced a “Rogue Landlord and Agent Checker” publicly detailing private landlords and letting agents convicted of a relevant housing offence in many London boroughs. The Housing and Planning Act 2016 provides for a comparable nationwide scheme, but these provisions are not yet in force.
- Pressure on rental income - Since 22nd November 2017, purchases of homes (non buy-to-let properties) worth £300,000 or less, by first time buyers have been exempt from stamp duty. This stimulus, combined with the Help to Buy scheme, an increase in house building and a potential increase in net migration due to Brexit threatens to restrict rental increases; the Guardian reported that London rents had already begun to fall in 2017.
Ironically, in all but the most serious cases of landlord neglect, few tenants will feel the benefit of the above proposals (with the exception of the potential ban on letting agents’ fees) despite the increased demands on landlords. Until the pressure on social housing lists is reduced, tenants will continue to face the costs and humiliation of eviction by bailiffs, even where they are on good terms with their landlord, since they would otherwise be considered “intentionally homeless” by their local authority.
Similarly, rent arrears, exacerbated by the changes to the benefits system, naturally leave landlords unwilling to take on benefit tenants – putting further pressure on the social housing system. There are even reports of tenants taking on tenancies which they know they cannot afford, simply because they need to put roofs over their families’ heads. Landlords are then left with months of unpaid rent, plus legal costs that tenants have no possibility of repaying, before they can evict the tenants and seek to re-let the property.
So what are the answers? Landlords still need to take sensible measures to protect themselves, including obtaining references from previous landlords and employers before tenants move in. Carefully drafted tenancy agreements are a must in all cases to ensure that properties can be properly managed, whilst great care must be taken with rent guarantee or so-called “rent to rent” schemes – though they can have their place. Landlords must always ensure also that they comply with all of their statutory obligations towards tenants, whether in relation to tenancy deposits, the property condition or the service of prescribed information to avoid any risk of claims being brought against them or being used to thwart possession claims. Tenants can also help themselves by ensuring that they raise any problems with their landlords in writing and by involving the local authority in cases of serious disrepair or maintenance problems, where amicable resolutions are not forthcoming. Woodfines team will be happy to advise in relation to any such precautions, or in situations where disputes have arisen or possession proceedings cannot be avoided.
Longer term, tax breaks for landlords prepared to take on benefit tenants and/or grant longer fixed term tenancies may assist the market. Where tenants accept their inability to keep up with rental payments, measures to allow them to surrender a property without being deemed “intentionally homeless” would also eliminate the current phenomenon in which private landlords literally bankroll a section of the social housing list, with no hope of recovering their losses. Such measures would doubtless be welcomed by landlords and tenants alike.