The buy to let sector should prepare itself for issues which may arise if the government goes ahead with its intention to introduce 12 month tenancies – or even longer ones – in the private rental sector.
The chief executive of mortgage provider Commercial Trust, Andrew Turner, says at first sight longer tenancies sound a good idea – more security for tenants and landlords alike and of course reducing void periods.
However, Turner warns that the longer the tenancy the greater the risk for unforeseen problems. “Further [interest rate] increases could see a number of landlords needing
to review the amount of rent that tenants pay, in order to cover their monthly mortgage repayments.This could prove to be a stumbling block, if landlords are locked into a tenancy agreement specifying a certain amount of rent will be payable for the next 12 months or longer” he cautions.
“Landlords may face legal difficulties in increasing rent within this period, unless they have made suitable contractual provision for doing so.
“Over time, if the landlord is facing higher monthly payments but has their hands tied in terms of putting up rent for several months, this could have an impact upon the landlord being able to meet lender affordability criteria, should they wish to remortgage,” Turner adds.
He says the critical point to remember is that contracts require appropriate break and rent review clauses – with most increases likely to have to be tied to an independent measure of some kind, such as an inflation rate.
“Whilst longevity between positive tenant/landlord relationships is beneficial for all, the risk to landlords is financial exposure if the maths stop adding up. This must be planned for, whilst remaining fair to all parties” he adds.