Miliband wants to enforce three-year tenancies on landlords, he wants to cap rents at the market rate and he plans to axe any letting fees which tenants have to pay.
His reason for doing so – to “deal with the terrible insecurity of Britain’s private rental market”.
This week’s Marketwatch experts consider the impact Miliband’s plans would have on the private rental sector if gets the chance to put them in place.
Sue Anderson, head of member and external relations at the Council of Mortgage Lenders, considers the impact on lenders’ interests if the tenant pays but the landlord does not
Chris Norris, head of policy at the National Landlords Association, points out that compulsory longer-term tenancies in countries such as Spain and Northern Ireland resulted in less investment in the rental sector
David Whittaker, managing director of buy-to-let brokerage Mortgages for Business, thinks three-year tenancies are unworkable and display ignorance of the lettings industry
Sue Anderson, head of member and external relations at the Council of Mortgage Lenders
To look at some coverage, you would think that Labour was planning the death of the flexible private rental market as we know it. But is that really the case?
Detail is always the key and that is in short supply. Shorter tenancies would still exist for tenants who want them and on properties where the existing terms of a buy-to-let mortgage require them.
Landlords would still be able to terminate tenancies for bad tenants or where they wish to sell the property. Upward rent reviews would still be possible annually – but would need to be undertaken with reference to some external benchmark (as yet unspecified).
The questions that all lenders – but few commentators – might ask are what protections are in place for the lender and how are these affected if new policies in the rental market are introduced?
Can the lender still protect their interests if the tenant is paying their rent but the landlord isn’t paying their mortgage? And how far is lending made riskier if landlord flexibility is reduced?
For example what would happen if interest rates and the landlord’s mortgage costs rise but the landlord is constrained from charging enough rent to cover their costs?
The market is already moving – voluntarily – towards longer-term tenancies so it would be wrong to see lenders as uncaring about the security of tenants.
But it would be equally wrong to prevent lenders from ensuring that their interests are protected when lending to landlords. Caution and consultation should be the watchwords of any reform.
Chris Norris, head of policy at the National Landlords Association
Labour has left future housing provision on a knife-edge in the wake of its worrying plans to reform private renting announced last week.
Lenders, institutional investors and landlords across the UK have now been left consider their options.
Above all, Labour believes that a three-year default tenancy will afford greater security of tenure and a fairer deal for tenants.
However its proposals will only increase insecurity of tenure for renters as landlords avoid being forced into inflexible and restrictive tenancies.
Countries where longer contracts are compulsory, such as Spain and Northern Ireland, show decreased levels of investment and a reduction of the private rental sector.
Labour seems to have ignored the fact that the average private tenancy already lasts for two and half years and that the vast majority of tenancies are ended by tenants not landlords.
It also seems to have ignored the simple fact that in most cases tenancy lengths are constrained by lenders.
Even the few, more flexible lenders which allow 18-month agreements will take some convincing to extend further and increase their exposure.
Sadly Labour’s plans will have no discernible effect on the problems tenants experience.
Britain’s nine million or so renters deserve better than callous gesturing as do the 1.4m UK landlords who are in the business of providing homes.
The answer is a more balanced, intelligent and responsible approach to the long-term housing challenges we face, not policy that is based on the negative or the minority.
David Whittaker, managing director of Mortgages for Business
Capping rent rises to ‘market rates’ would be rather an odd way of helping tenants.
Anyone insisting on an above-market rent would struggle to find tenants so if done properly this cap would have very little effect.
Yet slating landlords is an excellent way of impacting their confidence and intentions to invest.
And that could already be having an effect – a rather negative one – on the availability and affordability of housing in Britain.
Likewise axing letting fees would be a wonderful idea if it were possible. But these charges reflect the cost of doing business for lettings agents and will only be passed on to tenants via higher rents if they are outlawed.
But the worst part of this three-pronged attack on private renting is the idea that tenancies should be a semi-permanent state of affairs.
Enforcing three-year tenancies is an unworkable idea that betrays a frightening ignorance of how the lettings industry works.
Most tenants renew their tenancy for one or two years anyway almost entirely without hiccups.
However this proposal is not just unnecessary it could be positively damaging.
The vast majority of landlords are in fact banned by their buy-to-let mortgage contracts from agreeing a tenancy lasting longer than a year.
Labour’s policy document contains a token sentence on this critical fault exempting existing landlords under such obligations.
And there has been no consideration of how mortgage lenders might react in turn. Aside from immediate distortions on the market, buy-to-let mortgages would have to be completely rethought.
So this policy not only threatens to stifle the flexibility of the private renting, but could choke off a huge part of the latest recovery in mortgage lending.
