Is suburbanisation of poverty a phenomenon? Or the New normal for the Private Rented Sector

 In the early 1900s over 90% of the UK population lived in Private rented accommodation with just under 10% of the population living as owner occupier.

The early 90s saw stark contrast to this with a dramatic drop to 9% of PRS occupation compared with 70% owner occupied.

Over the last 30 years the PRS has seen a steady rise, while owner occupation has somewhat plateau at 63%.

Currently just over 20% of the population (4.6m) live in private rented accommodation, but with a cost of living crisis coupled with low minimum wage and a 4^th year freeze on housing benefit are low income households being forced out of central towns and cities.

A recent report published by Urban Big data Centre found that for the ten largest cities, it is estimated that one-in-nine low-income PRS households was displaced in just eight years as a result which is 15,000 households in total.

Contrary to popular belief the Government encouraged this re-growth because they recognise the sector provides an important source housing which is greatly lacking in the social sector along with greater flexibility for those that need quick access to accommodation without long-term commitments.

After the Second World War the growth of social housing boomed and it was assumed that most low-income families would expect to find secure housing within this sector, but with the decline in social housing stock from the mid 90s onward, low-income families now faced added pressure of rising costs are now turning to the PRS for safe secure housing because the social sector is gravely lacking.

Twin forces of economic regeneration and gentrification have played the main part in the shift from affordable to non-affordable housing, with the latter seeing an influx of more affluent residents into poorer neighbourhoods with both positive and negative effects for the current low-income residents. Much conversation has been generated around whether gentrification is merely the displacing of low-income residents from inner cities, instead of helping them through regeneration of their local area, with improvements to transport links and increasing employment opportunities

Factors such as welfare reform and the commercialisation of social housing have had a hand in low-income individuals to be displaced from their traditional inner city neighbourhoods, with potentially important implications for access to employment.

But sadly, the increase in costs is not just effecting tenants, landlords are feeling the pinch too with increase in agency fees, mortgage costs and a rise in insurance coupled with a sharp growth in the costs of trades landlords have been forced to increase rents in some cases just to break even.

In addition the rental market has been flooded with former would-be first time buyer who are now themselves unable to get a mortgage surging into the rental market, being able to provide lump sum rent upfront sometimes as much as 12 months at a time, together with a rise in rents is pushing low income families further and further away from town and city centres and into more affordable rural areas, where there are fewer jobs and more demand for school places.

Over the last 4 years we have seen increasing restrictions on the subsidies available to lower income families to help pay rents.

In the years leading up to the pandemic, increases in Housing benefits levels known as the Local Housing Allowance were restricted to levels well below rental inflation rates so that poorer households were restricted to an ever decreasing section of the PRS market.

In 2012/13, 20% of listings on Zoopla were affordable for those on Housing Benefit. By 2019/20, this had fallen to just 9%

The example below is correct for live rental figures as at the week of publication of this article.

Location	Property Type	Median rent P/M	LHA rate	Difference
Liverpool	1 Bed	£725	£398	-£327
	3 Bed	£995	£523	-£472
Birmingham	1 Bed	£950	£523	-£427
	3 Bed	£1,350	£673	-£677
Oxford	1 Bed	£1,625	£773	-£852
	3 Bed	£2,250	£1,096	-£1,154
Central London	1 Bed	£2,383	£1,280	-£1,103
	3 Bed	£4,950	£1,914	-£3,036
Devon	1 Bed	£772	£423	-£349
	3 Bed	£1,477	£648	-£829

 

We can see from the above table that Local Housing Allowance is no longer covering the lowest rents, with unrealistic differences between what rents are and the LHA available to tenants The continued freeze for Housing Benefit levels, combined with the rising costs of inner-city renting, is engineering a fundamental change in the social fabric of our cities.

We need to examine the impacts this has on the welfare of poorer households as they are pushed to locations which tend to have worse public transport, and worse access to jobs and vital services.

But we also need to be asking whether this is the kind of city we wish to create – one marked by deepening spatial divisions between richer and poorer.

 

Systemising yourself out of service

We hear more and more that business, especially letting agents are creating systems and processes to cut down on the amount of admin that is involved in renting property 

But are we in danger of systemising ourselves out of service

I was speaking to an agent who is creating these systems, however his focus and end goal is to never physically see a tenant or a landlord

I was somewhat shocked at this as my belief is that working in property is actually working in customer service and you need to be a people person

This agent explained, he never does viewings, the applicants watch a detailed video walk through of the property

Holding deposit is paid by bank transfer and references conducted through an online platform.

