Short term lets in Scotland could be heading for licensing or registration
Over regulation of short term let accommodation in non-problem areas of rural Scotland could pose a risk to rural tourism, it is suggested.
Short term lets have become the subject of much controversy in some parts of Scotland and evoke strong opinions. The Scottish Government has launched a consultation on their regulation.
A regulatory approach might involve registration and/or licensing of short term lets and enable different areas to tailor the approach to their local needs and priorities, with the possible addition of a market based mechanism to control numbers.
Scottish Land & Estates (SLE), a membership organisation for landowners, rural businesses and rural professionals, is calling on the Scottish Government to ensure local authorities have the powers to apply any new regulations for short term lets to only those areas that have recognised issues with anti-social behaviour or a housing shortage.
In its response to the Scottish Government’s consultation on a new regulatory framework for short-term lets, SLE has said it supports the principle of targeted regulation but warned against a one size fits all approach, saying this could penalise those self-catering businesses in areas that do not have substantial housing supply issues or problems with anti-social behaviour arising from this type of property.
‘Over regulating the short term let accommodation sector poses a risk for rural tourism and is looking to fix a problem that does not exist in many places. Too much red tape could mean it is no longer viable for some operators in rural areas to offer self-catering accommodation which brings in much needed tourist spend to the area,’ said Marcelina Hamilton, policy advisor at SLE.
‘We support the idea of regulation, but a one size fits all approach will not work. We want to see a distinction between the type of accommodation and the impact of that short term let on the area. Properly targeted regulation could positively impact on communities that suffer from a housing shortage brought about by too many short term lets as well as helping to tackle the anti-social behaviour associated with some accommodation,’ she added.
Many rural areas rely on self-catering lets to boost tourism and the Scottish economy. The holiday let sector in Scotland supports 15,000 jobs and attracts £470 million of consumer spending in Scotland according to figures by Frontline for the Association of Scottish Self Catering.
SLE has also said in its response to the consultation that any rules for short term lets should distinguish between those run as a business and those run part time on an amateur basis, distinguish between different property types such as tenement flat and detached house, and limit any licensing scheme to whole homes which are let out for more than 140 days per year in areas where there is a housing shortage.
There is currently no statutory definition of short term lets in Scotland. The current definition of self-catering holiday accommodation is that a dwelling is available for let for 140 days or more in the financial year. This makes it exempt from Council Tax and becomes instead liable for non-domestic rates.
Proposals to help people trapped in their mortgages are not sufficient, says industry body
The Financial Conduct Authority (FCA) and the Government should consider alternative means of protecting borrowers who remain unable to switch mortgages as the time it will take lenders to adopt modified assessment processes could be disadvantage to them, it is suggested.
The Intermediary Mortgage Lenders Association (IMLA), responding to the FCA’s consultation paper on Responsible Lending, says the regulator should avoid raising borrowers’ expectations unrealistically and provide a clearer picture of the numbers and circumstances of borrowers who need additional support from lenders.
The Association, which represents 19 of the 20 largest UK mortgage lenders, responsible for £230 billion of annual lending, claimed the FCA’s current proposals do not adequately identify what the current cohort of so called trapped borrowers looks like and suggests that the extension of modified affordability criteria may only benefit a minority of those currently not able to switch to cheaper deals.
The IMLA believes many lenders will be unlikely to adopt modified assessment processes in response to the FCA’s proposal for extending these assessments to all borrowers seeking to re-mortgage. Approving, adjusting and testing new and revised systems is likely to take months to complete, it points out.
It explains that it will not be a matter of simply turning off or disapplying rules and any such delay could disadvantage the cohort of trapped borrowers which the amended rules intend to help. Instead, the proposals should only apply to those consumers who are eligible, particularly consumers have demonstrated their ability to repay their loans by keeping up with current payments and who do not want to borrow more.
