Raising the rent

Fixed term tenancy

How a landlord goes about raising the rent will largely depend on the type of tenancy in place. Most landlords use a fixed term tenancy agreement. In most cases a landlord will opt for a 6 month tenancy although it can be longer. This means that without the tenancy agreement you as the landlord cannot put up the rent during this period, unless the tenancy agreement makes specific provisions allowing this. These specific provisions may be by way of an escalator clause for instance stating that the rent will go up by inflation after six months. The vast majority of landlords avoid such clauses. This is because they are seen as overly prescriptive and inflexible. Most landlords opt to review the rent when they decide whether to re-let at the end of the fixed term tenancy. This way a landlord can judge the prevailing market conditions and work out what the rental market will bare at that particular time. For instance in places such as central London and parts of the south east, rental inflation is running well ahead of general inflation, therefore for a landlord just to track inflation would mean their rents are falling behind the market. If a landlord decides to opt to re-let to the existing tenant then raising the rent is relatively easy as all they do is create a new assured shorthold tenancy with the new rent included.

Periodic tenancies

The other type of tenancy that a landlord might employ is a periodic tenancy. These are tenancies where there is no specific end date. The two types of periodic tenancy are the contractual periodic tenancy in which from the outset there is no end date, or the much more common statutory periodic tenancy. The statutory periodic tenancy comes about when a fixed term tenancy lapses. In the case of periodic tenancies, increasing the rent is slightly more complicated because the landlord will need to go through the formal procedure as set out in section 13 of the Housing Act 1988. If the landlord wants to increase the rent and intends to keep the tenancy on a statutory periodic tenancy, they can use the special form titled Landlord’s notice proposing a new rent under an Assured Periodic Tenancy or Agricultural Occupancy sometimes known as a section 13 notice. This form allows a landlord to propose a rent increase as soon as the statutory tenancy begins. For a contractual period tenancy a landlord can use the same form to propose an increase which will take effect one year after a tenancy begins. In both cases a months notice of the increase is required for rents paid on a weekly or monthly basis (more if the rent period is longer). With both periodic tenancies a landlord can propose further rent increases at yearly intervals, after the first increase.

Potential snags with raising rents
There are a number of potential snags for landlords when raising the rent. Not least amongst these can be scaring off perfectly good tenants by making the rent unaffordable. A landlord has to be therefore confident that they their existing tenant will be able to afford the new rent or that they will be able to quickly fill any vacancy and avoid a protracted void period.

Firstly, the snag with section 13 rent increases is generally a landlord can only raise rents once a year. In a fast moving market such as the one being experienced in parts of London and the South-East currently, annual rental increases will not keep pace with market rents meaning that a landlord towards the end of the 12 month rental period will have a rent below the open market value and therefore be missing out on potential rental income.

The other aspect about a landlord with a periodic tenancy who needs to use a section 13 notice is that it entitles a tenant who is not happy with the rental increase to apply to a Rent 

Assessment Committee for a determination of what rent a landlord could reasonably expect to pay if he or she was letting it on the open market under a new tenancy on the same terms. The committee has the power to agree the rent or set a rent higher or lower. The rent then fixed by the committee is the legal maximum the landlord can charge. The new rent will be payable from the date specified in the landlord’s notice unless the committee considers this would cause a tenant undue hardship in which case it may specify a later date. The landlord can propose that the rent is increased a year after the date on which the rent decided by the committee was payable. 

Power of the Rent Assessment Committee

All this may sound quite daunting to a landlord. The reality is it shouldn’t be. Whilst on the face of it the Rent Assessment Committee seems to have a considerable amount of power, in reality they don’t. For a start they can only set a new rent if it is demonstrably unreasonable. The other factors that limits the scope of the Rent Assessment Committee and the tenant in ultimately setting rental levels is that the landlord retains the right to issue a section 21 notice.  This means that providing the fixed term period has come to an end by the time the notice has expired a landlords ultimate response to a rent that is unsatisfactory is to regain possession of their rental property and simply re-let it to another tenant at the rent that they and the market will bare.

What should landlords do?

The simple answer is that landlords should normally opt for a fixed term tenancy.  A landlord should avoid the tenancy lapsing and becoming a periodic tenancy. They can do this by going through the motions of issuing a section 21 notice for possession even at the start of the tenancy to ensure that a landlord can bring the tenancy to an end. In this way a landlord is in the perfect position at the end of the fixed term to either re-let to the existing tenant at a higher rent, or if the tenant objects, to regain possession and then let their buy-to-let investment property to another tenant at the higher rent.

