Opinion: does Michael Gove know something we don’t?

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It would seem that successive Tory government’s have waged an ongoing and progressively more vicious war on buy-to-let landlords, but this latest layer of legislation goes much further.

Yes, this latest iteration, and one that’s before Parliament right now, is the Renter’s Reform Bill which will effectively throws out the 35-year old concept of the “Shorthold Tenancy”, introduced by the Conservative’s Thatcher Government back in 1988.

The Shorthold Tenancy transformed private residential letting in the UK. It removed what was then a much diminished rental market, one that was hamstrung by rent controls and lifelong security of tenure. Landlords had abandoned renting in their droves, and those that hadn’t just allowed their properties to decay. That’s because the return on their investment didn’t justify throwing good money after bad, sinking more money into what had become a “white elephant” investment.

The Shorthold Tenancy removed the risk: it revolutionised the market and put a rocket under it. Landlords could (1) charge a market rent and keep it in-line with the market over time, and (2) they could get their property back, guaranteed. They could remove a bad tenant, albeit with a 6 month delay, using the relatively easy and sure method of the Section 21 process.

Revenge evictions

Enter the Michael Gove’s Renter’s Reform Bill, a Bill which he thinks will improve the tenant’s lot, give them security of tenure and prevent the so called revenge eviction, one that is prompted by landlords receiving complaints from their tenants.

Anyone who understands the lettings industry knows that this type of revenge eviction is a minority event, less that 1 or 2 per cent of evictions are for this reason. Responsible landlords use the Section 21 process very sparingly because they want to keep good tenants. By far the majority of Section 21 evictions are for rent arrears, followed by anti-social behaviour.

Landlords on the whole do not evict good tenants. Tenants who pay their rent on time and look after the property. That’s all landlords are after, and they will go through hell and high water to keep these tenants in their property.

Unfortunately, the so called revenge eviction hits the headlines: the housing charities have used the power of the media to scare the living daylights out of the Government into its abolition, promised now for over four years. There are far more tenants than there are landlords, and the general public will always favour the welfare of tenants over them. At the end of the day it’s a matter of votes.

The reforms in this new Bill threaten to worsen an already serious housing crisis where renters can’t find the homes they need at reasonable prices. It threatens to kill-off the private investor, the final nail in buy-to-let’s coffin.

Tory MP’s concerns

It’s not just landlords who are concerned. Even Tory MPs fear that is will lead to an even more serious housing crisis, forcing more landlords to sell up and more tenants unable to find accommodation they can afford.

The Daily Telegraph reports that “there are growing concerns in the Conservative party that the Government has gone too far in its war on landlords and second homeowners. The renters’ reform bill, due to go before Parliament this week, will abolish ‘no-fault’ evictions and introduce rolling tenancies. It will also prevent landlords from turning away tenants with pets or those on benefits.”

As concerns mount over the Bill more and more landlords who are aware of the coming changes are voting with their feet, they are leaving the industry in anticipation of what’s to come and while they can still get their properties back at will. This Bill really does threaten a mass buy-to-let exodus

The Bill will introduce what will be the biggest change in private renting since 1988 and it’s a very radical one too, swinging the industry clock back towards the rigid controls of the Rent Act (Regulated Tenancy) period that existed before that date.

As rents reach the £1,000 per calendar month level outside of London for the first time, tenants are already facing surging costs, while landlords, in turn, squeezed by successive tax increases, are being hit with rapidly rising mortgage rates. Not only are profit margins tight, in some cases they are non-existent, and the ever increasing regulations make life far harder for the average buy-to-let landlord.

The opposition’s plans

Meanwhile Labour’s shadow housing secretary Lisa Nandy (levelling up) wants these reforms to be implemented as soon as possible and she promises that a labour government would go even further with its own reforms of the private rented sector. This will include longer notice periods, giving tenants freedom to make alterations to the property, a harsher homes standard and it probably means some form of rent control.

