Longer contracts could drive yet more buy-to-let landlords out of the PRS

Added on July 11th, 2018 in Property News

Small scale buy-to-let investors and accidental landlords face more upheaval under the government’s plan to introduce mandatory minimum three-year tenancies, according to a leading letting agent.

Aside from the fact that three-year tenancies, as proposed by the government, could make it harder for buy-to-let landlords to finance their property purchases, Fiona Bourke, partner at Carter Jonas, argues that longer tenancies will pile pressure on in many other ways.

The idea behind the plan is to offer private tenants greater security and enable them to put down roots. But Bourke believes that the risks may “far outweigh the benefit of financial security for the smaller scale buy-to-let investors and accidental landlords”.

She said: “With more rights being given to tenants, the three-year term potentially has less value to the landlord should tenants decide to leave part way through their tenancy, which they will have the freedom to do.

“Should landlords potentially come across problematic tenants it will also become harder for landlords to manage them if they are locked into a longer-term agreement.”

Bourke continued: “In my area of Wandsworth [in south London], rental agreements are often much shorter than the national four-year average and we have a significant number of local, individual and accidental landlords who may reconsider their options in light of these changes in legislation.

“Furthermore, such reconsideration could be fuelled further by the prospect of rent rise caps in future.”

Bourke says that there is “no easy way out for local, individual or accidental landlords as a result of these new changes”, but rather a choice between “going longer term on their investments or simply cashing in”.

But while some smaller scale landlords may struggle to cope with the planned changes to rental legislation in this country, which she points out is “shifting further towards alignment with Europe”, where three-year minimum tenancies have long been the norm, the proposals are sure to be a welcome one for larger scale investors.

“Venture capitalists and asset management companies will be buying up property with the ever so slightly more safeguarded guarantee of a long-term return on investment,” she added.

“It [the planned new rules] could bring about a new buy-to-let audience who recognise that we’re fast becoming more of a rental society and the new laws may give landlords more stability in the long run.”

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