A word of caution to landlords in less high demand areas. Tenants can be sometimes unsettled by receiving a section 21 notice and therefore a landlord needs to approach the situation sensitivity and explain that the notice is a just a formal procedure and that they have no intention of seeing it through. The reality is for any landlord is that having a tenant paying rent, even if it is not the absolute top rate, is far preferable than having no rent at all!

80,000 rental households on benefit could have to move out of London

Up to 80,000 poorer households living in private rental accommodation in London could be forced to move as a direct result of cuts to housing benefit.

The claim is made in a new report into the reforms of the housing benefit system, which concludes that they are likely to widen the gap between Britain’s richest and poorest areas.

The research by Professor Chris Hamnett of King’s College, London, shows that worst affected by the cuts will be people in inner London and areas in the North, Scotland and Wales, which were formerly the UK’s major industrial and mining areas.

Professor Hamnett said: “In inner London where rents are very high, thousands of low-income households who receive benefit will be effectively excluded from the private-rented sector in much of central London, creating an even higher degree of social class and income segregation in the capital between a rich and increasingly gentrified central and inner area, and lower-cost areas.”

What effect will this have on the rest of the country?

Nottingham calls to extend landlord powers to tackle troublemakers

Nottingham City Council is calling on the Government to ensure private landlords take stronger action against anyone involved in recent disturbances.

City Council Leader Councillor Jon Collins said: "Punishing people through their residency and property is a very powerful deterrent which we feel shouldn't be restricted to council house tenants. However, as well as social housing providers the Government should consider action against private landlords who fail to act."

Councillor Collin's call to action comes after the council announced it would seek to evict any of its tenants if they or their sons or daughters are found to be involved in disturbances.
He is urging Housing Associations in Nottingham to continue to work with Community Protection to take the same action as the City Council against tenants. He is also calling on the Government to take action so that private landlords can do the same, including the option of raising fines against the property of owner occupiers if they fail to act.

The move comes as Housing Minister, Grant Shapps, is due to make an announcement later today about proposals to introduce new measures aimed at enabling social landlords to obtain possession against tenants (including visitors and members of their household) convicted of a criminal offence anywhere.

The current ground for possession is restricted to conviction for offences committed in the locality of their home.

There have been only relatively low-level disturbances in Nottingham and a quiet night overnight - with a strong response by Notts Police and the City Council and other partners, supported by citizens. But the City Council has said it will use all powers available to it to deal with those found guilty of being involved in public disorder.

Nottingham is considered to be one of the leading cities in the country in the use of wider civil legislation and has been actively involved in advising Government on further proposals. Its well-established partnership working between the City Council, Police and other services including Fire and Rescue, has helped to contain comparatively low-level disturbances in the city, with a quiet night last night.

Paragon increases buy-to-let lending by £65m in three months

Paragon Mortgages and Mortgage Trust’s parent company, The Paragon Group, has unveiled buy-to-let new lending of £65.7m for the three months to the end of June.

Paragon only returned to buy-to-let lending at the very end of last September after closing its books to new business in February 2008.

The figure demonstrates how Paragon has built up momentum since its return. It represents over two-thirds of Paragon’s buy-to-let new lending completions since the start of its financial year on October 1, 2010.

In its quarterly update to the stock exchange, Paragon said it has completed £99m of buy-to-let business over the past nine months, which includes £3.7m in further advances to existing customers.

Paragon’s Interim Management Statement, which covers the period from April 1 to June 30, also revealed that the credit performance of Paragon’s buy-to-let portfolio continued to improve.

Arrears of more than three months across the portfolio stood at 0.69% at the end of the period, compared to 0.75% at the end of the previous quarter.

John Heron, Paragon Group director of mortgages, said: “We had a strong focus on rebuilding our distribution network and brand awareness following our return to the market and it’s pleasing to see that approach start to deliver.

“We have developed our new lending proposition over the past nine months and now have a comprehensive product set, with Paragon Mortgages focusing on professional landlords and Mortgage Trust catering for the mainstream market.

“The fact that two-thirds of completions came in the third quarter of our financial year alone shows our new lending is building strong momentum.

“Landlords are benefiting from excellent market conditions at the moment, with the highest levels of tenant demand we have seen in modern times, low interest rates and a stable housing market.

“Long-term socio-economic and demographic changes signal sustained growth for the private rented sector, and landlords will be central to driving this growth.”

Good landlord and tenant relations

An overwhelming majority of landlords have a good relationship with their tenants, according to the National Landlords Association.