Tenancy agreements and compliance documents are then sent via email and e-signed and the keys are released using a key safe and code at the property 

At no point does the agent see the tenant

When the tenant needs to report a repair, they do this through a dedicated maintenance reporting platform, even the trades are contacted via email and never visit the office, as there is no need for an office as no one comes to visit 

I can certainly see how this will make the rental process swifter and simpler, but are we in danger of losing the human touch altogether.

In addition, the law has quite caught up with society and issuing documents such as the deposit information leaflet via email isn’t usually recognised in court.

What do you think of this intense level of systemisation? 

Possession claims on the rise

 The Ministry of justice recently published the figures for property possessions across both mortgages and rentals, unsurprisingly possessions have increases across the board but thankfully timelines for possession are decreasing albeit slower than we would like.

Tax implication of S24 coupled with interest rates, the cost of living and increases in landlords overall costs as well as the threat of the Renters Reform Bill have created the perfect storm for many landlords who are now exiting the market as investing in property for some is no longer financially viable.

So lets’ look at the numbers which are compared to the same quarter April – June of 2022

Mortgage possession

Overall mortgage possession claims increased from 3,478 to 3,986 (15%)

Possession orders were up from 2,368 to 2,536 (7%)

Warrants for possession went up from 2,446 to 2,654 (9%)

However, repossessions by county court bailiffs decreased from 780 to 642 (18%).

Timelines

The median average time from claim to mortgage repossession has decreased from 108.4 weeks to just 48.7 weeks.

Mortgage possession claims fell from a peak of 26,419 in April to June 2009 (in the aftermath of the 2008 financial crash) before stabilising from April to June 2015 (4,849, see table 1). In the most recent quarter, April to June 2023, there were 3,986 claims for possession, up 15% from the same quarter in 2022.

Newham, in the London region, had the highest rate of mortgage possession claims at 206 per 100,000 households owned by mortgage or loan, followed by Tower Hamlets (London region) and Blackpool (North West region); with 163 and 148 claims per 100,000 respectively.

Landlord Possession

Overall landlord possession claims increased from 18,193 to 22,537 (24%),

Possession orders were up from 14,309 to 16,010 (12%),

Warrants for possession went up from 7,793 to 9,886 (27%) and repossessions rose from 4,951 to 5,868 (19%).

Landlords using the accelerated possession procedure has increased across the full process

Accelerated possession claims increased by (34%)

Possession orders were up (22%)

Warrants for possession went up (48%)

Repossessions rose (47%)

 

In Wales the Accelerated procedure for claims, orders, warrants and repossessions increased by 9%, 63% and 157% respectively. This large relative increase in Wales has coincided with the introduction of the Renting Homes (Wales) Act that was introduced on 1st December 2022.

Timelines

The median average time from claim to landlord repossession has decreased from 23.4 weeks to 22.1 weeks.

33% or 7,476 of all landlord possession claims were submitted by social landlord, with private landlords equating to 32% or 7,301

The highest private landlord possession claim rates were found in London, with 7 of the 10 highest rates occurring in this region. Barking and Dagenham had the highest rate for private landlord claims (609 per 100,000 households owned by a private landlord).

Regional Repossessions (by County Court Bailiffs

City of London had the highest overall rate of mortgage repossessions at 147 per 100,000 households owned by a mortgage or loan.

Private landlord repossessions were highest in Bexley with 185 per 100,000 households owned by a private landlord.

Social landlord repossessions were highest in Chorley with 151 per 100,000 households owned by a social landlord.

 

Trend in tracker tenancies on the rise as agents forced to increase rents at every BoE base rate change

 I saw a very intriguing article in i-news the other day and it got me thinking.

The article claims to have identified a new practice amongst London letting agents, driven directly by their landlords, which sees a property advertised at a specific monthly rent but with a tenancy clause that states if the Bank of England increase the base rate, the rent will increase accordingly each month.

Now, although I can totally understand why landlords would want this security, it does open a very large can of worms in my opinion.

Firstly, the Bank of England has increased rates 14 consecutive times since the end of 2021, and is expected to raise again on 21 September, to 5.5%.

So, before we open the proverbial can of worms let’s look at how that would directly effect a tenants rental payments

If the 12 months fixed term tenancy started on 1^st August 2022 at a monthly rent of £1000, the BoE increased its rates as follows during that 12 month period

1/10/22 2.25%
1/12/22 3%
1/1/23 3.5%
1/3/23 4%
1/4/23 4.25%
1/6/23 4.5%
1/7/23 5%

This would see the tenants rent increasing by just shy of 30% or £296.74 in 11 months, would an extra £300pm even be affordable to the tenant?

Now concentrate, it’s the science bit….

