Extended tenancies could trigger rent arrears increase
In response to Labour’s call for longer tenancy agreements the Council of Mortgage Lenders have responded by warning that such agreements could lead to a rise in rent arrears.
Labour argues that the private sector should give stability and financial certainty to private renters by offering predictable rents over a long period.
But CML were quick to point out that a build-up in rent arrears would not only take money out of the landlord’s pocket in the short-term, but also that this short-term loss could also affect the landlord’s ability to pay their mortgage – as well as such agreements making lenders nervous because of the increased potential for arrears.
Currently, lenders prefer to allow landlords to offer six or twelve month Assured Shorthold Tenancies within the terms and conditions of the mortgage. The benefit of this is the landlord is then able to regain possession of the property after six months with a two-month notice period should the tenant fall into arrears.
Data collected by the National Landlords Association showed that 49% of landlords had experienced missed payments by tenants over the previous year.
Landlord Referencing Services exclusive Tenant Alert data also revealed a Dramatic rise in Tenant Alerts following the introduction of the Universal Credit pilot scheme, back in Autumn 2012.
And as the welfare reform via Universal Credit edges closer housing associations are, on average, expecting their rent arrears to increase by 51% as a direct result.
The CML said: “Part of the solution may be provided by break clauses, over and above what is standard in an Assured Shorthold Tenancy of six or 12 months. There will also have to be different terms and conditions in these cases.
For longer-term tenancies to be attractive to all parties, lenders, landlords and tenants would also need to investigate fair and transparent ways of reviewing rent while the agreement runs its course.
The lending industry acknowledges the aspirations for longer-term tenancies and will continue to work with landlords, tenants and policymakers in determining how they could be made more widely available. Lenders may take the view, for example, that longer-term tenancies might be an option for experienced buy-to-let landlords.
But let us not assume that these will instantly become the norm: for many groups of private tenants, the shorter and more flexible terms associated with existing six- and 12-month tenancies are likely to remain the preferred option.”
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