Communities and Local Government CommitteeWritten evidence submitted by Judy Bowie-Britton

About Judy Bowie-Britton—A Quick Summary

Judy is a private rental landlord with over 14 years experience of letting houses to tenants in the UK residential lettings market. She owns and manages a portfolio of houses, which is spread over a variety of house types such as flats, terraced, semi-detached and detached houses. In the last 6 years, she has moved into the HMOs market where she provides quality accommodation to students.

Judy is a UK national, paying UK tax and submits a yearly self-assessment form for income tax purposes.

Executive Summary

This memorandum gives a response to most of the issues raised by the committee. In a lot of responses, no action is recommended as the current state is the preferred answer. For some responses, there is detail as to why no action is recommended.

In the response to comments regarding rent controls, there is a real example showing the level of income that a private sector landlord may make on a property and the effects that rent controls could have on the long term income of the private rental sector.

The quality of private rented housing (housing standards)

Please note that the 2004 Housing Act (part 1—Housing conditions) already enables local councils to enforce housing standards (for private rental and owned homes). So is this really a problem? And if so, why are the local councils not enforcing this law?

Recommendations for action—review how the 2004 Housing Act (part 1) is being used and enforced. From this, determine if changes are needed.

Levels of rent within the private rental sector

Part 1—Rent levels

The current levels of rent are a direct economic effect of available private rental housing stock on the lettings market:

When rental property availability is low, rent increases are a natural market effect.

Conversely, when there is high rental property availability, rental rates drop.

A lot of local housing markets across the UK are very sensitive to these effects and this is often seasonal in nature (ie rental rates drop during December and summer months and then increase during September and January periods).

The only exception seems to be London where there is always a shortage of decent housing stock available.

Recommendations for action—None. If you want to reduce rent levels, consider ways to increase the volume of rental availability in the market.

Part 2—Rent control

Before I detail my thoughts about rent controls (and how bad they are), let’s consider how profitable private rental stock really is (ie is it all Bentleys and caviar? Or Vauxhall Nova’s with baked beans on toast?). The perception is that landlords are rich. Well, there are a few rich landlords out there, but a lot of them are wealthy due to inherited family wealth (ie Duke Of Westminster) or being a landlord is a side venture to their current wealth generation efforts (Kylie Minogue/various sports stars). For the vast majority of landlords, the BTL “adventure” is a single rental house with questionable profits.

My view (with a supporting example) is that a lot of residential rental properties don’t “stack up” financially as a good investment. If we also consider the long term effects of rent control (with protected tenancies), then we would see financial distress for lots of landlords and the eventual reduction in numbers of rental properties across the market. Don’t forget that the 1988 Housing Act, which created the concept of the Assured Shorthold Tenancy, was created due to the problems of homelessness caused by the lack of available rental stock in the 1980’s. This in turn was caused by the 1977 Rent Act which created the protected tenancies in the first place!

If you want a slice of history, go down to the local auction house and see some of the property “disasters” being sold with 1977 Rent Act protected tenants living in them. You will find they pay very little rent. Additionally you will find that the house they live in is effectively worthless AND in poor condition (as the landlord does not have enough income to maintain the property). Do we want to repeat this? I’m not sure rent controls in any format will protect these kinds of problems from re-appearing.

Get to the point—is BTL profitable for landlords? Example time

My real example is a house I currently own and let out. It’s a two bed flat, rented out at the market rate of £525 per month via a lettings agent. The tenant has lived in this property with their family for the last four years. The property is valued at around £100,000 and has a 60% LTV BTL mortgage attached to it. After letting agent fees, mortgage payments and maintenance fees, the house brings in a net return before tax of £250 per month. Note, most of the £250 is from low interest rates. Unfortunately, things have just become very expensive for me:

1.The boiler sprung a leak two weeks before Christmas 2012 and spares are no longer available. The cost of replacing the boiler totalled £2,900 (yes, the new eco-friendly boilers that we are forced to install nowadays are very expensive).

(a)To ensure our tenant continued to have hot water and a warm home, the boiler was replaced within a week.

2.Additionally, the council is renovating the block, at a tune of £1,400 to each owner—this is payable in February 2013.

3.So the net loss to me for this financial year is -£1,300. Ouch.

Ok, so boilers are not everyday costs, let’s assume that that you only have these kinds of costs once over a five year period, so what does the average yearly return look like (net yield)? For this property, it’s about 4.65% per annum before tax.

Ok, that sounds reasonable, but then you must realise that this is in a period of low Bank of England interest rates. If we increase the yearly interest rates for the mortgage to a realistic 5%, then the return drops to a lowly 1% per annum return on investment.

ie this is NOT a fantastic long term investment at all.

This mirrors a lot of the regular rental market as it stands today. Most landlords will make minimal, if any, long term income out of Residential BTL unless the mortgage is paid off. This effect is very prevalent in low income areas where rents are low. The low rents make it hard for landlords to offset the heavy costs of paying for infrastructure work such as boilers and kitchens which have significant financial outlays.

If we include rent controls, then I suspect that a large majority of residential BTLs would simply become unviable. The good news for the surviving landlords is that the reduced availability of rental properties in the market would force rents up even more!

