Communities and Local Government CommitteeWritten evidence submitted by NetRent

The NetRent submission to the Communities and Local Government Committee Inquiry into the Private Rented Sector.

NetRent Ltd has worked with the Private Rented Sector since 2003. We own and manage the largest independent lettings website in the UK with over 70,000 landlords and letting agents registered on our database. Before making this submission we contacted our database as asked for specific comments from landlords and agents by both email and direct to our Facebook site. This submission is based on both those replies and our own observations of the Private Rented Sector (PRS).

The feedback we received clearly stated that landlords and agents do not feel that there is any real need for further legislation of the PRS. The PRS is already subject to around 70 pieces of legislation. What is lacking is both the will and the means to implement existing legislation.

Landlords feel that there is a significant minority of landlords who fall “below the radar” and it is those landlords who cause problems for the rest of the industry. It is felt that rather than target and deal with these “rogue” landlords the authorities target good landlords and impose blanket regulation because good landlords are an easy target. At the same time problem landlords remain under the radar and avoid scrutiny.

Landlords clearly feel that decent landlords are targeted whilst bad landlords face little or no sanction.

There is a widely held belief that the emphasis seems to be that all the perceived ills of the PRS are the fault of landlords and agents. This attitude is both incorrect and divisive. Organisations like Shelter and the CAB continue to run concerted campaigns about rogue landlords.

This also ignores the fact that there are two sides to this equation. The impression given is that all landlords are rogue and that all agents are ripping off both landlords and tenants. Some time ago NetRent contacted Shelter and we tried to explain that there are rogue tenants. Shelter were not interested and were completely unwilling to change their campaign which appears to label all landlords as rogue landlords.

Although there are clearly landlords who can be described as rogue there is a significant minority of tenants who can also be accurately described as rogue. And yet all the focus and blame for the ills of the PRS is heaped upon landlords whilst tenants are viewed as innocent victims.

For example, we have been told of instances where some local authorities have encouraged tenants to fall into arrears and force landlords into implementing Section 21 notices before those authorities will re-house the tenants. At the same time local authorities are claiming that landlords are harassing tenants.

This “us and them” attitude simply polarises the PRS. It breeds suspicion and contempt at a time when the PRS has never been more needed or vital.

There seems to be a belief that regulating landlords and agents will somehow cure all the industry’s ills. Local authorities tell NetRent that they do not have the resources or budget to regulate the PRS and the only solution is to register and charge all landlords as is done in Scotland or in Newham.

Newham’s own survey concluded that tenants are in favour of landlord registration but their survey failed to ask tenants whether they would be happy to pay for landlord regulation, because obviously the costs of regulation will be passed on to tenants.

At the same time there is a call for an end to up-front charges. This is already a fact of life in Scotland. This presupposes that there is no cost to setting up a tenancy, arranging for reference checking, inventories and the like. It is a remarkable assumption because clearly there are potentially significant charges to set up even a simple tenancy.

If Landlords and Agents are unable to charge tenants upfront for the costs of setting up a tenancy all that will happen is that the rent will have to increase to cover these costs. The Scottish Government claims that tenants want an end to up-front charges but has anyone asked Scottish tenants whether they are happy to see increased rents to cover these legitimate costs?

The fact is that these costs do not disappear because somebody doesn’t like them. There may be issues around the amount charged but it does cost money to set up a tenancy and ultimately it will be the tenant, as the customer, who will pay that cost.

The question also has to be asked whether or not benefit payments will be increased to cover the increased rents due to regulation and/or the ending of up-front charges.

As with any business if costs are added to that business it is the consumer, in this case the tenant, who will eventually pay those costs.

There is evidence that the overall standard of PRS housing is rising as tenants demand better facilities and landlords continue to improve their properties to attract and then keep good quality tenants. But as in all things this is budget led. There is no doubt that at the lower end of the market some landlords remain unconcerned about the conditions their tenants live in. It is this area that local authorities need to concentrate their efforts on.

However, without a local or central register of rented property finding those properties is difficult. Tenants are often reluctant to raise their concerns with either their landlord or the local authority for fear that they will face eviction. But there is a cost to running such a register and that cost will again have to be passed onto the tenant.

Unlike Scotland there is no central landlord register in England and Wales and it seems that the Government will allow each local authority to determine for itself whether to impose a register and at what cost to the landlord. This is legislation via the back door as is highlighted by Newham’s decision to register all landlords and many other authorities imposing discretionary licencing schemes.

It could also be argued that it is also democratically unfair. Often a landlord is subject to licencing because the property they own is in a licenced area whilst they themselves do not live in that local authority area and therefore have no say in what that authority intends to impose. Local Authorities claim that they consult before imposing licensing but landlords have told us that they are effectively excluded from this process and their concerns are ignored.

Landlords complained to us that they feel it is unfair that they might be forced to register, and pay for the privilege, whilst there is no requirement for tenants to do the same. This leaves landlords exposed to rogue tenants. As we explained above this attitude erroneously assumes that all the ills of the PRS can be ended if landlords and agents are licenced, managed and registered, whilst completely ignoring the fact that there is a significant number of rogue tenants.

There is also concern about who might run a landlord register and what such a register might be used for. For example, would the register be open to HMRC or private companies? Would landlords be forced to join a landlord association if the associations were tasked to run the register?

In general landlords are prepared to invest in their business and continue to raise standards but they feel that there needs to be a similar emphasis on imposing sanctions on the significant minority of rogue tenants.

