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The Future of Buy To Let Part Two

Last week, you will recall that we discussed Ed Miliband's proposals to tackle the cost of living...

Last week, you will recall that we discussed Ed Miliband’s proposals to tackle the cost of living crisis and in particular the negative effect restricting rent increases could have on the housing market.

This week we will discuss the impact of his proposal to tamper with the Assured Shorthold Tenancy (AST) agreement and also his proposal to abolish letting agent fees.

These proposals hinge around a basic stipulation that tenancies be subject to a minimum term of three years. The intention of this proposal is to provide security of tenure to the nine million occupants of rented property (not least to get their vote too). However, Mr Miliband is operating under the assumption that the majority of tenants want to be tied to a property for the long term. However, it should be noted that the flexibility accorded to our landlords and tenants by the current AST is of paramount importance.

The period that a tenant stays in a property is determined by a number of factors and tenancies are more likely to be terminated by tenants looking to move on rather than as a result of landlord action. If the rent is paid regularly and the property is kept in good order, in most cases landlords prefer to keep the same tenants for as long as possible, thereby, removing void rent periods and maximising return. Under the current law, a tenant does often have the opportunity to continue to occupy a property as long as they are fulfilling their contractual obligations.

Any attempt to interfere with the Assured Shorthold Tenancy agreement to provide more protection to the tenant and allow them to stay in the property for a minimum period of three years will clearly affect property prices in the rental sector. Legal costs of eviction will rise immensely for landlords if they discover that the tenants are not performing in line with the AST. Many potential landlords are looking to invest in the property market and the addition of the Assured Shorthold Tenancy Agreement has helped to ease their concerns about the potential for ending up in untenable scenarios with their property investments. If Mr Miliband is successful with his proposals then we could find investors deterring from investing in “buy to let” and reducing property supplies to the rental market. In turn, rents would rise.

Another of Mr Milibands suggested polices is that agents be restricted from charging any sort of agent fees to tenants what so ever. I appreciate the endeavour to protect tenants from unscrupulous agents; however, this is the wrong way to address the issue. There is potential for these costs to only be passed on to the landlords and they are more than likely to re-appear for tenants in the form of increased rents. Introducing mandatory membership to regulatory and professional bodies for agents would be a better route in regulating fees. Providing more clarity on fees, publishing and displaying fees would also assist potential tenants in making a more informed decision. Without this it is likely that increased cost for landlords will see them move towards cheaper agents with a lower standard of service and no commitment to the industry principles established by regulatory bodies. This downward spiral would put tenants at more risk of the unscrupulous agents and this is contrary to the whole objective of protecting the tenant.

It is clear that these policies have not been evaluated fully; a more detailed review of their impact will likely reveal that they could in fact substantially harm the rental sector and completely fail to provide the benefits intended.

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