Under section 13 of the Housing act 1998 a fixed term tenancy cannot have its rent increased in less than 365 days, also a fixed term contract implies that the terms and conditions are fixed for the duration of the term specified.

Most tenancy agreements already have a rent increase clause which is linked to the Rental price index (RPI), would this new practice override this clause or could the tenants see a further increase annually in line with the RPI.

The key question here “is this practice legal and enforceable” I would argue it is not.

Yes, you can increase rent in a fixed term contract if the tenant agrees, and arguably signing an AST with clauses stating the increase, would indicate that the tenant has agreed, but as we do not know what each BoE increase will be can the tenants confidently agree to an increase, they do not know they can afford to maintain.

Is the clause enforceable, the argument that it breaches s13 is heavy and I would say on the balance of probability that a judge wouldn’t allow rent arrears to be accrued in such an untransparent way.

Does the clause breach the Tenant Fees Act 2019, which is clear that rent paid at the start of the tenancy cannot be higher than the rest of the tenancy, unlike Wales tenant fee ban act wording ' it cannot be higher or lower in consecutive payments.' in England it cannot be lower than the first payment, so we are confident it doesn’t breach the TFA.

But now we move onto Consumer protection, adverting standards and contract law, clauses that present undisclosed variable rental amounts would understandably be deemed as an unfair clause as it not only lacks transparency but also doesn’t allow the prospective tenant to make an informed decision about the rental.

Advertising a property for rent at one price but with the knowledge this will not be the continued price could fall under misleading advertising rules.

It could also affect a landlords rent guarantee insurance and any guarantor agreement that may be signed.

How would referencing of these tenants also be accurate, as referencing is carried out based on the tenants affordability of the monthly rent, but if this is to rise by an undisclosed amount what affordability do we asses on?

Equally, if the BoE base rate decreased, would the rent reduce accordingly.

It is also worth remembering that the tenant still has the option of submitting an appeal to the First tier tribunal in the first 6 months of any ast if they think the rent is too high

So inconclusion, its definitely unfair and coercive but maybe not directly illegal. It is however falling into the governments trap of bringing in rent controls   as they can now say ' look at what the greedy landlords are doing now - we must have rent control even though we didn't really want it!'

 

Source https://inews.co.uk/news/rent-tracker-contracts-landlords-forcing-tenants-deals-increase-interest-rate-rises-2587712

Letting agent deducting their fees directly from new tenants deposit

 I recently saw a post on social media, from a landlord asking the question

“Can my letting agent deduct my 20% management fee from my tenants deposit, then ask me to top up the deposit before I protect it”

After I had returned from a lay down in a dark room, I started to consider the situation as a whole and what was actually going on here.

So, lets start with the facts

• ·        The landlord entered a contract with the agent to find a tenant
• ·         It’s a new let and the agent is charging the landlord for that service
• ·         The landlord is legally obliged to pay for that service
• ·         The tenant entered a tenancy agreement with the landlord to rent their property
• ·         The agent has taken fees owed to them by the landlord from the tenants own money
• ·         The agent has told the landlord to top-up the tenants deposit

The two relationships in place are

      Agent & Landlord

Landlord & Tenant

The Agent-Landlord contract is a commercial or business2business agreement based on the agent providing a service to their client landlord.

The Landlord-tenant contract is a consumer agreement as the tenant is a customer of the landlords.

Money paid to the landlord as rent, is the landlords money, so the agent would be entitled to deduct their fees from the first months rent for example.

The tenancy security deposit however, is not the landlords money, it is the tenants money at all times throughout the tenancy and remains so until the landlord can provide reason why they wish to make a deduction from the tenants money for damage/dilapidation or rent owed.

By the agent deducting their fee directly from the tenants money they have actually committed an illegal act called fraud by false representation.

This is because they have deducted a fee owed to them by someone else from the tenant who doesn’t owe them the fee.

What is fraud by false representation?

Fraud by false representation is the act of dishonestly making a false representation to make a gain or cause a loss for another individual. As detailed by Section 2 of the Fraud Act 2006, fraud by false representation must be the following:

• It is a dishonest and false representation.
• It is untrue or misleading.
• The person making it believes that it is, or to some extent could be, untrue or misleading.

Fraud by false representation focuses on the falsification of any assets or money you claim to have. It is, in essence, the claiming of something that you do not own, in an attempt to earn a financial gain.

The agent in this case is on very thin ice indeed, as the act of fraud by false representation is a criminal offence which holds a maximum sentence of 10 years imprisonment and a fine. The Crown Court will deal with matters of this severity. In minor cases, fraud convictions can lead to a smaller fine or community orders.

