Labour announce rental market reforms... but are they beneficial?

Landlord Assist believes plans outlined by the Labour Party to cap rent increases and introduce longer term tenancies will undermine any attempts to create a more professional rental market....

Landlord Assist believes plans outlined by the Labour Party to cap rent increases and introduce longer term tenancies will undermine any attempts to create a more professional rental market.

Under Labour's plans, tenants would pay a rent based on market value and a review of that rent could only be carried out once a year. At that point landlords would be prevented from raising rents any higher than an upper limit set in place by legislation.

The proposals would also see the introduction of three year tenancies which would start with a six month probation period followed by an automatic two-and-a-half-year extension if the probation was passed.

Going forward tenants would be able to terminate a tenancy after the first six months, with only one month's notice.

In contrast landlords would need to give two months' notice and have good reasons for terminating a tenancy agreement, such as the tenant failing to meet their rental payments or engaging in anti-social behavior.

Leader Ed Miliband says the new laws will make renting more affordable and give tenants greater protection against rogue landlords.

But Graham Kinnear, Managing Director at Landlord Assist, says the planned proposal will be counter-productive and lead to an increased shortage of quality accommodation.

“In our view the proposals are simply unworkable. Most buy to let investors are primarily attracted to the sector by the lack of restrictions surrounding rent levels, so capping rent levels will do little to help the sector grow.

Capping rent increases will only prove to disincentivise people from investing in buy to let property and renovating tired properties. This will ultimately lead to a reduction of available quality accommodation at a time when the market is already experiencing a substantial shortage and will simply undermine any attempts that have been made to create a more professional sector as tenants will be paying more for poor standards of accommodation.

Labour's suggestions, if implemented, will undo all of that work and lead to a reduction in mobility and a reduction in the availability of accommodation.”

Stephen Parry, Commercial Director at Landlord Assist believes that mortgage lenders will be extremely nervous about granting three years tenancies which can only be terminated in the event that the tenant is in substantive breach.

"With longer tenancies in place it will make it extremely difficult for landlords and lenders to act and gain repossession of the property in cases of rent arrears.”

As part of the new plans, letting agents would also no longer be able to charge a letting fee, typically about £350, for renting out properties in addition to requiring a deposit and the first month's rent upfront.

Parry adds:

“Whilst we believe that some firms charge excessive amounts it is felt that market forces should prevail in this regard without government intervention.

Furthermore, to ban administration fees entirely is wholly unfair on agents especially given the amount of administrative work they must undertake. For every tenancy letting agents are required to prepare a tenancy agreement, inventory report, schedule of condition report, arrange a gas safety inspection, energy performance certificate and orchestrate the move in. If Ed Miliband believes that all of this can be provided without cost then he is clearly out of touch with business practice.

In short we would implore Labour to rethink their plans. Housing is central to the UK economy and their proposals will hinder rather than help the situation.”