Ed Miliband has announced Labour’s plans to reform the private rented sector if they win the next election. He sees scrapping letting agent fees, stricter controls over rent increases and standard three-year tenancies as the best way to ‘deliver a fairer deal to renters’. Is he right?
Scrapping letting agent fees: The Good
Every landlord and tenant will be better off without them. Traditional letting agent fees are hugely excessive and full of hidden charges. This was precisely the problem that Rentify was created to solve! It’s very clear to us that comprehensive letting services and property management need not cost the earth.
Controls for rent increases: The Bad
The plan is that landlords and tenants would agree initial rents based on market value. Once the tenancy begins, a review could only be conducted once a year. When these reviews come round, there will be an ‘upper ceiling’ for any increase. This could be based on average rent rises, inflation or a combination of both.
There are a number of problems with this. It only makes sense with longer term tenancies (see below) but mortgage lenders will often limit maximum tenancy length to 12 months as they claim it gives greater protection if the landlord defaults (as they can recover the property more quickly). If the law makes lenders provide longer tenancies, surely rates will go up, landlords’ costs will go up and the market will dictate that rents go up anyway.
Although Mr. Miliband claims that rents have increased 13% since 2010, other figures show they have been increasing below the rate of inflation and have now slowed even more. Also, rent review is regulated as it stands: a Section 13 notice to increase rent can only be issued every 12 months, a landlord cannot simply raise the rent when they want and tenants can refer any increases to a rent assessment committee for review. If the upper ceiling cap is too stringent, it will become unprofitable to keep properties in the best condition, reducing quality. Other landlords will leave the market and market values will increase anyway due to decreased supply.
This leads onto a most important point: the proposals do not address the need for more housing. As long as Mr. Miliband bases his controls on market value, they will not have much effect as demand for housing is so significantly outstripping supply.
Three year tenancies: The Ugly
‘Ugly’ may be too strong a word for this proposal but, hey, I’ve got a theme here. It may be on the right track but it’s messy and raises serious questions. The idea is that tenancies would automatically run for three years. There will be a six month probationary period – like with current ASTs – after which the landlord can remove the tenant if they have broken the terms of the agreement. Following that, a landlord will only be allowed to remove a tenant if they break the agreement (e.g. rent arrears, anti-social behaviour etc.) or if the landlord wishes to sell or move into the property. This would mean the end of the Section 21 notice and no-fault possession. The tenant can choose to leave at any stage with one month’s notice.
The UK certainly needs greater flexibility on long term contracts. But the key word is ‘flexibility’. Why should three years be standard when many will want shorter tenancies? The BBC states that ‘students and business people on flexible contracts would still be able to request shorter tenancies’. This is hardly a comprehensive answer. Tenants can leave when they want. Why shouldn’t landlords be allowed to offer a shorter term if, for example, they are planning renovations? We need more clarification. Also, there is the issue of the length of tenancy in mortgage lenders’ terms, as discussed above. Will a standard three year fixed term even be enforceable?
So Labour’s rental reforms are a mixed bag. It is important to note again that they fail to address the issue of building more homes, which is the real solution to the UK’s housing crisis. What do you think? Please let us know in the comments section, or fill out our special survey designed to let you put your side of the story across.