Buoyed by rising house prices and the slow decline of social housing, the private rental sector grew to 5.5 million households in the first quarter of 20171, and while the pace of that growth has slowed a little recently, there are now more people in privately rented accommodation across the UK than ever before. These new heights for buy-to-let have naturally increased scrutiny into how well the sector is serving its tenants, and one area that seems to come up time and again, is the length of tenancy agreements.
As a nation, we’re addicted to short term tenancies. According to the ONS2, 41% of renters have very short term tenancy agreements of six months or less, roughly half must renew their tenancy every 12 months, while just 11% have agreements that stretch to 18 months or longer. That needn’t be a bad thing, short term contracts offer tenants and landlords more flexibility, and mean landlords have greater power to evict tenants that break the rules, but as more and more people rely on private landlords to provide a roof over their head, there are growing concerns that these short-term agreements are depriving renters of medium term, let alone long term, security.
A recent report from Citizens Advice3 found that 34% of private renters would like to have longer tenancies, rising to 39% for parents. That’s over 1.5 million households in the UK that would like their tenancy contract to be longer than it is.
Responding to these concerns, the government has signalled that it’s planning to address the issue, perhaps even going so far as to impose minimum tenancy periods. The ‘tenant’s charter’ unveiled at the 2013 Conservative party conference introduced a new package of measures to help tenants secure longer rental contracts, while the recent Housing White Paper indicated that the government will be “ensuring more longer-term tenancies are available in private rented schemes to provide more stability to families renting”. Labour has also made it fairly clear that it wants to see “a sector based on long termism”, while the Liberal Democrats have promised to “promote longer tenancies of three years or more”.
All this would suggest we may soon see policy moves to encourage, or even enforce, longer term tenancies, which would inevitably send ripples across the buy to let mortgage market. In theory, longer term tenancies could reduce tenant turnover and therefore reduce costly void periods for many landlords. This more consistent income stream would also reduce the likelihood of mortgage arrears. The greater protection for tenants would also mean that they wouldn’t have to move as frequently, a particular problem for Londoners, 56% of whom wish they didn’t have to move as frequently as they do4.
However, for all the benefits, longer tenancies would be a mixed blessing for the sector. Before anything else, if longer contracts don’t guarantee that occupants stay for the full period, there will only be a limited impact on tenant turnover, and therefore limited positive impact for landlords and lenders. Furthermore, they may even have unintended consequences, dependent on the detail. Fixed rents, for instance, would almost certainly encourage landlords to roll anticipated future rent increases into the start of a tenancy, in lieu of steeper annual rises, undermining the argument that longer tenancies would cool rent rises in the market. We could also see landlords less likely to rent property to tenants they perceive as a higher risk, in the fear that they’d be unable replace troublesome tenants in a hurry.
Of course we’ve yet to see any cast iron action from government, and there are a number of different routes that they may choose to take, but brokers should be familiarising themselves with the complexities ahead of time. If introduced, it will certainly be an area brokers will need to educate their clients about.
1 Kent Reliance: Buy to Let Britain Report – Edition 6
2 ONS English Housing Survey: Private Rented Sector Report 2014-15
3 Citizens Advice: A state of disrepair – Why renters deserve a better deal
4 Citizens Advice: A state of disrepair – Why renters deserve a better deal
Adrian Moloney is sales director at OneSavings Bank