In early July, the Government opened a consultation into the benefits and barriers to landlords offering longer tenancies. This is the latest step in its commitment to increase security of tenure for tenants in the PRS, while making sure they balance landlords’ needs to regain possession of their properties when their circumstances change.
The Housing, Communities and Local Government Secretary, James Brokenshire, is looking to stop landlords being able to force tenants to leave their home at short notice. He says: “It is deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract. Being able to call your rental property your home is vital to putting down roots and building stronger communities.”
As such, the government is looking for views and comments on their proposal for a three-year tenancy with a six-month break clause. They suggest this would give tenants more certainty over rents, still let them have some flexibility if they wanted or needed to move within the three years, but also give them greater protection if they wanted to stay for an extended period of time. They say a three-year tenancy would also give landlords greater financial security.
In favour of longer tenancies
With the average UK tenancy length now approaching two years and research from PWC suggesting that by 2025, around a quarter of all households will be living in the private rented sector, longer-term renting is a growing market. And one of the big concerns is the number of families that are bringing up children in short-term accommodation.
Polly Neate, Chief Executive of housing charity, Shelter, says that losing a tenancy causes huge instability for families and believes that longer tenancies are a good move. However, she doesn’t think it goes far enough, and if the government really wants to stand up for renters, they should “provide real protection from eviction”.
Labour supports longer tenancies but thinks there should also be rent caps, otherwise landlords could still force tenants out with rent hikes.
What tenants say
According to research from the National Landlords Association (NLA):
- · Only 40% of tenants actually want longer contracts
- · 40% say they don’t want longer contracts
- · More than half of tenants said they’re happy with the tenancy length offered
- · 20% said that when they asked for a longer tenancy, they got it.
In short, there is a question as to whether there is a huge demand from tenants, with the vast majority finding the current AST works perfectly well for them.
Concerns over the proposals
One big potential issue is how mortgage lenders would respond. Currently, most mortgage agreements state that a tenancy can’t be granted for any more than 12 months and institutions are happy to lend because they know they can regain possession of the property at short notice. A three-year tenancy is likely to make lenders more wary about granting mortgages – particularly at higher LTVs – and they may increase interest rates to reflect the increased risk. That could have a significant impact on landlords’ ability to borrow and the profitability of their investment.
Some landlords have expressed concern that a longer tenancy in favour of the tenant would make it harder for them to manage and get rid of problem tenants. There’s also resistance from those tenants who are only looking for short-term accommodation and fear the number of properties available to them might drastically reduce, if landlords favour longer-term tenancies.
Richard Lambert, CEO of the NLA believes the proposals are actually a step backwards. He acknowledges the flexibility of the current AST isn’t used as effectively as it could be, but says, “That means thinking about how to modernise a model devised 30 years ago, to take account of the changes in the people who are renting and the way they live their lives. How will that be achieved by moving to a more rigid system, more reminiscent of the regulated model the current system replaced?”
With questions and concerns from all sides over notice periods, tie-ins and the fundamental effectiveness of the introduction of longer tenancies, it’s essential that landlords, tenants and agents respond with their thoughts, ideas and experiences to the consultation.
You can read the full consultation on the GOV.UK website.
This information has been provided by our partner Mortgage Advice Bureau. For more information relating to Mortgages or for Mortgage Advice please visit Mortgage Advice Bureau.