In a survey of 662 NLA members, it found 61% of landlords have “very good” relations with their tenants, while a further 34% describe their dealings as “good”. Just 3% say their relationship is “adequate” while less than 1% say it is “poor”.

The survey also found 36% of landlords communicate with their tenants at least every month, while about four in ten have contact “when the need arises”.

David Salusbury, NLA chairman, said: “The NLA believes that the private rented sector will play an important part in helping to meet the demand for quality housing in the coming years.

“So it is pleasing to see that almost all landlords have a good relationship with their tenants and that both parties are content.”

New All Party Parliamentary Group for the Private Rented Sector

Forty-eight Members of Parliament and Peers from across the political parties established a new All Party Parliamentary Group for the Private Rented Sector on Monday of this week.

While various other attempts have been made to form such a committee, this is the first time one has actually got off the ground.

The Group will aim to inform policy towards private rented housing and has been formed at a time when changes to housing benefit, regulatory issues and the increasing demands being placed on the sector are highlighting the growing significance of private rented housing.

Speaking ahead of the Group’s formation, Conservative MP for Poole, Robert Syms who has led on forming it said:

“With waiting lists for social housing continuing to increase and home ownership remaining difficult for many, private rented accommodation is becoming increasingly important to meeting the UK’s housing needs.

“The establishment of this All Party Group will enable MPs and Peers from all parties to engage directly with landlords and tenants to consider issues of importance and where appropriate, agree on recommendations for action by government.”

Responding, Alan Ward, Chairman of the Residential Landlords Association who will provide the secretariat to the Group said:

“The RLA wholeheartedly supports the decision by MPs and Peers to establish a cross party group for the private rented sector. This will enable landlords, tenants and other stakeholders to engage in a constructive dialogue with Parliament on how to meet increasing demand whilst ensuring high standards of housing and management.
“The RLA looks forward to playing its part in supporting the Group to meet its aims, objectives and programme of work.”
Vice-chairmen of the Group are Paul Goggins, a Labour MP, and Liberal Democrat MP David Ward.

Eastside Properties Comment

We greatly welcome this initiative which gives the private rented sector a much needed focal point within Parliament. Landlords need to engage with this Parliamentary Group and have their voice heard loud and clear.

The Government has calculated that there are over one million landlords in the UK and their voice and their experiences need to be heard within Parliament.

July Lettings Newsletter

Our July edition of our Lettings Newsletter was emailed out earlier this week. Jam packed with market news and local information, if your not registered to receive it then please sign up using the sign up box on our homepage http://www.eastsideproperties.co.uk/

A generation gives up on buying a house

Britain is home to a generation of renters who are giving up on buying their own home, says a report published at the end of May. They expect their mortgage applications to fail, so don't even bother to apply.

If attitudes become reality, the shape of Britain’s housing market will be fundamentally changed within a generation.

According to the research into the attitudes and behaviour of young people towards home ownership, 77% of all those who do not own a home still aspire to owning one.

However, despite this aspiration, nearly half of 20 to 45-year-olds say Britain is becoming more like Europe where renting is seen as the norm, and predict that Britain will become a nation of renters within the next generation.

Produced by the National Centre for Social Research, the report analysed the results of a survey of 8,000 20 to 45-year-olds and identified the emergence of ‘Generation Rent’: two-thirds (64%) of non-home owners who believe they have no prospect whatsoever of buying a home.

The perception that banks are not lending, the size of mortgage deposits necessary, and a fear of the application process has prevented ‘Generation Rent’ from making any significant attempts to buy a home.

Longer term, only 5% of this group are making sacrifices to save for a deposit; 95% say they have no spare cash, no interest in saving for a deposit, or were trying to save but failing to do so.

Stephen Noakes, commercial director of Halifax Mortgages, said: “Our research indicates just how many potential first-time buyers are not making it to the application stage because of a fear of being declined.

“We would like to help aspirational home buyers to realise they do have options, that they can apply for a mortgage, and that it is still possible to get on to the property ladder. At Halifax we approve eight out of ten mortgage applications from first-time buyers, and it is important that today’s potential first-time buyers don’t miss out because of the fear of rejection.”

The report revealed widespread pessimism about lenders and the mortgage application process: 84% say first-time buyers are put off by a belief that banks do not want to lend to them and find excuses to turn them down, and 60% believe getting a mortgage is very hard or virtually impossible.

Almost seven in ten (67%) believe that everyone is rejected by lenders so there is little point in applying.