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Labour’s Proposals for the Private Housing Market

Labour’s Proposals for the Private Housing Market As we approach 2015 and the general election, it is unsurprising that the main political parties will start to gear up rhetoric and announce their big plans for if they get elected.

2015 election

For the private housing market, it is Labour’s turn first as it announces some of the most radical and most far reaching reforms of the lettings industry to be proposed.

Ed Miliband is announcing his proposals at the launch of his party’s European election campaign and promises the next Labour Government will:

Ban letting agents from charging tenants fees for what is described as low level services. It is suggested landlords should be asked to pay such costs. Ban “excessive rental increases”. Make three year tenancies the norm. Tenant Fees

There is so much conflicting research as to letting agent fees and what is and isn’t charged for. Some research suggests that fees can be high or excessive where at the other end, research suggests fees are not extortionate and are reasonable. The key point to recognise here is that letting agencies need to create revenue streams and ultimately profit (just like any business). If tenant fees are banned in any way, landlords will have to pick up the tab. This will either be in the form of increased set up fees or an increase in management fees.

Ultimately, landlords will still want a certain amount of net income to make it worthwhile to invest in property and if any costs are added to the landlord’s outlay then ultimately gross rent prices will inevitably increase.

So whilst banning tenant agency fees may be a potential vote winner, in reality it is likely to cause rent increases and may possibly even see the closure of smaller independent agencies who rely on the additional income from tenant fees.

Excessive Rents

We are not aware of any excessive rents and even in prime central London where residential sales prices are a problem, rents are not.

The problem with any kind of interference with market forces and price controls, whether it be rents or energy prices (another Labour proposal), it is bound to end in disaster.

An immediate issue is that if rent increases are legally tied to either average market rents or inflation, it could see landlords use this as a reason to increase rent annually when they otherwise may have not done so.

Linking rent increases to inflation may also see rent increases greater than they currently are which naturally has the opposite effect of the policy proposed and tenants will be worse off.

For example, the Residential Landlord Association states that in London rent rose by an average of 1.4% in the 12 months to March 2014. If rent increase caps are introduced in line with inflation, it will undoubtedly cause landlords to see this as a cap to reach and if we use the 12 month period to March 2014, the Residential Landlord Association rightly points out that the consumer price index for this period was 1.7% and the retail price index much greater at 2.5%.

Rent is driven by the local market and our experience is that if a landlord attempts to ask for a rent out of line from the local market prices, the property invariably remains untenanted until such time the rent is reduced in line with other rents.

Three Year Tenancies

It is proposed that tenants should be given a three year tenancy agreement with the first six months a probationary rental period allowing landlords to evict a tenant if they are in breach of their contract. Thereafter, it appears the proposal is effectively for a two and half year monthly periodic tenancy as tenants would be able to terminate the tenancy with one month’s notice.

This proposal raises a number of issues. The first one is that almost all buy to let mortgages do not allow tenancies for more than 12 months and this is a condition of the mortgage. Labour has already proved it had no control of the bankers so this could cause more headache for landlords. Potentially, mortgage lenders could claim that the mortgage conditions are being breached and call in mortgages or try to raise rates as a result. No doubt this would lead to a bombardment of the Financial Ombudsman Service.

Secondly, by allowing tenants the complete free ability to provide one months’ notice and effectively making all tenancies monthly periodic tenancies after the first 6 months, this places the landlord in a precarious position. Particularly, if the tenant gives notice in a quiet period. The damaging effect of this could be lengthier void periods. Labour don’t seem to have given any regard whatsoever to the majority of hard working and decent landlords. Take the majority one property landlords, any lengthy void period could result in a potential repossession.

Thirdly, legislation in relation to how section 21 and section 8 Notices work will need to be revised. What happens if a landlord needs to move back into a property as their main home under these new proposed tenancies?

Finally, what protection is there for landlords for problem tenants? Surely greater landlord protection and a much quicker eviction process is needed for the proposed?

It is wishful thinking that one day political parties realise that what they propose or actually put into action has such serious consequences on society and the political game scoring is tedious. It needs to be made clear that the vast majority of landlords and letting agents provide good quality accommodation at a reasonable rent in line with the local market.

The proposals seem to lack any balance at all. The buy to let market is competitive and competition generally means greater choice and competitive rents. We have seen tenants become more and more fussy due to the amount of competition and undoubtedly landlords must now maintain their properties to a high standard as a result.

Far reaching reforms in the private housing market should be fair to both tenants and landlords so a balance is reached so all parties are protected. The ultimate end result of these one-sided proposals if they were ever put in place, could be that investors simply decide it is too risky to invest in residential property so properties are sold as landlords invest their money in other projects or in property abroad resulting in fewer rental properties and less competition. Surely a bigger rental crisis!

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