Monday, 25 October 2010

The Implications of the Spending Review for the Private Rented Sector

Whilst there have been acres of newsprint and hours of media devoted to last weeks Spending Review there appears to be little that actually directly concerns residential letting. Dig beneath the surface however and it is a very different story.

The Government is intent on reducing the welfare state and have drawn up plans for a 60% reduction in social housing costs. The headline is the cap on Local Housing Allowance to £400 per week. This will clearly hit city centres and the south east in particular. It could mean that many people on housing benefit are forced to move.

What is unsure is whether those in work will take up these properties should people on LHA be forced to move to find affordable housing.

The Government is predicting that their measures will result in nearly 500,000 lost public sector jobs and the Opposition are claiming that the real losses will be double that. Whatever the actual figures it seems clear that many tenants will find themselves seeking Local Housing Allowance, especially in those areas with a high percentage of public sector workers.

Many landlords run the risk of tenants defaulting on their rent because their tenants have lost their jobs. The impact on the individual landlord could be huge, especially if the landlord has high mortgage payments and no protection in place to cover their rents.

The lack of affordable homes for first time buyers because of the downturn in building and mortgage lending means that more and more people are facing renting rather than buying.

Nationally there has been an increased demand for rented accommodation over recent months. It is clear that many landlords would like to increase their portfolios to meet that increase in demand. However, the unwillingness of the banks to lend, and more especially their unwillingness to compete for business, means that for many landlords buying more property appears out of the question.

Therefore, it is unlikely that the private rented sector will be able to greatly increase the number of available properties to rent in the short to medium term.

This bottleneck will not be eased in the short term by the announcement that the Government seeks to encourage building of 150,000 affordable homes. Even during boom times Governments of all colours have failed to hit the new build housing targets, it seems doubtful that will change as we scramble out of recession.

Therefore, pressure on the private rented sector seems likely to increase rather than decrease.

Landlords need to review their existing arrangements and ensure that if tenants default they are not at risk. Products like Rent & Legal Protection and Rent on Time are more vital than ever to ensure that if a tenant defaults then the Landlord is able to continue to pay their Buy to Let mortgage.

Landlords need to take every precaution possible to rent to those most likely to pay their rent. At the same time Landlords need to ensure that they set up and manage their tenancies correctly to cover themselves should they need to take legal action to remove a tenant.

With over 70 pieces of legislation affecting the private rented sector it is crucial that the correct paperwork, referencing, deposit handling and certificates are in place or Landlords could easily find they are unable to take action against their tenant.

Landlords with mortgages need to ensure that they have the most competitive loans possible. Those Landlords with substantial equity or cash in the bank may well find that now is the time to buy more properties. Review your lending options to ensure that you are maximising your income.

The most certain prediction is that the future will be unpredictable.

For more information about Rent on Time click here

For more information about Rent & Legal Protection click here

For more information about Buy to Let mortgages click here

For more information about the duties of a landlord please click here