Should landlords be concerned about three-year tenancies?

Good tenants stay longer. Good landlords encourage them to.

When the idea of three-year tenancies was first proposed, landlords reacted with fury (The Guardian, July 2018). With tenants able to force landlords to allow them to stay in their property, but also able to walk away earlier if they wish, longer minimum tenancies restrict a buy-to-let landlord’s flexibility. This flexibility is a major reason why 80% of tenancies in the UK are assured shorthold tenancies of 12 months or less.

However, should buy-to-let landlords be concerned about longer tenancies? The housing market has changed in the last few years in the UK. Tenants remain in their home far longer than they used to, as more people are renting as a lifestyle choice rather than a stopgap before buying their own home. Ezytrac’s General Manager Mike Scrace-Hollamby discusses tenancy terms and the changing market in this video. In this article, we examine the data in a little more detail.

Tenants are staying put for longer

Just a few years ago in 2014, research by Your Move concluded that the average tenancy length in the UK was just 18 months. After the financial crisis and the deep recession that followed, tenants were using rental property as a stopgap before buying a new home.

Over the next couple of years, the average period of tenancy began to rise. Affordability was an issue, and as house prices boomed first-time buyers and others were forced to delay their plans to purchase.

Now, however, we’re witnessing a more robust private rented sector. People are turning to renting as a lifestyle choice. It offers them the flexibility to move where they wish; for example, if a too-good-to-refuse job offer in another region comes their way. It also offers the opportunity to live in locations where they couldn’t afford to buy – one reason why city centre rental markets are in such high demand from young professionals, who want to live near to work and recreation amenities.

Consequently, the average length of time that a tenant remains in a buy-to-let landlord’s property has increased to more than four years, according to data from the latest English Housing Survey released at the end of January 2019.

Rents are becoming more affordable

Despite the demand for rental property and rental prices rising, tenants are paying less of their income on private rents. In 2014/15, the average spend on rent in the private sector was 35.4% of income. In 2017/18, this had fallen to 32.9%.

As interest rates look set to increase, mortgage payments will rise. Together with the cost of upkeep and maintenance of a home, homebuyers are feeling more of a pinch on their pockets than renters.

Buy-to-let landlords are looking after good tenants

The fall in the percentage of income spent on rent is due to several factors. Certainly, wage inflation at around 3.3% (ONS) is higher than rental inflation at around 2.5% (HomeLet). In turn, rental price inflation is higher than general inflation at 1.8% (Jan 2019, ONS). It’s a win/win for all right now.

However, there is also another factor at play. The government’s new Private Landlord Survey 2018 has found that 70% of landlords prioritise keeping good tenants for longer. To encourage these tenants to stay, landlords are less likely to raise rents. This makes sense because a good tenant will generally take care of a property better, always pay their rent on time, cause no aggravation to neighbours, and report problems in a timely manner. Having good tenants reduces your costs, helping you to improve your profitability. Indeed, a recent report by BM Solutions (the buy-to-let brand of Lloyds Banking Group) found that 88% of buy-to-let landlords are profitable.

Meanwhile, buy-to-let properties are improving

Landlords are also keeping their properties in a more habitable condition. In 2017, 14% of rented homes had a category 1 hazard under HHSRS regulations. This is down from 31% in 2008.

The impending Homes (Fitness for Human Habitation) Act (coming into force 20th March 2019) is certainly a contributory factor to better-quality homes in the private rented sector, but we don’t think it is the main driver of this improvement:

  • Investors have been buying new properties to let for long-term income and capital gain
  • Landlords with existing property have had to upgrade to remain competitive in the market
  • Tenants who look after their properties better tend to suffer fewer category 1 hazards

The market is performing for all

The private rented sector is performing for all:

  • Landlords are benefitting from longer tenancies and better tenants
  • Tenants are benefitting from rental prices that are lower than their wage rises, meaning they have more money in their pockets
  • Good tenants are looking after their rented homes better, and benefitting from lower rental increases
  • Landlord profits are increasing because of the lower costs of having good tenants

When a market is working so efficiently, it begs the question, why rock the boat by forcing longer tenancy terms? Governments must meddle, we suppose. However, the key takeaway is that for landlords with good tenants, longer tenancies shouldn’t be an issue. If you do suffer a tenant from hell, there’s always other ways of evicting them rather than waiting until the end of a tenancy.

Contact us on  +44 0 1522 503 717 to find out how you can benefit from effortless property management with Ezytrac, and how we help landlords maximise their profits by getting the best tenants and keeping them for longer.

Live with passion

Brett Alegre-Wood

By |2019-03-20T08:43:34+01:00April 23rd, 2019|Landlord lessons, Tenant Management|0 Comments

About the Author:

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Ezytrac. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.