The government talks about licensing landlords

So the government is considering forcing landlords to register, and ARLA have set up a voluntary scheme:

Arla today launched its own licensing scheme to cover all its members. Member agents will be obliged to adhere to a number of requirements, including holding a professional qualification, keeping client funds in annually-audited client bank accounts, and holding valid professional indemnity insurance.

Of course, as shelter says this is ‘a step in the right direction’, but makes you realise that we’re miles from home.  Presumably, before ARLA members could previously keep funds in unaudited bank accounts.

The government scheme seems to involve a £50 license for landlords that can be revoked thereby preventing them letting the property.  The times article includes this worrying quote:

Registered landlords would have to comply with certain standards and those who fail to carry out repairs or who intimidate tenants could be struck off. If that happened, all their tenants would have to move out, although this would not happen overnight, Whitehall sources suggested

This does not seem to address any security of tenure problems, but would perhaps in the long term shake out the bad landlords.  Although, this may well put more demand on the good landlords (pushing up rents) and create a market of unlicensed landlords (good for locating illegal immigrants, skunk farms, etc).

The real problem here is that a landlord needs to be compelled to provide decent housing if they fail to, and should therefore have funds set aside in escrow in case they are needed.  This is exactly how it works for tenants.  I wonder whether landlords would welcome replacing tenants deposits with a license?

Margin calls begin for leveraged property speculators

The FT is reporting that borrow to letters are facing the arrival of the margin call.  This is an very important development.  A lot of people have been criticising the bankers recently for leveraged speculation, but most people do not realise that the man on the street only has one option for leveraged speculation: property.  The thing about leveraged speculation is that when prices rise, it is extremely profitable.  When prices fall, however, you either need to find cash quickly or face being closed out of your position by the lender.  This forces you to take the loss even if prices may return in the longer term.

Up until now, the lenders have avoided this.  It is partly a prisoners dilemma problem where if one bank starts margin calls it may well cause further distressed sales and therefore more downward pressure on prices which would in turn require more margin calls.   However, the FT story indicates that this attitude is changing.

Forgotten victims of repossession crisis – joint campaign launched

A new campaign has been launched.

Their advice is all sensible stuff:

* Always open mail addressed ‘To the Occupier’. This may include notice of any possession hearings.
* If you’re thinking of moving into a new property, make sure the landlord has permission from the lender to rent it out. Otherwise, the lender does not have to recognise the tenancy at all.
* If you were already living in the premises at the time when the mortgage was taken out, the lender may take you on as a tenant and allow you to pay rent to them directly. If you think you may be in this position, contact a Citizens Advice Bureau or Shelter.
* Try to find out as much you can about your prospective landlord and his/her mortgage status before taking up a tenancy - although in practice this isn’t always very easy.

However, finding out about your landlord is difficult and agents will lie to you.  I still think some new clauses in the contract would help.

How can you avoid a bankrupt landlord?

The media is all over the rise in repossessions of borrow to letters and the impact on tenants at the moment.  On the forums, we have a story of on tenant who may be evicted, but is still expected to sit out the whole tenancy by the agent or face penalties.  He naturally wants to protect his family from a last minute eviction, so found other accommodation.  The letting agent claims he is liable for the whole tenancy.

Although credit checks for landlords are one of our manifesto pledges, we have recently be considering a clause in the AST which helps you get out if the landlord defaults.  There should be a requirement in the AST that the landlord pays the mortgage in full every month.  This way, if they get into arrears you can claim breach of contract and terminate the tenancy.  This affords you some protection from a landlord who takes your rent to pay a mortgage on another property.

Another clause I would like to see is that the mortgage is an appropriate product (i.e. not a owner occupier mortgage). No-one should have to rent from a landlord who is lying to his lender.

Video advice on rights of private tenants

Community Legal Advice has produced a video on how to deal with rent problems.  It’s signed using BSL, but has a voice over as well.  It’s a great starting point on what to do if you’re having problems.

