Medway Landlords To Face Biggest Change In Tenancy Law For A Generation

Hello Readers,

So, 2023 is now well underway and we’ve started to learn what the new environment is going to be like for the next few months.

Let’s start off with some good news as I was reading how we not only narrowly avoided an official recession but how house prices are back on the rise according to recent figures. One article I read explained how January has experienced the largest New Year’s bounce since 2016, with house prices increasing by house prices increased by 6.3% compared to January 2022 and asking prices up by 0.9%.

Mortgage rates have dropped slightly, however at just over 5.5% on average they are still significantly higher than a year ago. This is an overall positive start to the year though and hopefully, it will set the tone for the months to come.

A Dramatic Change To Tenancies

Onto something of an interesting (potentially slightly concerning) change that’s coming down the pipeline around tenancy agreements.

The headline is how the Government appears to have recently confirmed that it will be getting rid of Assured Shorthold Periodic Tenancies and fixed-term tenancies in favour of a single, universal ‘periodic tenancy’.

ASTs were introduced in 1989 and here’s how the gov.uk website defines each:

Fixed Term AST

Fixed terms commit both landlord and tenant for an agreed period, typically 6 or 12 months.

During a fixed term, landlords cannot use Section 21 to evict a tenant, though they can use other grounds for possession.

Tenants can only leave during a fixed term with the landlord’s agreement, and they must pay rent for the duration, unless agreed otherwise. At the end of a fixed term, tenancies do not automatically end – instead becoming periodic unless a new fixed term is agreed, or notice is served.

Periodic AST

Periodic tenancies are weekly or monthly tenancies that do not last for a fixed period. They offer more flexibility to tenants and landlords.

If a tenant wants to leave the property, they are liable for the rent until the required notice period has expired. This is typically 1 month but can vary.

A landlord can end a periodic tenancy with 2 months’ notice by using a Section 21 eviction notice or by using other grounds for possession. The change comes under proposals to abolish (I prefer the word ‘reform’) Section 21 in favour of Section 8  grounds (full list here).

This change is currently a proposal with a consultation end date of 25th January 2023.

Consequences

The most significant consequences of these changes are how all evictions would require a court hearing where a landlord will have to ‘prove grounds’ and tenants will technically have open-ended tenancies where rents may be harder to increase as a disagreement over the increase would lead to a decision made in court.

Periodic tenancies certainly do favour the tenant and give more protection, but with most landlords being good and looking after their tenants, this is another change that could simply heap fuel on the already creaking housing situation in our country.

Certainly, it will force landlords to operate more professionally however I think it could simply force smaller landlords (such as accidental landlords for example) out of the market and make others think twice before making a property available to rent.

2023 will be an interesting year for these changes and it could be that with the next general election scheduled to be held no later than 24 January 2025 (which is not far away), I think we could see an escalation of the speed of changes as Rishi Sunak seeks to win back voters that have been lost.

Where does this leave landlords? Regardless of these changes, investing in property will always remain a strong option. It’s one where landlords have the potential of beating average pension returns which will no doubt be down over the next 5 – 10 years.

Landlords will, however, have a choice and one that means they will need to meet a higher standard of compliance or invest their funds elsewhere.

I don’t doubt over the coming decade, we will see a reduction in those with one or two rental properties as margins are squeezed and it appears that the larger, commercial landlords are being favoured because they have the clout to make less per unit.

There’s certainly a call for the Government and charities to stop demonising private landlords, however, as the majority are genuinely good, and the UK rental market is largely made up of smaller individuals. This demonisation does seem to have backfired, however, with supply simply having collapsed.

There’s reason to remain positive, however, it’s also important to remain vigilant!

Hasan

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