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Minimum tenancy periods: ‘Reward landlords with tax relief for offering longer terms’ – Marketwatch

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  • 11/07/2018
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Minimum tenancy periods: ‘Reward landlords with tax relief for offering longer terms’ – Marketwatch
The government wants tenancy agreements to be drawn up on a three-year minimum agreement, according to its latest consultation.

 

It is hoped longer term tenancies will make renting more secure for the growing number of UK tenants.

We asked this week’s Marketwatch panel whether the proposals are a good idea or if they could have any inadvertent  negative consequences on the market.

 

 

Steve tempestSteven Tempest, broker at Mortgage Advice Bureau

I think it is reasonable to suggest that most landlords and tenants would welcome anything that provides stability in the rental market.

Long term contracts could allow a landlord to relax safe in the knowledge that his current tenant has long-term plans for residing in their property, as well as offering tenants the security of tenure for a significant length of time.

In terms of how it may affect buy-to-let borrowing, some lenders already offer the option of a three-year AST, however many specifically state it has to be a maximum of one year.

Therefore, if this bill is passed it’s likely that some lenders, both specialist and mainstream, would have to adapt their criteria.

Additionally, insurance providers who offer landlord’s rent guarantee insurance policies will also need to revise their products to allow for the change in terms of notice periods.

However, in moving to the three-year standard tenancy, there are other significant areas, which need to be considered in terms of practicality.

Accidental landlords who account for a significant number of private rental sector (PRS) properties, for example those with let-to-buy mortgages or those who have let out their home to facilitate their current life circumstances, might require the flexibility to move back into their home or sell it within three years.

For these people a three-year agreement could be too long.

Also, what would happen if the landlord needed to dispose of the property mid-term, for example, in the event of bankruptcy, illness, death of a joint mortgagee or divorce?

As with any changes, the devil will be in the detail, but one hopes that consultation with the industry over the next couple of months will help the government to craft a pragmatic solution that will work for both landlords and tenants.

 

 

speaker_carla-sateriale-headshot_smallCarla Sateriale, manager, mortgages, UK Finance

The government’s new proposed tenancy model is an interesting one, and it’s likely to land with mixed reactions.

As research has shown the typical tenancy now lasts just over four years, so a new tenancy model that reflects this new normal might be appropriate.

However, a one-size-fits-all model is unlikely to be the solution.

For some renters security of tenure is the most important issue, and a guarantee of a three-year contract will probably work well for them.

For other renters, price and flexibility may be key considerations.

This group would likely be averse to pre-agreed annual rent increases and a two-month notice period should they wish to move — both of which are floated in the consultation.

Regardless of how the outcome of the consultation is received, buy-to-let lenders will need to take an increasingly flexible view on tenancy models.

Currently, each lender will have its own requirements for permissible tenancy types.

Lenders tend to adapt their requirements based on developments in the private rented sector.

An increasing number of lenders now allow longer term-tenancies in anticipation of increased demand in this segment of the market.

Industry research shows that, by June 2017, around 60% of lenders allowed tenancies of more than one year

Going forward, it is possible that a spectrum of different tenancy types will spring up to meet the varying needs of renters, rather than a one size fits all model.

It’s key that any tenancy model recognises the need to protect renters against insecurity with their tenancy agreement, while also acknowledging a lender’s rights to appoint a rent receiver and take possession, in the event of a landlord default.

 

 

(Photo by Matthew Horwood)David Smith, Policy Director for the Residential Landlords Association (RLA)

Growing numbers of families and older people now rely on private rented housing and require more security than the more typical profile of a younger, more transient renter.

The RLA understands the pressure this places on the government to address this need.

In its recent consultation, the government proposed three-year tenancies, with plans to enable landlords to regain possession of the property in the interim where, for example, tenants are failing to pay their rent, are committing anti-social behaviour or where the landlord wishes to sell the property.

The paper proposes three different models to implement longer tenancies.

One is to make three-year tenancies the legally binding norm in the sector. This would be the worst option.

While there are many who want longer tenancies, the majority of private sector tenants continue to be younger people, many of whom do not want or require to be tied to a long-term agreement. They prefer the flexibility the sector provides.

We would encourage the government to implement another option which is to use financial incentives to encourage the provision of longer tenancies which the consultation notes “could be quicker to implement” than mandatory three-year agreements.

The report cites RLA research on the issue, including that 63% of landlords said tax relief would encourage them to offer a longer tenancy.

Such relief could include the reinstatement, in full, of mortgage interest relief for those providing longer tenancies.

 

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