News today that Mr Milliband is proposing wholesale changes to the UK Rental Market should be a concern to both Tenants and Landlords.
As with all other UK economic markets the UK property market is driven by usual factors such as Supply & Demand. In the rental market this means that where a property is of high demand, be this due to; location, size, condition, composition etc. then the cost of rent will reflect this. Where, during the term of a tenancy the potential rental value of the property increases, it is reasonable for the Landlord to expect their rent to increase in line with the market conditions. Conversely for tenants, where market conditions dictate a decrease in the rental value, the Landlords should expect their rent to decrease during the Tenancy Term or at the point where Tenancies change.
Most Tenancy Agreements in the UK will include a provision for rent to increase on an Annual basis, and in practice rent is increased with existing Tenants in line with these terms only. Only in the rarest of occasions would a Tenant be issued notice to vacate a property due to a disagreement over a rental increase proposed in line with the terms of their Tenancy Agreement. Increasing rent is not done without due consideration of the potential detrimental outcome to both Tenant and Landlord. At Martin & Co Huddersfield, we always discuss rent increases with landlords and tenants prior to changing the terms of the agreement and ensure that all parties are happy with the agreement before commencing. Where a rent increase is likely to cause financial hardship on the Tenant, this will be discussed and alternate options be proposed to ensure an amicable outcome is achieved.
Due to the popularity of renting in the UK, Tenants are considered by many Letting Agents, Martin & Co included, to be local rental market experts. Their knowledge of the local rental market ensures that rent increases are not beyond market conditions and where proposed increases are high, it is very common for tenants to simply move to alternate accommodation where there is better value for money to be had – The loss of one “greedy” Landlord is the ultimate gain of another “realistic” one and the Tenant will more often than not find their position unchanged. The result of this is that any Landlord looking to increase their rent above what the market dictates, is likely to face both the cost of having their property empty and also the cost of marketing the property. As most landlords in the UK treat their property investments as businesses, very few actively price their property out of the market; therefore the market is self-limiting in nature. Any steps taken to artificially lower or limit the rental value of a property is only going to result in a rental sector saturated with sub-standard properties. Where there is a ceiling on the rent available, Landlords are likely to restrict their investment in maintaining and improving properties if there is little chance of the investment being reflected in the rent charged.
To introduce a Rent cap will be effectively rolling back the clock on the UK Rental Market to the time of Rent Act & Protected Tenancies. At present the UK Rental Market is designed and legislated in such a way to always primarily protect the Tenants interests.
Housing Act Legislation, Deposit Protection safeguards and Protection from Eviction Acts have proven successful in making the UK one of the easiest and safest places to rent. To revert back to an archaic rental market is not in the interest of any persons in the rental sector.
An important question for Mr Milliband to consider is: Who will be responsible for setting the Rent Cap, and what will be the cost of this to the tax payer? In order to administrate each and every Tenancy Agreement signed in the UK will take an army of Public Sector workers which will come at no small cost.
Mr Milliband’s recommendation to “scrap” tenant fees appears to be nothing but a headline grabbing gimmick. Pressure is on Lettings and Estate Agents in the UK to be more and more regulated (pressure which we at Martin & Co encourage) and to be compliant with all changes to legislation. For most Lettings Agents, the cost of tenants fees are sufficient only to cover the cost of processing that persons application for a rental property. By scrapping these fees, the only outcome will be that Lettings Agents will be unable to offer the professional service which is expected and for personnel working within the industry to be poorly trained and educated. Martin & Co Huddersfield pride themselves that all members of their team are fully trained by their Nationwide Training Academy and that the continual personal development of staff allows them to provide an informed and market leading level of service to both their Tenants and Landlords.
Where Lettings Agents are unable to charge a fee to process an application, the Landlord will be liable to cover the cost and this will ultimately lead to an increase in the rent prices across the UK – something which Mr Milliband is attempting to tackle head on. It appears to be counter intuitive to recommend a rent cap on the one hand and introduce a measure on the other which will result in higher rents.
Mr Milliband will be better placed implementing tighter controls on who can own and operate a lettings agency in the UK as a way of combatting disproportionate rent increases and illegal evictions. Better legislation to remove those “agents” who do not adhere to Housing Act legislation for example would make for a more competitive rental industry where property standards are high and the welfare of tenants is better protected.
If Mr Milliband wishes to battle the cost of living crisis within the UK, one would suggest he tackle the unsustainable rise in utility and food prices across the UK before making wholesale changes to an industry that at present is working effectively for millions of Tenants & Landlords alike.
By Alex Barron