Yet more elsewhere

Congratulations Mr. Brokenshire, you’ve just killed every buy-to-let mortgage. of which there were 1.8 million even back in 2015. It’s a standard clause in every single one of those mortgages that they be rented out on a six or 12-month shorthold assured tenancy. The reason being that in the event of default the bank or building society understandably wants to be able to sell the place without having to deal with an immovable sitting tenant.

My thanks to a commenter here for that point about BTL mortgages. I could look up which one but the better half insists I do shopping right now.

33 comments on “Yet more elsewhere

  1. As someone who has experienced the UK rental market in the last couple of decades, I can understand why politics is moving towards less sensible solutions to sort out the mess of private rentals. The resentment building up amongst the tenant class is palpable, and often for good reasons.

    There is a big problem when the standard security of tenure is 6 months. You have more commitment to a gym membership or phone contract than your dwelling. Forget about trying to get a child through a school year with stability. You move into a flat, and you have about twelve weeks peace of mind before you wonder whether that rent hike or Section 21 notice is going to hit your doormat in the next four weeks. It’s really no way to live.

    Whilst I tend to agree with your arguments in a limited sense, I am not sure I recognise your implied image of the rental market as a fair ground for negotiation. In practice, landlords hold most of the cards whilst housing is in such dire shortage and tend to extract much of the wealth generated by renters, whilst enjoying cheap money on the other side.

    Given society prevents building, and therefore competition from arising, or renters substituting out of the rental market, there is something of a trap. I know you want to blow up the planning act, so I can’t claim your viewpoint is inconsistent, but your (and my) preferred solution doesn’t look likely to happen, so politics reaches for imperfect solutions, and some stupid ones, instead. Could you suggest better?

    Another issue is that reducing the incentive to provide houses for rent also doesn’t mean they necessarily sit empty. Most that are not rented would be sold and enable a portion of current renters to buy – a consequence that might be popular, not regretted, even if at the margin residential provision drops a little and residential liquidity drops a bit more. BTL gets too much credit for ‘providing’ accommodation when it has probably done very little to stimulate actual capacity increases thanks to planning rules. Like the NHS, as you are fond of pointing out, it largely just took over what already existed.

    Personally I think minimum tenure on a no-fault basis should be a year, not six months or 3 years. It addresses the risks around annual cycles, especially schooling, without being overly burdensome. Maybe that’s where this consultation will end up. I also support speeding up fault-based eviction processes mind you, I’m not universally on the side of tenants.

  2. Add what about bridging? My brother and his family once lived in a house for 3 months while waiting for the other end of a chain to sort itself out.

  3. I hate to say this, but up here in PorridgeWogland, Nicola has managed to do something on this topic which actually seems sensible. The Private Housing (Tenancies) Act 2016 came into force in December. Basically, a tenancy is now open-ended, with no minimum and no maximum term. Rent rises are yearly, with 3 months notice and an appeal process. The Act lists 18 reasons why a landlord can ask a tenant to leave with 84 days notice. Reasons include wanting to sell the house. Shelter Scotland has an excellent website which explains it all. There has been no extra wailing and gnashing of teeth here as far as I’m aware.
    I’m sure Mr Brokenshire could phone Nicola for help if he needs it.

  4. “You move into a flat, and you have about twelve weeks peace of mind before you wonder whether that rent hike or Section 21 notice is going to hit your doormat in the next four weeks”

    I seem to remember that, back in the 80s and 90s, banks would sometimes change mortgage payments every month depending on the fluctuations of bank rate. Colour me unimpressed

  5. From Bank of England website

    Apr 1985 12.3750
    Thu, 28 Mar 1985 12.8750
    Wed, 20 Mar 1985 13.3750
    Mon, 28 Jan 1985 13.8750
    Mon, 14 Jan 1985 11.8750
    Fri, 23 Nov 1984 9.5000

  6. Oblong

    “Could you suggest better?”

    I think Tim already did (somewhere). If three years is the minimum, OK, but then also allow that to be the revised term for which a landlord can, at the end of which and for no reason, say “that’s it, we’re now done”, rather than the existing 12 months?

    Isn’t his point about the illogical mismatch?

  7. There’s a determination in government to kill buy-to-let. This is just one more thing in a succession of things designed to make the business unprofitable. I don’t know what they will consider success. Elimination of private landlords? And who will build the houses?

  8. Killing the buy to let market may not be such a bad thing if it brings down property prices. Parts of the continent manage high levels of tenancy with 3 year tenancies.

  9. “Killing the buy to let market may not be such a bad thing”

    “Parts of the continent manage high levels of tenancy”

    Bit of a contradiction? Or are only large scale landlords “good”!