Conservative MP Craig Mackinlay, South Thanet in Kent, told The Daily Telegraph:

“The reality is, landlords will abandon the market and we will have a very serious housing crisis on our hands. I’m worried about landlords leaving the market, I really am. There’s a huge amount of disquiet about this. From colleagues I’m talking to, they’re not happy. We have seen too much of a war against landlords.”

Another Conservative, Marco Longhi, Tory MP for Dudley North, told The Telegraph, the renters’ reform bill was “like wielding a hammer to crack a nutshell. It’s a disaster. You will see huge swathes of landlords leave the market, and this has been happening for several months already.

“The Government doesn’t realise how much it depends on private sector landlords. These properties landlords are now selling aren’t even affordable for the majority of renters, so where are these people going to go? We should be building cities twice the size of Sheffield to keep up with net migration.”

Section 8 – an adversarial system

By removing Section 21 and imposing an indefinite length tenancy a landlord with a bad tenant will be at the mercy of a convoluted and adversarial Section 8 process, a system where the landlord will have to convince a judge of the necessity to evict a recalcitrant tenant.

What will make this even worse is that no extra resources are planned for a court system that has been slimmed down and is already overloaded – the way things stand it could be 12 months before a landlord can get a tenant who is not paying any rent, into court.

The fact that additional mandatory grounds for eviction are being added to the Section 8 legislation is nether here nor there, if you cannot get your bad tenant into court, you are stuck with them.

It will work against tenants in the end…

The upshot will be that landlords will have to be far more careful and selective when signing up new and untested tenants. They will need to prove they are able to pay the rent, they will probably be required top pass a stringent credit assessment and provide a guarantor. Fortunately, landlords will still be in a position to reject applicants who cannot show they can afford to pay the rent.

The end result as I see it, is that far from making the system fairer for tenants it will work against them. Rent prices will go sky high, there will be such a shortage of rental accommodation that thousand of tenants will be priced out of the market, and even when they can afford it competition for rentals will be intense.

Student landlords

Student landlords are particularly concerned about the prospect of indefinite tenancies as they rely on their student houses being vacated in time for the following influx of students for the start of a new academic year. Unless, this rule is changed for student lettings during the passage of the Bill it will create chaos for student landlords.

The Government is committed

Despite all the arguments landlords can make against these radical changes, a Government spokesman for the Department for Levelling up, Housing and Communities, the Government told The Telegraph it is “absolutely committed to delivering a fairer deal for renters.

“We will bring forward legislation very shortly, which will include a ban on ‘no fault’ evictions, so that all tenants have greater security in their homes and are empowered to challenge poor conditions.

“We are also introducing a Decent Homes Standard for the Private Rented Sector for the first time ever which will make sure privately rented homes are safe and decent,” the Government spokesman said.

We landlords know that the vast majority are responsible landlords are doing a great job, one that most private tenants appreciate. It’s a much smaller minority of landlords that this new legislation is aimed at, but in doing so it affects everyone.

More complaints

The irony is that most landlords are doing a far better job that local government and social housing landlords, despite the Decent House Standard which applies to them right now. As MP, Mr Mackinlay told The Daily Telegraph:

“I receive infinitely more complaints about social housing from renters than I do about private landlords

“Firms don’t do repairs, so problems are hanging around for months if not years. No one responds. If you think these institutions are the panacea for the rental sector, you’re sorely misguided.

“Good landlords are far more responsive. You wouldn’t have a hope in hell of getting something sorted in a few days in social housing, like you would with a landlord.”

View Full Article: Opinion: does Michael Gove know something we don’t?

How HMRC Might Target Hybrid LLP Compliance Checks

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The likeliness of HMRC opening “Compliance Checks” into the accounting of Hybrid LLP’s operated by property rental business owners is now at an all-time high.

HMRC could simply target all LLP’s registered at the office addresses of Accountants known to have filed tax returns incorrectly for other their clients.

View Full Article: How HMRC Might Target Hybrid LLP Compliance Checks

Labour to ‘go further than Tories’ with harsher Decent Homes Standard

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Labour has promised to ramp up the pressure on private landlords by introducing a legally binding ‘Decent Homes Standard 2’.

