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Govt’s short-term let proposals broadly welcomed but ‘over-regulating’ could have ‘dire consequences’ ‒ analysis

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  • 14/04/2023
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Govt’s short-term let proposals broadly welcomed but ‘over-regulating’ could have ‘dire consequences’  ‒ analysis
The government’s proposal around national registrations scheme has been widely welcomed, but changes to planning permission and introduction of new use class could be fraught with problems for the mortgage market.

Earlier this week the government outlined proposals to reform the short-term letting sector, such as introducing planning permissions for existing homes to be used as a short-term let, new use class for short-erm lets, increased flexibility around letting out homes and a registration scheme for short-term lets.

Matthew Rowne, director at The Buy to Let Broker, said that the proposals could “significantly impact landlords, and specifically the recent boom sector of holiday lets”.

He continued that the consultation on planning permission, which would run until 7 June, aimed to “balance the needs of the visitor economy, whilst offering a layer of protection to affordable housing within local communities”, but said that there could be “secondary consequences”.

“A myriad of changing regulations and legislation over the last decade has contributed to a much more professional, responsible and accountable private rented sector. Accordingly, there are potentially considerable merits to some of the proposed, with even Airbnb backing the need for a national register of short-term lets.

“Indeed, the availability of affordable housing has to be a priority of any government, especially in the current economic vista,” Rowne noted.

However, he said that when considering government proposals the sector would have to be “confident that any additional planning is efficient, and does not harm the long-term economy of impacted localities through unnecessary inefficient restriction”.

He continued that this is especially true where short-term lets were needed to supply footfall for unconnected smaller businesses and tourism retail.

“Indeed, should such proposals be introduced then the respective local authorities, where the micro-economy is significantly subsidised through tourism, need to ensure that they do not contribute towards irreparable damage to their own communities i.e. the very local people that these proposals are there to protect need affordable housing in a thriving economy with rising employment opportunity, not tranches of affordable housing stimulated through legislative driven, systemic, economic decline,” Rowne added.

 

Holiday let could go down some route as buy-to-let market

Hiten Ganatra, managing director of Visionary Finance, agreed that the consultations and proposals were “likely to have ramifications”.

“Some will be positive for the local residents who will feel that their concerns have been addressed but a fair amount could be negative whereby it will impact the tourism industry as well as increase costs to landlords which will invariably be passed onto the end users,” he added.

“We have seen this very issue taking place in the buy-to-let sector whereby it is becoming unviable for small landlords to continue with their buy-to-let portfolios due to a number of tax and regulatory changes which has resulted in a reduction in rental stock driving up rents.

“Equally the inconsistent tax regime of the buy-to-let rentals versus holiday rentals has pushed more landlords into converting their investments to holiday lets because the mortgage interest is fully tax deductible,” he explained.

Ganatra continued that the proposal seemed to be a “re-run” of what was occurring in the buy-to-let space, and a “full top down impact assessment” would need to be carried out.

 

Professionalising the sector good move but ‘over-regulating can have dire consequences’

Joe Stallard, director and adviser at House and Holiday Home Mortgages, said that professionalising the holiday let sector would “ultimately help consumers, which is always a good thing”.

“Our holiday let landlords often say they welcome the increased regulation to drive cowboys out the industry. There will be many out there without the appropriate mortgage products, dabbling on Airbnb and delivering a poor product – that is no good for anyone,” he noted.

Stallard said that “caution needs to be applied here” as the holiday let market was quite small.

“Yes, some locations need help but, on the whole, local markets will self-regulate through supply and demand where the good survive and the rest sell up.

“Over-regulating with policies that haven’t been thought through can have dire consequences, just look at the buy-to-let market right now,” Stallard said.

He continued that saying that these changes be the way to help first-time buyers in specific local areas was “either political headlining or once again shows how far the government’s figure is from the pulse with regards to housing.”

 

Registration scheme could be a ‘good thing’

Andrew Soye, founder of Holiday Cottage Mortgage, said that he support the registration scheme as long as it was “light touch and relies on self-certification”.

“I think the registration scheme can provide the required data to allow local councils to monitor and control their housing stock effectively, so long as such a scheme is predictable, reliable and fast to apply for and lasts, say, five years per dwelling.

“I think it can add value to the market by identifying empty second homes that deliver no local economic benefit and instead contribute to the “hollowing out” effect seen in some places,” he noted.

Stallard said that he thought that the register would be a “good thing” but it does need “tweaking”, but “overall accountability and transparency will help”.

 

Planning permission and new use class could be ‘fraught with issues and risks’

Soye continued that introducing a new use class was “fraught with issues and risks” and that it was a “step too far and unnecessary” especially considering the possible introduction of a registration scheme.

He noted that there could be uncertainty around whether a mortgage lender would recognsie the new use class.

Soye continued that it would make it challenging to lend to a C3 Dwellinghouse, the current use class that short-term lets fall under, if a buyer wants to holiday let the property if there was a risk that planning permission might take 12 months or more to come through, limit ability to earn rental income or it is denied so there is no rental income from holiday lets.

He added that there was uncertainty around what would happen to exiting property owners who use class moves from C3 to C5 and then needed to remortgage.

“I think the proposals for a new use class need to be approached very carefully and in discussion with all key stakeholders including, quite critically, mortgage lenders and financial intermediaries,” Soye explained.

“The need for planning permission seems like over-regulation that isn’t necessary on a national scale to me, from first read,” Stallard said.

Gindy Mathoon, senior mortgage broker at Create FInnce, said: “Nothing has been said about if planning permission is likely to be declined or what impact it’s likely to have on those with holiday lets. Is it likely to deter potential borrowers buying a holiday let? It’s too early to say at this stage.”

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