  10. “I seem to remember that, back in the 80s and 90s, banks would sometimes change mortgage payments every month depending on the fluctuations of bank rate. Colour me unimpressed”

    I’m not sure what you are really trying to prove here. Because homeowners had a tough time during the plaza accord crisis of the 1980s when the global currencies reached an all-time low vs the dollar, it’s an optimal policy to have just 6 month security of tenure for today’s tenants?

    That’s requires more than a few logical leaps. We used to beat kids in school, have nationalised gas and lifetime assured tenancies back then too, doesn’t mean any of them were good policy. What you posted was pretty much just an emotional reaction.

  11. “There’s a determination in government to kill buy-to-let. This is just one more thing in a succession of things designed to make the business unprofitable. I don’t know what they will consider success. Elimination of private landlords? And who will build the houses?”

    This isn’t coming out of nowhere, you know.

    As BTL swallowed an increasing share of the housing stock, tenants have grown as a political class, and once they get to a certain critical mass they will drive policy increasingly in their direction.

    It does feel that an inflection point is being reached. After almost 30 years of an unprecedented house price boom (with merely brief interruptions), driven by immigration, a throttled building market, and monetary policy that has almost been designed to bail out BTL at every turn [though I make no claim that was an error].

    One point I do take issue with it who will build the houses. It ain’t BTL, that’s for sure, under the current planning system. As BTL took hold, building rates in the UK remained stuck at their lows. It’s not a demand problem (from landlords or residents), it’s a supply problem (from planning).

    BTL would have much more support if it did actually enable more and better housing stock.

  12. Alex – bringing down property prices is considered by some to be a bad thing. Lots of people in negative equity and people unable to sell because house price is too low.

    The British appear to prefer their own house price to keep rising.

  13. 3-year minimum tenancies will definitely dry up the supply of rentals properties, and so drive rents up. I’m thinking of letting out my current house while I buy another (if I have to move cities), but I won’t be doing so if I can have a tenant sitting in there for three years.

    >You have more commitment to a gym membership or phone contract than your dwelling.

    They’re not very comparable. A gym you visit now and then, along with a load of other people. A phone is a small thing that you are buying, and the airtime is a service. With a house rental, however, you are moving into a whole house, that’s owned by someone else.

    If you want (relative) stability, buy a house. If you can’t afford to buy a house where you want, then you have to run the risk of renting, or else buy a cheaper house somewhere else. What these renters want is to be subsidised by the landlord so they can live at a higher level than they can afford. (And I say this as someone who rented for almost twenty years, and who never had much money.)

  14. In the absence of blowing up the planning rulebook, my preferred solution is as follows: No one is allowed to own the home in which they live, although they may own other properties which they rent out. Everyone rents at arms-length market prices. Add in some changes to the tax code so that your rent payable on the place you live is deductible for income tax purposes from any rent you receive. Net result: the existing housing stock is a helluvalot more efficiently deployed as empty-nesters react in horror at being asked to bear the cost of a big house and downsize pronto. Only downside is that it’s obviously bonkers in every practical respect.

  15. Charlie T
    An interesting side effect of nobody owns is that there is no property to grab in a divorce.

  16. (i) For any house valued at more than £1 million, the tenants and landlord can strike any bargain they jolly well please.

    (ii) One million in London and something less elsewhere?

    (iii) There’s no point trying to copy a superior Scottish system – every time that’s tried in England it’s completely cocked up. (Frinstance, the Crown Prosecution Service.)

    (iv) For people who can’t be trusted to be grown ups, have a list of half a dozen standard contracts: landlord and tenant may choose whichever they can agree to.

  17. When it comes down to it, I conclude that the right of people, any people, to freely enter contracts with other people should be paramount. Of course it is not.

    If you don’t like being a tenant, buy your own house. If that doesn’t suit accept that the landlord is offering a service to you. Up to you to take it or not. Why should the government insert different tax treatment or special terms not demanded by either party?

    If BTL really becomes impossible the supply side won’t alter wrt the demand side. The flats and houses will not get cheap because the supply that controls them is not the supply of housing alone but the supply of money. As long as the UK remains an attractive country to immigrants the demand will keep going up. While there are mortgages. When the credit disappears the market is not like that for, say, cars. Once the price has ratcheted up the seller would rather take it off the market than sell for less than the number in his head that it was at the peak. The market slows down. Renters don’t suddenly become able to buy.

    There is no paradise of cheap housing in the future no matter what.

    Oh, and if you don’t like renting, buy. Or suck it up.

  18. “I hate to say this, but up here in PorridgeWogland, Nicola has managed to do something on this topic which actually seems sensible.”

