Information for Private Landlords Our Newsletter from Jan 2012

We thought it would be useful to publish the New Year 2012 Newsletter right here on our blog. (Our latest Newsletter – the Easter 2012 Newsletter –  was published on 29th March and is available free now to those who sign up to receive our newsletter. Just send us an email if you would like to join the mailing list!)

Here is the New Year Newsletter…..”….. Welcome to this newsletter and a special welcome to the 200 individuals who have joined our mailing list since October’s newsletter.

So, what’s been happening in the private rented sector?

Once again there has been no new legislation at a national level. But the private rented sector (PRS) continues to be in the news – reflecting the growing size of the sector, which in some areas, is now above 25% of all housing stock – a position we uniquely predicted six years ago.

This growth of private letting inevitably attracts attention. Right now, there is growing concern, expressed by some in the media and government, about rent inflation.

Rents, which grew at a moderate pace in the 10 years up to 2009, have suddenly increased markedly over the last 2 to 3 years.

Landlords will be happy with higher rents. But the recent strong rises in rents have led to some rather odd comments from some politicians who often seem to be a little out of touch about the private rented sector and about housing generally.

This is a shame because, whilst some aspects of the sector still remain under-researched, there has nevertheless been some great and insightful work done in the past.

Rugg Review

Readers of my blog will know I’m a particular fan of the Rugg Review of the private rented sector – which reported in 2008.

This thorough review had much to commend it and was broadly welcomed by both landlord and tenant groups. It found that most landlord and tenants actually enjoyed good relationships, that most landlords were in the business for the long term and preferred to keep good tenants for as long as possible.

It recommended more regulation of letting agents and, more controversially, a “light touch” system of landlord licensing.

Other good work and some sensible policy suggestions have come from the likes of the landlord associations and from Shelter and Crisis.

Any yet, despite this wealth of knowledge, we have seen in the last months, new calls for rent controls in the private rented sector from one London Mayor hopeful. Plus there is the continuation of the ongoing love affair that local authorities have for imposing universal accreditation or licensing schemes for all private landlords.

Rent Controls

On rent controls, we cannot see how rent controls can work because price controls, (in the absence of a monopolistic supplier – think UK railways), simply don’t ever work.

For example, in Greece in the years “before the Great EU Fallout Reckoning”, there were price controls on many things, including, for example, what doctors could charge patients. So, in order to get seen or to get a specialist consultation, some Greeks would simply put cash in an envelope and hand it over to their GP.

The fact is that when buyers and sellers of a price controlled service or commodity are forced to “play the same game” to get what they want, this kind of “side payment” tends to happen and it is impossible to prevent.

Accreditation Schemes for Landlords

Meanwhile, many in local government would like to see membership of a landlord accreditation scheme made a pre-requisite for payment for housing benefit (Local Housing Allowance) to be made direct to the landlord.

It’s an interesting idea, but our work with landlords tells us that landlords are not exactly queuing up to access the “benefit end” of the market, as it is. Putting one more hoop in the form of a requirement for landlords to be accredited cannot possibly make landlords any more likely to want to access this part of the market.

We say to government, have accreditation if you really must. But, if you do, make it simple to join and make it free to become accredited.

And whatever form accreditation or licensing of landlords may take (if indeed it ever does happen in England and Wales), we hope that lessons are learned from the Scottish system of universal private landlords licensing – which, just as we predicted years ago – has failed on most of its objectives.

Governments, both national and local, must understand that most landlords and tenants enjoy good relationships, thus proving there is little real need for universal accreditation.

All that is needed is tough action on rogue landlords, which is achievable now using the existing powers already available to councils.

And yet public policy from some politicians seems to be driven more by TV programmes which, of course, have a vested interest in highlighting the very worst landlords and tenants. (Few people will watch a TV programme of landlords and their customers getting on well!)

Private Rented Sector is Part of the Wider Housing Market

The fact is that the private rental sector cannot be separated out from the housing market as a whole. House prices and rents have both been inflating in most areas in recent years because of the simple fact there is not enough housing for the growing population.

In the short to medium term, problems in the Eurozone (where youth unemployment is often higher than in the UK) and further expansion of the EU will lead to more immigration. And this, combined with longer life expectancy, will make the UK’s population bigger still, so rents and house prices alike can only rise further.

In the absence of controls on the UK’s population growth, what’s really needed is a reform of the planning system to allow more homes to be built. Builders are sitting on development land but cannot or won’t build on it. If the land could be freed up for development, and builders made to build, then both house prices and rents will eventually fall.

Many vested interests will ensure this will not happen in a hurry, if at all, and private landlords who are already invested or who are thinking of buying to let in economic growth areas of the UK can only look forward to rising rents and capital values.

Longer Term Tenancies

Finally a word on longer term tenancies.

Many tenants would like the certainty of longer assured shorthold tenancies (ASTs). And despite what London Mayoral hopefuls and others may think, many landlords would also like to offer them to the right tenants – even at fixed rents, just as long as they could get reasonably speedy recovery of their property in the event of continuous antisocial behaviour or non payment of rents and if their mortgage lenders allowed them too (right now they don’t!).

We only need look at the popularity of fixed rent 3 or 5 year private sector lease schemes from councils and housing associations to see how popular long lets really are to some landlords.

Better Buy to Lending Products are the Solution

The problem is that buy to let lenders who currently insist that landlords do not issue ASTs longer than 12 months.

The reason they give is worries about how swiftly they could recover the house if the landlord defaults on the mortgage.

But we think the lenders’ concerns are often unfounded, especially for experienced landlords, and anyway the “recovery issue” could be ameliorated with sensible and pragmatic asset recovery procedures. Buy to let mortgage products targeted to the experienced landlords allowing them to issue longer term ASTs would also help.

We are working with lenders on this and as a result of our work, we feel sure that within the next year or two, landlords will see products launched that address this need.

For this reason, it’s our view that the private rented sector does not need big institutional investors to enter the market to meet the obvious demand for longer term tenancies. All that’s needed is better thinking from clued up mortgage lenders who understand ordinary private landlords and can design the right products around their needs and the needs of their tenant customers.

ABOUT LETTINGFOCUS AND WHAT WE DO is the home of Private Rented Sector Consultancy and advice.

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