Lettings regulation is not all good news for tenants

Prime Minister Theresa May delivers her keynote speech at the Conservative Party Conference
Prime Minister Theresa May delivers her keynote speech at the Conservative Party Conference
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It’s all change for the lettings industry but regulation could lead to higher rents. Sharon Dale reports.

The lettings industry has long campaigned for a clampdown on rogue operators and this week’s Conservative Party conference delivered it. But there are fears that long-awaited regulation to curb the cowboy agents could lead to higher rents and a reduction in the number of private landlords.

Communities Secretary Sajid Javid this week announced that all letting agents across England will have to be registered. It comes after numerous cases of disreputable agents misusing tenants’ deposits and failing to pay rent to landlords before shutting up shop, leaving victims with no legal redress.

Javid said: “We will change the law so that all letting agents must register with an appropriate organisation. This will mean that letting agents would be required to satisfy minimum training requirements and comply with an industry code of conduct.”

Under the new legislation, private landlords managing their own lets must become members of an ombudsman scheme that offers dispute resolution over issues such as repairs and maintenance. Other sweeping changes to be unveiled in next month’s Budget include incentives for landlords to offer 12 month tenancies. The government will also be consulting with the judiciary on whether a new housing court could provide faster and more effective justice for tenants.

Javid also revealed that the proposed ban on lettings fees for tenants is imminent. He told the conference: “For too long tenants have felt unable to resolve the issues they’ve faced, be it insecure tenure, unfair letting agents’ fees or poor treatment by their landlord with little to no means of redress. We’re going to change that.”

Reputable agents have welcomed the regulation of the industry but many believe that this, the ban on tenants’ fees and extra taxes will push up rents. Will Linley is director of Linley & Simpson, an independent sales and letting agency with 11 branches across North and West Yorkshire. He says: “Alongside many professional letting agents, we have long been at the forefront of a campaign calling for regulation. It will act as the catalyst for ridding the fringes of the rental sector of rogue agents, who put tenants and landlords at risk by not protecting their money or adhering to safety legislation.”

However, he adds that in Scotland, where a ban on lettings fees has been in place since 2012, there is clear evidence that rents have risen as a result, “We expect this to be mirrored in Yorkshire. This is the absolute opposite effect of what the government is trying to achieve.”

The cost of credit checks and administration born by a prospective tenant will inevitably be passed to landlords, who are likely to hike rents. Landlords are also faced with an extra three per cent stamp duty when purchasing a buy-to-let, along with the loss of mortgage tax relief.

“Research shows that the average annual running costs of a buy-to- let property now stands at a record £3,632. It’s a fallacy – as borne out in Scotland – to think that landlords will absorb extra costs. They are already grappling with a raft of tax increases,” says Will, who adds that Yorkshire’s appetite for buy-to-let has been dampened. “We are significantly adrift of the buy-to-let peak witnessed a decade ago. The impact is that it further limits choice and supply and triggers upward pressure on monthly rents.”

This is bad news for tenants, who now make up a fifth of UK households. An increase in the number of properties to let would put a brake on rent rises and the government believes build-to-rent schemes are the answer. However, Will Linley has doubts about the rental schemes funded by large corporations. He says: “The jury is out on the viability of this model, especially as it does not offer the choice that the market craves. These high-rise apartments, usually in city centres, are a niche product with premium rents.

“Much of the growth in rental demand is in more urban areas, where the role of the private landlord remains as strong as ever. What we need are measures to reinvigorate the buy-to-let market, such as relaxation of mortgage funding and fewer anti-landlord taxes.”