    ? The PRT also has obvious flaws.
    1) Students
    Students genuinely want and need a 9-12 month contract. It’s not good enough to rely/hope on the student to give their notice to quit at some point in the summer: the landlord needs to have certainty – IN JANUARY – that they will have their property back 9 months later so that they can line up the next batch of students. Similarly, the students do not want to be fretting through the summer with no certainty as to where they will be living for the following year.

    The solution is to resurrect the assured shorthold tenancy – the tenant gives their notice to quit at the point of _starting_ the tenancy.

    2) The Disadvantaged
    The whole point of the exercise was apparently to give better security of tenure to those at the bottom of the pile. What actually happens – who would have thought that incentives might matter? – is that landlords are more reluctant to let their property to anyone who is not squeaky clean. If you can’t get rid of them, you won’t let them in to begin with. The 18 grounds cited provide little or no protection for the landlord if you have a dodgy tenant. Remember, the landlord is the one with the skin in the game – it’s the landlord that has the substantial asset at risk.

    “You move into a flat, and you have about twelve weeks peace of mind before you wonder whether that rent hike or Section 21 notice is going to hit your doormat in the next four weeks. It’s really no way to live.”

    Wut? Why on earth would a landlord bin a perfectly sensible tenant? Why incur the re-marketing costs, risk a void period and, even worse, end up with a worse tenant than you had before? Changing tenants is a risky process than incurs cost that you do not incur by keeping an existing tenant.

    Landlords live in fear of void periods: they become liable for council tax (at punitive second property rates) whilst still wearing the cost of capital (at higher BTL rates). You want your property reliably occupied. The whole premise behind the exercise denies these fundamental realities.

    [disclosure – private landlord of a small cottage]

  19. I’d have no objection to B2L if the B2L’ers were investing their own money. A rental property should be a good way to utilise capital to produce income. I wouldn’t have any objection to B2L being a route to creating new housing with third party individuals being able to participate in the investment, either directly or through investment schemes.
    But B2L, the way it’s been done, just feeds on the existing housing stock. There’s little value being created. B2L’ers use their preferential access to bank credit creation to outbid potential home-owners & inflate residential property prices.
    Actually, theoretically, I quite like Brokenshire’s little scheme. 3 year guaranteed rentals breaches the mortgage terms of B2L borrowers. Lenders foreclose on mortgages, forcing B2L properties onto the property market, crashing residential property prices. A lot of paper potential profits evaporate. So what? Doesn’t make an iota difference to the amount of housing available for people to live in, although it might change who’s living in it.
    Not going to happen, of course. Lenders would swallow the extended rental terms & the government would ensure the added risk was passed onto the tax-payers on the too-big-to-fail principle. Financial business as usual. Like last time.

  20. “Wut? Why on earth would a landlord bin a perfectly sensible tenant? Why incur the re-marketing costs, risk a void period and, even worse, end up with a worse tenant than you had before? Changing tenants is a risky process than incurs cost that you do not incur by keeping an existing tenant”

    Perhaps you’d be surprised by the sort of things that go on at the lower end of the housing market. Under-supervised letting agents churning tenants for fees. Retaliatory evictions for attempting to force repairs. Evictions for not signing up to landlord’s preferred rip-off utility services. Timing evictions at pinch points like Christmas to raise maximum pressure on rent negotiations (all things I have direct experience of within my peer group).

    At least the old game of attempting to steal deposits from the naive or vulnerable became much harder with the deposit protection schemes. And it’s much harder to get hit by surprise repossession evictions now too.

    As I progressed up to the ‘young professional’ level of housing, things got a lot better and more like you describe. But many ‘normal’ landlords have a bit of a rose-tinted view on what goes on out there.

  21. The British appear to prefer their own house price to keep rising.

    Emphasis on ‘their own’, those that own a house. This is not entirely surprising.

  22. @ bis
    B2L *was* a good way to utilise capital to produce income – before WWI. Then Lloyd George froze rents to protect tenants from exploitation during the housing shortage resulting from the War and they stayed frozen for nearly 40 years while costs more than quadrupled (inflation caused average prices to quadruple but that is net of massive improvements in manufacturing productivity).
    Before WWI, B2Lers provided the capital to fund building of good quality artisans’ dwellings. I’ve seen the paper trail (yes, I do mean *good* quality: when the paper trail ended one maisonette was owned and lived in by two married, to each other, barristers; another had the same tenant for well over 50 years, much to the irritation of her downstairs neighbour).
    To get back to Edwardian standards and practices in B2L, we need guarantees that the government won’t confiscate overnight 90% (or 100+%) of the equity. Without that no-one is going to invest all their savings in building (or paying Wimpey to build) an estate of B2L.

  23. @ Rob
    I don’t, because the price has no relation at all to the value of the house to me.