Steep rise in tenant evictions

“What we’re seeing already is a steep rise in the number of tenants, entirely blameless individuals, who are becoming homeless because their landlords can’t pay their mortgage and their homes have been repossessed,” said Shelter chief executive Adam Sampson.

Tenants can get just days’ notice to leave their home, says the charity, which wants ministers to “act quickly to give tenants far, far longer”.

So, it has started.  Tenants will bear the brunt of all this leveraged property speculation from the buy-to-letters.  Arrears are shooting up:

The buy-to-let sector has been the hardest hit over the past year. The number of landlords who are three months or more behind on their mortgage payments rose by 257 per cent between the end of 2007 and the end of 2008, as landlords failed to secure the rents they needed to meet their loan payments.

The Tenant’s Dilemma

The Citizens Advice Bureau has a valuable report on their site (thanks Owen!).  As the front line for helping out tenants in trouble, it’s amazing that they actually have to qualify their advice with a warning:

One of the frustrations which CAB advisers face when advising private tenants about disrepair is that any advice about their rights has to come with the warning that exercising these rights may result in the landlord issuing notice to quit.

This situation makes it clear why security of tenure is so important.  Without it, there is little or no point in providing other rights - the landlord can simply evict rather than deal with the problem.

The report details that there is overwhelming support from Environmental Health Officers and Tenancy Relation Officers for reforming the legislation on section 21 (only 2% respond that it is not needed).  It also has a very good section on how this works in other countries.  In general, you either have real security of tenure or specific law about retaliation (similar to employment tribunals).

I recommend you read this report, the case studies make shocking reading.

Housing benefit pushes up rents for the private tenant

A great analysis by Burning our money shows how housing benefit pushes up rents across the whole rental sector:

The Local Housing Allowance, because it is based on the median rent, is creating an ever-rising floor for rental rates that is completely disconnected from local incomes. If you’re a landlord, why would you rent for anything less than the LHA even if 50% of local workers don’t have the incomes to pay the LHA rents?

It’s free money. As landlords raise their rents to the LHA level, when the rates are recalculated each year, the lower 50% of the distribution has been truncated so the median will be progressively higher and higher following each round of recalculation. At the same time, because the government is guaranteeing landlords an above market rent, it drives up property prices and prices people who are actually working out of the housing market.”

Agents fear collapse in rents

It’s a great time to be a renter, according to the Guardian:

People who are unable to sell their properties because of the collapse of the residential sales market are now flooding the lettings sector with unusual, high-specification homes that are often being offered to tenants at bargain prices.

‘You have properties that have been refurbished for sale - real high-spec properties - now coming up for rent,’ he says. ‘These often make traditional rental properties, with their B&Q kitchens, somewhat tired by comparison and therefore more difficult to let.’

In the short term, this is obviously great for tenants.  However, I think this will only increase their precarity in the long term.  Living as a stop gap ‘until the market recovers’ does nothing to make you feel secure in your home.  I recently saw an advert that states (excuse the caps, they are from the letting agent):

PLEASE NOTE THAT THE RENTAL HAS BEEN REDUCED AS THE PROPERTY IS STILL ON THE MARKET FOR SALE AND TENANTS ARE EXPECTED TO CONDUCT VIEWINGS WITH PROSPECTIVE BUYERS.

So not only do you not have any security, you are expected to do the agents job as well - with obvious potential for fun!  The real issue here is that the owners letting them out will quickly tire of subsidising the tenant while waiting for the market ‘to recover’.  I was recently offered a let that was on the market for £275,000 at £750pcm.  This gives a yield of 3% after agents fees.  After costs, I can’t really see this being a winner for the landlord - it would barely offset the monthly fall in value of the property.  How long could it last?

The government considers giving tenants more notice of their eviction

The BBC reports that the government is currently considering changing the rules on giving tenants notice of repossession.  Currently, only two weeks notice is required.  This demonstrates just how precarious the rental life is in the UK, and RR would support changing this rule.  However, it would be better that tenants were never exposed to this risk through amateur landlords borrowing beyond their means.