Longer contracts are being seen as the way forward for Generation Rent and older renters who are looking for security. Generation Rent need security for work, while older tenants are often looking to stay in a neighbourhood they know or that is close to their family. So offering mandatory three-year tenancies could be seen as a blessing. Landlords would also have the additional security of knowing they have a tenant in place for at least three years and can budget accordingly, with no expensive void periods or the need to keep remarketing their properties. However, one thing seems to have been overlooked – mortgage providers.
At present, there are few buy-to-let mortgage providers or financiers who will allow for longer tenancies, as it is not in their best interests. If a landlord should default on his repayments, it would make it harder for them to repossess the property in question. They could repossess the property, but could then be faced with not being able to sell it because the tenant has the right to stay. Many landlord groups are opposed to the idea of compulsory longer tenancies because it could also make it more difficult for them to get rid of problem tenants or sell up if they wished to. They argue that it is a further blow to a profession which has already been hard hit by changes to the rules on mortgage interest payments, as well as stamp duty. The National Landlords Association has also claimed that most tenants do not want longer contracts, with only four in 10 in favour of them. Now, finance companies are pointing out the flaws in the proposals. They argue that they need a greater incentive from the government to change the conditions in their contracts to give finance for properties with long tenancies. As it stands, landlords would face breaking the terms of their mortgage agreement if the longer tenancies are introduced.
Forecasts show that there is increasing demand for quality rental homes and an acute shortage in some areas. Landlords faced with increased regulation and fewer tax breaks are also selling up. According to UK Finance, buy-to-let lending fell 12.5% in the year up to April. So it doesn’t make sound business sense to make it even more difficult for existing professional landlords to borrow the finance they need to invest in further buy-to-lets.
Other ways to encourage long-term contracts have been suggested. Either easing up on the mortgage restrictions or offering tax relief for landlords who let their properties on long-term leases. There have also been arguments put forward to waive the stamp duty on properties being sold with sitting tenants. Also, lending companies may have to adapt their policies so that they are bespoke and fit the needs of individual landlords, rather than keeping to a ‘one size fits all’ mentality.
The consultation concerning longer contracts runs until August 26. The government then has 12 weeks to publish its response.
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