A final point on rent controls—micro and macroeconomic factors to consider:

Micro level economic factors to consider—Over an extended tenancy period, the landlord would have less and less income to refurbish and maintain the property to the correct standards.

Macro level—Reduced tenant mobility (ie people become “sticky” to locations):

Rental property has one significant advantage over owning your own home—you can quickly and easily move home. More importantly, a tenant can easily move to a location where there is more work or they can earn more money. Rent controls could affect this by incentivising the tenant to stay put and not move as they would lose the benefits of the rent control.

Recommendations for action—None.

Part 3—Housing benefit and rent interactions

The only comment in this section is in regards to the general reduction in availability of rental property for tenants on housing benefit and why this is occurring. There are two main effects that are causing Landlords to stop renting to tenants who receive housing benefits:

1.The new rules that are coming into force in October 2013 are causing concerns to Landlords. So much so that a lot of landlords are giving up on this sector for the moment. A big factor in this is the removal of direct payment of housing benefit to landlords and expectations of increased rental arrears that is widely expected by this event. See the BBC news investigation (http://www.bbc.co.uk/news/uk-20459252) if you want further details.

2.Local councils force tenants to wait until eviction (due to unpaid rental arrears) by the courts before determining a tenant as homeless. This has a significant cost impact on Landlords by the extra duration of rental income loss and legal action costs. This often results in multi-thousand pound losses which are never recovered.

Recommendations for actionConsider the ability to pay the housing benefit part of universal credit to the Landlord directly.

Regulation of Landlords

Why is this being considered when the Labour government determined this was a £300m+ cost to implement and then shelved it? I know that there are concerns about rogue landlords. There are ALWAYS concerns about rogue landlords and I would expect to see articles about rogue landlords for the next hundred years. The questions are this—is this an increasing trend? Better reporting by newspapers? Tenants defending their rights better? Or just that we have better laws that already protect tenants and these are working?

If you do consider regulation will “magically” fix the problem, then please answer this question:

If a rogue landlord is unwilling to follow the law now, why would they follow another law regulating them?

If we look at the Scottish landlord registration system—has this actually improved standards and weeded out rogue landlords? The 2011 DTZ study commissioned by the Scottish government did see some improvement in property management standards, but removal of rogue landlords remained a stubborn problem.

Three things are guaranteed with regulating landlords—increased red tape, extra costs being passed onto the tenants and the fact that you will still be reading about rogue landlords in a hundred years time...

Recommendations for action—None.

Regulation of Lettings agents

I have some experience of lettings agents and have advised numerous people about dealing with them. My personal feedback from dealing with letting agents is as follows:

Recommendations for action:

1.There is a need for making all tenants costs as transparent as possible prior to contract signature.

2.No fees or “non-refundable deposits” for viewing a prospective property or making an offer.

3.Ban ALL fees for renewing a tenancy agreement. This is a particularly pervasive problem in the London lettings market where I am seeing tenants being told time and time again that they must sign a new contract. And pay a fee!

4.Legal separation of client monies. When a letting agent goes broke, I see a large number of cases where they have used rental and deposit money to pay for wages and other costs for the lettings agent. When the dust has settled, the landlord has lost rent money and also owes the tenant the deposit as well. I know two people personally who have been affected by this. In each case they each lost over £3000 in lost rents and deposits.

Regulation of HMOs

Recommendations for actionban the use of discretionary licensing to cover ALL private lettings for a particular area (example Newham Borough Council). This is where HMO licensing laws have been extended to cover non-HMO houses.

I’m not sure what Newham Borough Council is hoping to achieve with this approach. The sheer number of lettings in that area must prevent Newham from effectively identifying problem houses (and the extra intrusion on tenants when every property is inspected as part of the licensing process).

Recommendations for action—Consider the standardisation of HMO fire safety advice across all councils in Britain with standardised examples. The LACORS HMO fire safety guidance is the bible for HMO landlords, but if you read this document carefully, it’s wide open to interpretation (and it’s extremely hard to read). Some councils have been helpful and presented a short form set of implementation examples, helping landlords indentify what the council cares about in regards to fire safety. It would be extremely helpful if the examples were standardised and passed to ALL British borough councils for HMO landlords to publish.

Tenancy Agreements and Length and Security of Tenure

Stable Rental Contract idea from Shelter

Please read and consider the “Stable Rental Contract” proposal from the charity Shelter. The proposal for a five year tenancy contract is a good idea and notes the needs from both sides. For the tenant, it enables the tenant to treat the place more like their own home. For the landlord (and lender), it considers the need to obtain possession of the property if required to sell or if the tenant falls into arrears.

Other ideas?

Mark Alexander of the Property118.com news website has a proposal for a “Deed of Assurance” agreement that works alongside the existing Assured Shorthold Tenancy contract. The aim of this Deed of Assurance is to give the tenant security (for several years) and to financially compensate the tenant if the landlord requires the tenant to leave the property before the agreement period is up. This Deed of Assurance would only be valid if the tenant pays the rent and meets the terms of the rental contract.

The main benefit of this proposal is that it can be used right now without additional legislation.

Recommendations for action—Ban all fees for tenancy renewals (see lettings agent section—line 145).

January 2013

Prepared 16th July 2013