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Changing demographics prompt Government to consider longer tenancies
Tags: PRS

Changing demographics prompt Government to consider longer tenancies

Posted on 2018-07-26

For a while now the Government has been discussing the benefits of long-term tenancies and hinting that it would like to introduce a longer minimum term. 

Following pledges to introduce three-year tenancies which go back as far as the Conservative Party Conference in 2016, the Ministry of Housing, Communities & Local Government (MHCLG) recently launched a consultation on the subject, titled: Overcoming the Barriers to Longer Tenancies in the Private Rented Sector.

The idea of introducing a minimum fixed term tenancy of around three years has been circulating for a while. But what exactly is being proposed and how can you get involved in the debate? 

Another consultation to decipher

The last few years have seen the Government launch a spate of consultations concerning the Private Rented Sector (PRS), designed to give all major stakeholders a say on future policies.

The latest 39-page document centres on longer tenancies and how they could be introduced. The MHCLG is proposing that:

  • A minimum three-year tenancy is introduced with a six-month break clause for both landlords and tenants.
  • If both parties are happy after the initial six months, the tenancy would continue for the full term.
  • If the tenant wants to leave the tenancy after the six-month break clause, they would need to provide a minimum of two months' notice.
  • Landlords could recover possession of their property during the fixed term, provided they have reasonable grounds (which are set out in the Housing Act 1988).
  • Rents can only be increased once a year at a rate agreed by the landlord and tenant.
  • When a landlord advertises a property to let, they must be clear on how they intend to increase rents over the course of the tenancy.
  • There will be exemptions for tenancies which won't last three years, such as student and short-term lets.

How long is the average private tenancy? 

As we know, the UK PRS now accounts for around 20% of all households and has almost doubled in size over the last decade. It is this growth which has prompted the Government to play a more active role in overseeing and regulating the market. 

According to official data from the English Housing Survey (EHS), 81% of private tenancies granted are for an initial fixed term of six or 12 months. It is this minimum term that the Government is keen to extend to nearer three years. 

The same survey found that the average length for a PRS tenancy is just shy of four years (compared to over 11 years for social tenants and 17.5 years for owner occupiers).

Meanwhile, the CLA - which represents rural landlords - reports that the average tenancy length in rural areas is between seven and eight years, with more than a third extending beyond 10 years.

It's clear, therefore, that the average tenancy is longer than the typical minimum term currently being issued and the MHCLG is keen to stress that a change in demographic means longer minimum tenancies are required.

Figures show that the PRS is no longer reserved for young professionals who are saving to buy a property. The EHS shows that 17% of PRS households are over 55 years of age and there are growing numbers of family renters. Between 2006/2007 and 2016/2017, the proportion of PRS households with children increased from 34% to 38%.

The Government says that it is because of these changing demographics that there is a growing need for 'longer, more secure tenancies than the minimum six months offered by the assured shorthold tenancy regime'.

What are the pros and cons of longer tenancies?

The concept of longer tenancies provides a range of advantages and disadvantages for both landlords and tenants. Much like the upcoming ban on upfront letting agent fees, this does seem like a policy that has been devised with tenants' best interests at heart.

Three-year tenancies would provide the growing number of family renters with greater security and minimise tenants' fear of being evicted or forced to move at short notice. 

What's more, the Government believes that longer tenancies could contribute towards lowering homelessness as currently the end of an Assured Shorthold Tenancy is the leading cause of leaving people with nowhere to live.

The MHCLG suggests that longer tenancies would provide landlords with increased certainty, fewer renewal fees and tenant finding fees as well a reduction in void periods. 

There are, however, also some potential drawbacks to longer tenancies for both sides of the rental transaction. It is widely accepted that not all tenants want a long-term contract - many require short-term agreements and desire the flexibility to move around frequently.

Meanwhile, the consultation document suggests that there could be some issues with longer tenancies due to a lack of awareness and knowledge among tenants - many of whom won't be aware of their rights or how break clauses or other stipulations work.

There could also be possession issues for landlords as longer tenancies would provide them with less flexibility and potentially make it more difficult for them to reclaim a valuable asset.

If landlords are deterred by longer tenancies, this could put future investment into a sector where demand for rental homes continues to grow and outweigh supply at risk 

How can you respond to the consultation?

It's important for landlords to have their say on the consultation. If introduced, this policy will affect the way the vast majority of landlords operate.

Feedback from important stakeholders like you could be invaluable in shaping the final policy. As well as the obvious benefits for tenants, the Government needs to know how longer tenancies would affect landlords and whether there is a need for change from all sides of the transaction. 

The eight-week consultation is open until August 26. You can respond by completing an online survey or emailing your feedback to PRSLongerTenancies@communities.gsi.gov.uk. There is also an address for written responses given on the consultation document.

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