Controlling rents within certain areas is only likely to move the PRS out of that area or prevent landlords from investing in that area. Therefore we believe that rent control is likely to lead to less rather than more PRS housing.

The default tenancy agreement is a six month assured shorthold tenancy but there is nothing to stop landlords and tenants agreeing a longer term contract. The fear that all landlords have is that their tenant will stop paying the rent.

It is essential that Section 21 notices remain available to landlords, both for the landlords’ peace of mind but also for the benefit of buy-to-let lenders. If Section 21 notices were changed or abolished, as some campaigners demand, lenders would not be able to gain vacant possession and therefore would be most unlikely to lend. This could lead to an immediate collapse in buy-to-let lending at a time when the emphasis should be on finding ways to expand the sector.

Security of tenure is a two-way business agreement between landlord and tenant. Landlords need to feel secure that tenants will pay the rent and respect the property. Tenants need to feel that their rent is fair and landlords will respond to their concerns.

It is vital that any legislation and implementation reflects this balance.

Most Local Authorities want to work closely with landlords and agents and many Authorities work very well with the PRS. However, local authorities have to work with the PRS and at the same time they have a statutory duty to “police” the PRS. This can often be a difficult balancing act which can cause friction between landlords and Authorities.

Many authorities have set up Landlord Accreditation Schemes but these schemes often suffer from some basic flaws. The conditions required of landlords to become Accredited vary throughout the country and they often offer little tangible reward for landlords. Some Schemes are based on checking Landlords as “fit and proper”, some are based on checking that the property is “fit and proper”, some are based on both and some based on neither. There is little consistency throughout the country and even in those areas where a regional Accreditation Scheme exists implementation from Authority to Authority can vary widely.

Landlords are business people and need to see tangible benefits from spending time, effort and money in becoming Accredited. Landlords have complained to us that some Authorities seem more interested in teaching landlords in a classroom type setting about how to be landlords rather than adding value to the landlord’s business in the form of tangible benefits.

Suppliers and potential suppliers to landlords see little benefit in random ad-hoc Accreditation Schemes that only manage to attract small numbers of landlords and therefore are unwilling to offer benefits such as extra discounts or special rates to Accredited landlords.

Some authorities have “sub-contracted” their Accreditation Schemes to Landlord Associations. Whilst this can work this can cause landlords two specific problems. First, they are required to join that Association in order to become Accredited and they may not wish to do so. Second, landlords have expressed concern to us that they feel the role of the Associations is to campaign on behalf of landlords and landlords feel they cannot do that if the Association is effectively working on behalf of the Authority.

It is vital that Authorities and Landlords can work together, especially when dealing with homeless people, however, too often landlords see little or no reason to work with their Authority because they perceive no value in doing so. At the same time Authorities are not able to offer tangible benefits to landlords to work with them.

Landlords have also expressed their concerns about the Benefits system. They are concerned that if they house people on Benefits they will not get their rent paid. Overwhelmingly landlords have told us that they want to return to the old system where rents are paid direct to the landlord. Failing this they want a quick and easy system where tenants with cash flow problems can opt to have their rent paid direct to the landlord promptly without having to go through too many hoops to set this up.

Many landlords will not entertain the idea of housing tenants on Benefits under the current system. Many landlords will also not work with their Local Authority because they perceive no value in doing so.

All the evidence currently points to a shortage in the amount of properties available in the PRS. In early 2008 there were around 3,000 buy-to-let (BTL) mortgages available to landlords. This fell at one point to less than 250 and although the number of BTL mortgages has increased lenders have introduced a policy of excessive set-up costs and/or higher interest rates. In addition the number of BTL lenders remains historically low. All of which means that there is severely reduced competition in the BTL mortgage market.

The result is that whilst many landlords want to increase their portfolios they are unable or unwilling to do so under the current offers from BTL lenders.

One of the main reasons why rents are rising to record highs is a shortage of rental property. The Government could help ease this situation which in turn would help stabilise or even reduce rents by making the banks lend to landlords under more favourable terms. This would lead to more PRS property coming onto the market which would also help give impetus to the wider housing market.

Given the opportunity landlords could be a major factor in reviving the UK housing market, which in turn would greatly benefit the whole economy. The PRS has shown that it is extremely robust and has weathered the economic downturn vastly better than many “experts” predicted in 2008 when lenders like Paragon were expected to follow the likes of Northern Rock into meltdown. Not only did the PRS survive it has become even more vital to the UK housing market.

The Government now needs to support the PRS and rather than impose more sanctions and legislation it needs to help the PRS to grow. The Committee needs to devise new and imaginative ways to work with rather than against the PRS. Overall the UK PRS is a huge success story. It is vital that this message is not lost in the tide of negative publicity from organisations with their own narrow agendas and campaigns.

Update on the Government Inquiry into the Private Rented Sector

Back in October we let you know that the Communities and Local Government Committee had decided to conduct an inquiry into the private rented housing sector which includes looking at the potential regulation of landlords and letting agents.

The Committee invited submissions from interested parties and we asked landlords and agents to let us know their thoughts. We received a lot of emails and phone calls from concerned landlords and agents and together with our own thoughts we have a prepared a submission for the Committee.

We realise that not everything we are submitting will please everyone but hopefully we are expressing the feelings of the majority. You can view our submission by clicking here The NetRent Submission to the C&LG Committee.

January 2013

Prepared 16th July 2013