  24. “3 year guaranteed rentals breaches the mortgage terms of B2L borrowers. Lenders foreclose on mortgages,…”

    If it’s a change in the law that forces landlords to make an offer different than the obsolete terms specified by their mortgage contract, that would surely be an excellent defense against foreclosure.

  25. Here’s something I plan to send tomorrow morning. Suggestions for improvement are welcome.

    Whan I spellchecked it, my computer hilighted the word Brokenshire and gave me a big button saying IGNORE. If only it were that simple!

    Dear Mr Brokenshire,

    I rent out my old flat, which is near a hospital. Many of my tenants have been young doctors who worked there for a year or two, gaining experience and qualifications before moving on.

    I usually rent for a 12-month term, with a break clause after six months, and then extend by mutual agreement- depending, among other things, on whether the tenants pass all their exams first time. It has always, with this type of tenant, been a win-win arrangement. The tenant phones my agent, asks if they can extend, the agent phones me, I say yes, paperwork is exchanged, everyone is happy.

    What do you think should happen when you make this illegal? Should the postgraduate medical curriculum be adjusted to fit round your three-year tenancies? Or should flats near the hospital sit empty formor than one year in three? Should young doctors who fail their exams live on the street until they succeed at re-takes?

    And what should happen in university towns? Most of my fellow students stayed in College for a year, rented a house for a year, and then did their final year in College. Should that be made illegal? Should two-thirds of students spend all three years in College, and one-third live out for three years? How would the transition be handled? What should happen to linguists such as me, who spend two years at University, a year abroad, then another year back at University? Should they rent a flat for four years, and leave it empty for a year?

    I presume you and your civil servants must have given thought to all these details before going public. Have you?

  26. What an excellent thread, so informative. If only our MPs came with such a wide and diverse experience and the intellectual ability to listen to the arguments.

  27. CJ Nerd,

    Third paragraph, change formor to for more. Not sure how your spellcheck missed that, I’d fire him/her.

    Fourth paragraph, no comma before ‘who’.

    I’d drop the ‘have you?’ at the end. In fact, I’d be tempted to go along the lines of: I presume that you and your department are aware of the above issues and have addressed them in the proposals. I’d be interested to know how you plan to ensure that students are not inconvenienced by the introduction of three year tenancies.

  28. DocBud: thanks for the typo corrections.

    I agree the last paragraph is a bit snippy, and I’ll tone it down.

    I have found the annoucement here:
    https://www.gov.uk/government/news/longer-tenancy-plans-to-give-renters-more-security

    and the consultation, open till 26th August, here:
    https://www.gov.uk/government/consultations/overcoming-the-barriers-to-longer-tenancies-in-the-private-rented-sector

    I’m going to read the details- about 20 pages- before I put my oar in.

  29. @Pedant-General
    Thanks for your response. I’ve checked Schedule 1 of the Act and University Halls and student accommodation which got planning permission as student lets are exempt. Not so clear about landlords with less than 30 rooms.

    As the first changeover under the Act is now underway, I’ll keep an eye out for problems reported in the local prints.

    There seems to be less directly said about ‘the disadvantaged’. Eviction for rent arrears seems much as at present. I’ll do some research based on your comments.

  30. Scott R,

    The problem is HMOs – not halls.

    Oblong
    Sound comments. If I might pick a couple of your points:
    – Under-supervised letting agents churning tenants for fees.
    This is a landlord failure – he should be all over his agent for this. The landlord loses very badly here.

    – Evictions for not signing up to landlord’s preferred rip-off utility services.
    Seems odd: the landlord won’t benefit from this, only the utility company.

    – Retaliatory evictions for attempting to force repairs.
    Valid point. Net result though is you end up with a rundown property, voids and lower rental value, so even in the medium term, this isn’t optimal behaviour on the part of the landlord.

  31. As a PRS landlord for 15 years, I have not yet had a tenant ask for a longer lease – other than at the asking of the letting agent I used to use (I don’t use agents to manage lets any more !).
    In the past I have taken a chance on a tenants who might be OK or might not – they’ve got that chance on the basis that I could do so without **too much** risk. As it happens, they were “not good” tenants – but they still got 12 months (ie 6 months after the initial fixed term). They got a lot of leeway, but the fraud executed against a neighbour finally swung it and I asked them to leave.
    If I knew I’d be stuck with them for 3 years then they’d not have been given the chance in the first place – OR I’d have asked for a significantly high rent to compensate for the extra risk. So yes, I’d agree that minimum 3 year terms would backfire on those the measure is most intended to help !
    But yes, complaining that I’m being tarred with the same brush as those at the bottom end of the market, and that tenants (even bad ones) are getting all the attention, and the real problem is (as many point out) the lack of properties is just pee-ing in the wind in the current political climate.

  32. It’s nice to know that our blogger has a better half, or what Steven Pinker might call the better angel of his nature.

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