The IMLA has urged that the FCA conducts more detailed research into the characteristics of the target group with a view to sharing this information with the industry before reaching its final conclusion
And it cautions the FCA against unrealistically raise borrowers’ expectations as a number of individuals will not be helped by the proposed amendments. The regulator and Government should consider alternative means to protect those who remain unable to switch.
The IMLA suggests that this should include scrutinising arrangements where books of loans are sold, assigned or transferred, and expanding the regulatory perimeter so that entities that acquire books of regulated loans must comply with a minimum regulatory framework designed to protect affected borrowers.
As part of its request for alternative solutions, the IMLA has called on the FCA and Government to revive legislation, originally set out in a 2009 Treasury Consultation paper that planned to expand the definition of the regulated activity of administering a regulated mortgage contract.
This was to be achieved by ensuring that companies which interact with mortgage holders were regulated by the then Financial Services Authority (FSA), including either the purchaser of a mortgage book or third-party administrators. At the time, the Government had identified a negative impact on borrowers regarding the onward sale of mortgage books, but the legislation was dropped in 2013.
The Statement of Practice on the Transfer of Mortgages, published by the Department for Environment in 1989, suggests historical precedence for this alternative support, with the Council of Mortgage Lenders adopting the statement into its Voluntary Mortgage Code until October 2004.
‘The regulator has put forward clear proposals to address the issue of mortgage prisoners in the UK, which is to be welcomed. However, there remains a great deal of confusion around the number of trapped borrowers these changes are likely to help,’ said Kate Davies, IMLA executive director.
‘Our industry must therefore be careful not to unrealistically raise the expectations of borrowers. Proposals such as modified affordability assessments will only support a small number of borrowers who find themselves unable to re-mortgage onto better deals,’ she pointed out.
‘The IMLA believes that the regulator and Government should consider alternative measures, including advanced legislation that was abandoned in 2013, to improve protections for those who remain unable to switch to a cheaper, more suitable mortgage deal,’ she concluded.
Film industry boosting short term lettings in prime locations
Landlords in London and the Home Counties have been cashing in with short term letting to the film industry, a new report has found.
The number of film related enquiries for short lets received by real estate firm Knight Frank in the year to May 2019 rose by 82% compared to the previous 12 month period. Furthermore, the average weekly budget for searches increased by 15% to £2,745.
It says that British film industry tax breaks and the weaker pound have produced a marked pick-up in activity in the luxury short term lettings market as more Hollywood stars rent homes in London and the Home Counties.
‘The uptick in demand has been matched by the fact more and more owners are open to the idea of renting out their property on a short term basis rather than leave it unoccupied,’ said Stevie Walmesley, head of luxury short lets at Knight Frank. ‘Plus, you tend to have considerate tenants in the film and TV industry who spend a lot of their time on set, which reduces wear and tear,’ he added.
Demand is strong across a number of different price brackets for production staff, crew and the actors, says Stevie, which means weekly rents can range from £750 to upwards of £30,000.
The Notting Hill and Holland Park neighbourhood of London remained the most in-demand area for film industry requests, accounting for 18% of all film and television-related enquiries. That was followed by Hampstead, Belsize Park and Richmond all at 9%, while Kensington was 8%.
The UK government has attempted to support the British film industry through corporation tax reliefs in recent years, which cover the film, high end television and video games industries. The tax reliefs, which require formal certification, delivered almost £8 billion to the UK economy and created 137,000 jobs in 2016 alone, according to the British Film Institute (BFI)
Some 26 films began production in the first three months of 2019, according to the BFI, which was one more than the same period in 2018. They included the Marvel superhero film Morbius, the third instalment of the Kingsmen series and a documentary called Chasing Chaplin.
British productions of high end television, which has minimum, spend conditions, increased more notably. The total spend was £248 million in the first quarter of 2019, which was a 62% increase from the same period in 2018, according to the BFI. Productions included Netflix fantasy Cursed and a Sky TV political thriller called Cobra.
Meanwhile, the weakening pound since the European Union referendum has made the UK even more attractive for overseas capital. It weakened about 14% against the US dollar between June 2016 and June 2019.
