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Government appears to have done a U-turn on three-year tenancies

Reports have emerged recently that the government is planning a U-turn on its proposals to introduce mandatory three-year minimum tenancies in the private rented sector. This comes less than two weeks after the official consultation period on the measures closed on August 26.

The Sun reported on 4th September that the Treasury is opposing long-term tenancies as it could scare off investment in property development. The paper's political editor, Tom Newton Dunn, quotes a 'senior government source' as saying: “Hammond and May are both losing their bottle on three-year tenancies, for different but equally pathetic reasons.”

The proposals for minimum three-year tenancies were unveiled by Housing Secretary James Brokenshire in early July. At the time, he said: “It is deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract.”

The consultation document proposed introducing a minimum three-year tenancy agreement with a six-month break clause for both landlords and tenants. The proposals included outlining exemptions for short-term lets and student tenancies, while also explaining how a landlord could recover possession of their property during a fixed-term agreement.

Research has revealed that the Tories lost almost a third – 29% – of all renters who voted for them in 2015 during last year’s nationwide poll, with three-quarters of them switching to Labour. However, while longer tenancies were initially thought to be a vote winner among renters, research has since proven otherwise, which could be one reason for the U-turn.

Most tenants don’t want three-year tenancies, report shows
A poll of 2,000 tenants by online letting agent MakeUrMove found that only 7.2% of tenants would prefer a tenancy lasting three years, while some 30% of tenants would like tenancies to remain at 12 months and a further 20% would like tenancies to last no longer than two years.

While three years is not a popular choice for tenancies, some 29% say they would prefer a tenancy to last significantly longer than three years. Over two in five surveyed (43%) had spent more than five years in their current rental property.

Three in 10 (31%) tenants view flexibility as the most important factor when looking at the length of their tenancy. Meanwhile, 59% of respondents gave notice on their last tenancy, with 14% being given notice by the landlord at the end of the tenancy and just 3% being evicted.

Alexandra Morris, MakeUrMove managing director, said: “Many tenancy agreements are currently set at 12 months with a six-month break clause, and we’ve found nearly a third of tenants are happy with this length. Our findings reinforce that the majority of people want either the flexibility of a shorter rental, or the security of a much, much longer term.”

Brokenshire previously stated that “being able to call your rental property your home is vital to putting down roots and building stronger communities”. However, Morris pointed out that MakeUrMove’s research revealed that 87% of tenants already think of their rental property as a home under the current regulations.

Mortgage industry view
Giving a viewpoint from the mortgage industry, Carla Sateriale, manager of mortgages at UK Finance, stated: “The MHCLG (Ministry of Housing, Communities and Local Government) recently consulted on a proposal for a three-year tenancy model for private renters in England. We responded on behalf of buy-to-let mortgage lenders, who provide £240bn of lending which supports landlords’ acquisition of privately rented property.

“Currently, most tenancies in England are on assured-shorthold terms. Renters are typically held to a six- or twelve-month minimum lease, after which the contract reverts to a periodic month to month agreement which they can leave after giving one month’s notice. Landlords, at this point, do have substantial leeway to evict tenants and are typically required to give their tenant only two months’ notice. Despite this, tenants typically stay in their lease contract for just over four years.

“The new proposed tenancy model would both lengthen the fixed-term of a tenancy agreement and change the nature of the initial break clause period. Under the proposal, tenants and landlords would start out on what is essentially a six-month probationary period, after which either party could withdraw from the contract for any reason. Assuming neither party withdraws at the end of this period, the contract then becomes binding for three years. Tenants would be permitted to leave during these three years, but they would need to give the landlord two months’ notice. Rent could be raised, but only in line with the terms agreed in the original contract.

“Buy-to-let mortgage lenders are supportive of measures which enhance security for tenants. However, lenders believe that a few additional points need to be clarified for the new tenancy model to deliver the desired outcome. One concern lenders have is that the proposal has the potential to shift risk of eviction for tenants from late in the tenancy to early on. Landlords may be reluctant to continue tenancies beyond six months for any tenant they perceive to be problematic, which could ultimately exacerbate the problem of housing insecurity for certain tenants.”

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