One of the government’s suggestions to help fix the UK’s “broken housing market” was to oblige landlords to offer tenancies with a minimum term of three years and the option for the tenant to end the contract after a much shorter minimum period.
As is often the case with government proposals, in practical terms, the high-level idea is much less relevant than the details of how the government intends to implement it. With that in mind, here are three points landlords would be keen to see in order to feel happy about these proposals.
A reasonable mechanism for removing tenants in arrears or who damage the property
It’s a simple fact of life that some tenants are going to end up in arrears some of the time. This doesn’t necessarily mean that the landlord did a poor job of vetting the tenants in the first place or that the tenants are necessarily bad tenants. Modern working practices can see people earning highly variable incomes and sometimes even the best budgeters simply get their sums wrong, or are let down by someone else (for example, if a firm goes bankrupt owing them money).
Many landlords are able and willing to offer some degree of flexibility to tenants in this kind of situation as long as it is clear that it is temporary and that they are working to resolve it. At the same time, however, there needs to be a feasible mechanism to allow for the prompt removal of problem tenants, when circumstances dictate that this is required.
A reasonable mechanism to increase rents over the course of the tenancy
While tenants might like the reassurance of knowing exactly how much they will be paying over the course of the three years, the reality is that landlords are not clairvoyant and cannot necessarily predict what their future costs will be with 100% accuracy even without the possibility that the government will make changes which cost them money (as happened, for example, with mortgage tax relief).
Unless the government makes it practical for landlords to raise rents over the three-year period, there is a distinct possibility that landlords will not only seek to stabilize their own costs even if this means they cannot get the most economic deal (for example opting for fixed-rate mortgages, which can be expensive), but will also front-load their rents to account for future changes. Ultimately, therefore, this measure is necessary for the wellbeing of tenants as well as landlords.
You could argue that this is not, strictly necessary, and perhaps that is true, but it’s also true that obliging landlords to make a three-year commitment without obliging tenants to make the same level of commitment is arguably tying landlords’ hands to some extent without providing them with any meaningful benefit. It would be very welcomed to see the government providing a meaningful benefit and reducing the tax burden on landlords. Again, if it does not do this then it is very likely that landlords will feel obliged to raise rents in order to counterbalance the limitations put on them.
Mark Burns is the managing director of property investment firm Hopwood House.