Now, deducting a fee owed to the agent by the landlord from the tenants deposit is wrong but subsequently telling the landlord that they now have to top-up the tenants own money before protecting the deposit is just outrageous.

The security deposit is paid against damage/dilapidations and rent owed to the landlord, why on earth would the landlord pay hi sown money to then eventually pay himself for those wrongs.

Situations like this should not occur, as self proclaimed property professionals, agents should know at a very basic level that a tenancy deposit is a ring fenced fund that is not available to them for their fees.

Personally  the introduction of RoPA and the full regulation of agents cannot come quick enough and I sincerely hope that it sees agents such as this put out of business on day 1

Why not increasing rent annually is bad for business and bad for your tenant

Increasing rent annually is generally considered common practice for landlords, as it helps them keep up with inflation and maintain the profitability of their rental properties. 

Here Property Expert Julie Ford explores the reasons why it can be seen as bad business sense for landlords not to increase the rent annually:

 

1. Inflation: Over time, the cost of living typically rises due to inflation. If landlords do not increase the rent annually, they may find themselves falling behind in covering the increased costs of property maintenance, property taxes, and other expenses. This could result in reduced profitability or financial strain.

 

2. Market Value: Rental rates in the real estate market are influenced by supply and demand dynamics. By not increasing the rent annually, landlords might miss out on potential revenue if market rents are rising faster than their current rental rates. They risk underpricing their property and not maximising its value.

 

3. Fairness to Tenants: Applying modest and reasonable rent increases annually is often considered fairer to tenants than sporadic or significant increases at irregular intervals. It allows tenants to plan their finances accordingly and avoids potential financial shocks that could result from sudden large rent hikes.

It also stops tenants who may need to move on from being financially stuck where rent hasn’t been increased for years and now they can’t afford market value rents as they have been budgeting to the lower rent for years.

 

4. Maintenance and Upgrades: Regular rent increases can provide landlords with the necessary funds to perform maintenance, repairs, and upgrades to their rental properties. Neglecting these essential tasks due to stagnant rental income could lead to a decline in the property's value or tenant dissatisfaction.

 

However, it's important to note that local rental market conditions, tenant relationships, and other factors can influence a landlord's decision to increase rent annually. Each situation may require careful consideration and balancing the financial interests of the landlord with the need for a fair and sustainable rental arrangement.

 

Staff training is a waste of money

 “If I pay to training them, I’ve lost that money if they leave”

Is a very common reason agency owners give to not investing in their staffs knowledge and ongoing training

 

“But what is they don’t leave?”

I answer… you are left with uneducated staff lacking knowledge and ability, providing a very poor level of service.  Is that the ideal business model?

 

 It is more important than ever for letting agent owners to keep their staff fully trained especially with the pending enactment of the Renters Reform Bill which will be the biggest change to private sector legislation is 30 years.

Agencies cannot afford to be behind with this legislation.

 

Expertise and Knowledge: 

Training ensures that staff members have a deep understanding of the industry, including legal requirements, market trends, and best practices. This knowledge equips them to provide accurate and up-to-date information to landlords and tenants, resulting in better service quality.

 

Compliance with Regulations: 

The rental market is currently subject to 169 Laws and 402 regulations, such as tenancy laws, safety standards, and data protection rules. Proper training helps staff stay informed about these regulations, reducing the risk of non-compliance and potential legal issues, hefty fines and in some cases prison.

 

Improved Customer Service: 

Well-trained staff can provide excellent customer service, addressing queries, concerns, and issues effectively. They are better equipped to handle difficult situations, negotiate contracts, and maintain positive relationships with landlords and tenants, fostering trust and satisfaction.

 

Enhanced Efficiency and Productivity:

 Training enhances staff members' skills and office moral, enabling them to perform tasks more efficiently. This can include utilising property management software, conducting effective property inspections, or managing tenancy agreements. Increased productivity leads to smoother operations and overall business success, which organically increases business revenue.

 

Adaptability to Industry Changes: 

The rental market is dynamic, with evolving trends, technologies, and customer preferences. Ongoing training keeps staff updated on industry developments, allowing them to adapt to changing circumstances and provide innovative solutions to meet clients' needs. This helps keep your agency ahead of the competition by foreseeing trends to legislative changes and taking a proactive rather than reactive approach  

 

Professional Image and Reputation: 

Well-trained staff reflect professionalism and competence, which enhances the image and reputation of the letting agency. Satisfied customers are more likely to recommend the agency to others, resulting in positive word-of-mouth marketing and potential business growth.

 

Overall, investing in staff training demonstrates a commitment to excellence, legal compliance, and customer satisfaction. It empowers employees to deliver high-quality services, adapt to industry changes, and maintain a competitive edge in the market.