Its latest draft policy programme – a provisional blueprint likely to shape the next general election manifesto – includes a proposal to take the government’s planned Decent Homes Standard further, although Labour’s vision is light on detail.

Expected as part of the imminent Renters’ Reform Bill, the Decent Homes Standard would ensure PRS properties are free from serious health and safety hazards.

Landlords would also be expected to keep homes in a good state of repair, so renters have clean, appropriate and useable facilities.

Fundamentally

Labour’s policy programme reiterates its plan to fundamentally reform the private rented sector, giving tenants greater security through a powerful new renters’ charter, which will include longer-term tenancies as standard, the right to reasonable alterations, ending Section 21 ‘no fault’ evictions and introducing a national register of landlords.

The party would also consult on how best to ensure tenancies are affordable and the effective implementation of no-fault evictions.

Other draft Labour policies include a promise to upgrade every home that needs it to EPC standard C within a decade by installing energy-saving measures such as loft insulation in locally delivered programmes, by giving local authorities the power and resources.

It has also set the target of a 70% homeownership rate by helping first-time buyers onto the housing ladder with a new, comprehensive mortgage guarantee scheme as well as bringing the leasehold system to an end.

Raising stamp duty paid by foreign individuals, trusts and companies when they buy UK residential property is another proposal.

Read more about the Decent Homes Standard.

View Full Article: Labour to ‘go further than Tories’ with harsher Decent Homes Standard

EXTRA red tape, scams and repairs drive more landlords to use agencies

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Almost two thirds (63%) of private landlords who manage their own properties are tired of sorting out repairs and dealing with red tape and considering using a letting agency or property manager instead. 

A Uswitch poll of 2,000 landlords found that the most common reason they might decide to pay an agent was to take a break from dealing with repairs (31%) followed by avoiding the hassle of finding tenants (30%) and avoiding legal responsibilities (30%).

More than a quarter (27%) would switch to a letting agency to avoid scams and fraud.

The comparison site believes that as soaring interest rates force mortgage rates up, the buy-to-let landscape has left some landlords apprehensive about what direction to take their properties in, or if they should continue renting them out at all.

Profits

Uswitch.com BTL mortgages expert, Kellie Steed (pictured), says while it can feel like selling up is the only option, there are other ways landlords can keep profits afloat during the cost-of-living crisis.

“Switching to a letting management company offers some attractive advantages and gives landlords the scope to hold onto their investment,” she explains.

“Property managers have a strong knowledge of the market’s changing regulations and can also take on much of the responsibility of owning investment property – lettings, repairs, rental disputes and complaints can all be tackled by an agency.”

Many offer increasingly attractive packages for landlords in return for 10-20% of profits, says Steed.

“Remortgaging a property can also save landlords money, as any equity held in the property will give them access to cheaper rates,” she adds.

“While a lower interest rate could offer less expensive loan repayments, releasing equity on a property can boost your finances and give you, and your property, more support in the form of a cash sum.”

Read more: Agencies must help landlords navigate looming reforms.

View Full Article: EXTRA red tape, scams and repairs drive more landlords to use agencies

Daily Telegraph wants to speak to landlords about the Renters Reform Bill

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Are you a landlord who is worried about the wide range of reforms expected in the Renters’ Reform Bill? Then, Alexa Phillips the personal finance reporter for the Telegraph would like to speak with you.

Alexa would like to speak to Property118 readers about:

• What do you think about the proposals in the bill

View Full Article: Daily Telegraph wants to speak to landlords about the Renters Reform Bill

Conservative MPs condemn government’s ‘war on landlords’

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Tory MPs fear the soon-to-be-published Renters’ Reform Bill will force more landlords to sell up.

According to the Telegraph, there are growing concerns amongst Conservative MPs that the government has gone too far with its war on landlords.

View Full Article: Conservative MPs condemn government’s ‘war on landlords’