Speaking ahead of the government white paper on housing, Paul Smee, director general of the Council of Mortgage Lenders, says that it is a myth that lenders do not allow landlord borrowers to offer tenancies over 6 or 12 months.
“The mortgage industry has a justifiably good record of funding housing in all tenures. So, we have been seeking to defend the sector in recent weeks against assertions that lenders (and the CML) have acted as barriers to the take-up of longer-term tenancies in privately rented accommodation.”
The misconceptions Smee refers to were “well-intentioned but erroneous comments by MPs during a recent House of Commons debate on the homelessness reduction bill” and Smee thinks they have reinforced a misconception that lenders have been a stumbling block to moves to offer longer tenancies.
“Individual firms will, of course, decide the terms on which they lend. But we feel it important to remind MPs and others that an increasing number of lenders now readily advance mortgages to landlords who want to offer longer tenancies, Smee says.
“In the past, we have heard assertions that firms are unwilling to lend on a property with an assured shorthold tenancy of longer than 12 months. But some of those who have criticised the industry have also acknowledged that some lenders have more recently adopted policies allowing longer tenancies.”
Quoting Shelter’s view that there has been a “significant, silent shift” by lenders, firms that are responsible for more than half of England’s buy-to-let stock will now lend to landlords offering tenancies of at least 24 months, Shelter says. “Some will accept agreements lasting for three years – and a few did not impose any limit at all on the tenancy period,” says Smee.
The motivator behind this shift by lenders is the demand for private buy-to-let mortgages and the sheer number of households living in privately rented accommodation which has soared from 2.2 million (9% of the total) to 5.3 million (19%). This means that a quarter of families with children now live in privately rented homes.
The politicians are only now waking up to the trend which led to reforms in 2014 making it easier to have longer tenancies by providing a “Model Tenancy Agreement” with provisions for rent reviews and allowing the landlord or tenant to end the agreement if their circumstances changed.
Labour wanted to go even further, by making a three-year tenancy the default one in the private rented sector, after a six-month probation period. However, in reality most landlords and the majority of tenants still prefer the option of a short tenancy.
“These political interventions were well intended, but it must not be forgotten that not all tenants want to live under the same arrangements. Many choose to rent because they are unsure about their needs in the short term. They...
want the flexibility of a short agreement so they can move home quickly if they need to, says Smee.
“Any historical preference by lenders for shorter tenancies may well be rooted in the 1988 Housing Act. This introduced the assured shorthold tenancy, with a default term of six or 12 months. Even though that Act allowed landlords to opt for a longer term if they wanted to, many simply adopted un-amended the standard shorter-term tenancy agreement. And this, in turn, may have shaped lending policy, with firms replicating a standard 12-month agreement in their buy-to-let terms and conditions.
“Even so, lenders don’t force landlords to change their tenants – as we have explained to MPs. When an agreement comes to an end, the landlord and tenant can simply carry on with their existing arrangement if both are happy to do so. And there is no limit to how long this may continue. So, landlords can let to the same tenant for many years if they want to, without the lender’s terms acting as a barrier.”
A common misconception, says Smee, and one that was repeated in the recent parliamentary debate, is that lenders are opposed to longer tenancies because they may need to seek possession of the property if the landlord stops paying the mortgage.
But the CML says it has been reminding MPs that “…in these circumstances lenders can also appoint a receiver of rent, and that this may be the preferred option where the tenant is still paying the rent, even though the landlord has stopped paying the mortgage. If the rental payments cover the mortgage, the tenant can continue to occupy the property, with the receiver fulfilling the role of landlord.”
So, CML’s message to the government and others on behalf of their lender members, is that the many perceived barriers to longer tenancies can be overcome, or indeed, they never existed in the first place.
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