Eric Pickles’ tenants’ charter will mean large numbers of landlords could potentially breach buy-to-let mortgage terms.
At the Conservative party conference on Tuesday Pickles announced that renters will be able to demand that landlords give them longer contracts, of between two and five years, under a new "tenants' charter". The idea is to give tenants, especially families with school-age children, more security.
However, the communities secretary overlooked the fact that most buy-to-let mortgage lenders stipulate that tenancy agreements cannot be longer than a year.
Lenders prefer shorter tenancies as they make repossession of the property easier in the event the mortgage is not paid.
The main exceptions are Nationwide building society, which recently allowed landlords to issue three-year tenancies, and Paragon, which does not have a cap.
Landlords who own leasehold flats are also likely to find that lease terms regarding subletting ban tenancies lasting longer than one year.
The new charter will also include the development of a model tenancy agreement which will clearly set out the rights and responsibilities of tenants and landlords, and provide the rental market with an industry benchmark for written tenancy agreements. There will also be more “transparency” about letting agency fees in an attempt to drive out unfair charges.
Pickles said: “The private rented market is a vital asset to this country, and plays an important role providing flexible accommodation for those who do not want to buy, or are saving up for a deposit.
“The last thing we want to do is hurt hard-working tenants by increasing costs and strangling the sector with red tape. But families deserve stability for their children, and all tenants deserve a good and transparent service from their landlords and lettings agents.
“Today's proposals will raise the quality and choice of rental accommodation, root out the cowboys and rogue operators in the sector, and give tenants the confidence to request longer fixed-term, family-friendly tenancies that meet their needs.”
Despite the fact that long-term tenancies will breach mortgage terms the National Landlords Association welcomed the tenants’ charter.
NLA chief executive officer Richard Lambert said: “Mr Pickles spoke of supporting family friendly tenancies, and the need to ensure that the private sector is able to provide stable homes in which households feel confident to remain for the long-term. The NLA agrees that as a larger proportion of the UK’s population opt to rent privately it is essential that both landlords and tenants are able to achieve a fair deal.
“However, we must not lose sight of the flexibility demanded by the diverse range of individuals and families who rely on the private sector to meet their specific needs. Reforms must encourage discussion and negotiation without forcing people into unsuitable and unwanted tenancies in the name of stability.”