Rents rise in the US as home value growth slows, latest index shows
Residential rents in the United States grew for the ninth month in a row in June and are now up 3% year on year, taking the median monthly rent to $1,483.
Meanwhile, home values increased by 5.2% on an annual basis, down from 7.6% at the same time in 2018, according to the Zillow real estate market report.
But there is considerable regional variation. Rents in Las Vegas were up 10%, in Phoenix they increased by 8.4% and in Orlando by 7.4%, the data also shows.
Overall rents increased year on year in 49 of the nation’s top 50 markets with Milwaukee as the only exception. Nationally, rent growth has not been this strong since 2016 when pressure in the rental market spurred record numbers of multi-family permits.
The typical home is now worth $227,700, up slightly from May after month on month values dropped for the first time in seven years in spring. The Zillow report says that it is a stronger confirmation that housing markets are stabilising as opposed to on the brink of an imminent downturn.
The biggest growth in prices was in Salt Lake City, up 9.3% from June 2018. Followed by a rise of 8.8% in Indianapolis and a rise of 7.7% in Charlotte while notable West Coast markets flat lined, with Los Angeles up 0.9%, Seattle up 0.4% and San Francisco unchanged.
San Jose, which last year saw a nation leading annual growth rate of 23.4%, was the only market to see annual home values fall with a decline of 8.2%.
‘As much as record numbers of new apartments led many to believe that rental markets might have become over saturated with new supply, the reality is that demographics and general economic health continue to keep the pressure on,’ said Skylar Olsen, Zillow director of economic research.
‘We saw rents fall in 2018, but that was driven by the concentration of supply in urban areas and large buildings at higher end price points competing against each other. What the rental market still craves are affordable units spread across the landscape,’ Olsen added.
Inventory fell 0.8% year on year, the fourth straight month of declines after inventory rose at the start of the year. The most significant drop was in Kansas City, which saw 31.6% fewer homes for sale than this time last year.
Markets with the largest inventory growth can be found in the west, led by Las Vegas, up 54.3%, San Jose up 37.2%, Salt Lake City up 21.3% and San Francisco up 20.8%.
Lettings sector criticises rent control plans for London
Plans by the Mayor of London to reform the lettings sector in the capital have been largely welcomed but his determination to introduce rent controls have been heavily criticised by the private rented sector.
The Mayor Sadiq Khan want new powers to bring rents down and said that a fundamental overhaul of the private rented sector is needed, including controls and tenancy reforms.
In his landmark report he says that renters should have open-ended tenancies with reforms overseen by a new London Private Rent Commission, with renters on its board, to implement and enforce measures to reduce rents and keep them at lower levels.
Despite having no statutory powers over the private rented sector, the Mayor has called for an end to letting agents charges to tenants and has already set up a new public database to ‘name and shame’ rogue landlords and letting agents.
With the average private rent for a one-bed home in London now more than the average for a three bed in every other region of England, the Mayor believes the case for City Hall being given powers to bring rents down has become overwhelming. Far more Londoners are also now renting, with 26% renting privately in 2018, compared to only 11 per cent in 1990.
The Mayor is calling for powers to establish a universal register of landlords and rents, which the new London Private Rent Commission would use to design an effective system of rent control, including its own role in implementing, monitoring, and enforcing the new approach.
It would also set out how existing rents should be gradually reduced and their subsequent levels limited within and between tenancies and recommend incentives to encourage investment in new and existing rental housing supply.
The Mayor is also calling for interim powers to limit rent increases within and between tenancies whilst the full system of rent control is being implemented.
‘It is high time for private renting in London to be transformed. Londoners need fundamental change that is long overdue. Unlike other Mayors around the world, I have no powers over the private rented sector. That’s why this landmark report sets out a detailed blueprint of what the Government must do to overhaul tenancy laws, and what powers City Hall needs from them to bring rents down,’ said Khan.
‘We have made important progress over the last three years by working closely with councils and renters from naming and shaming rogue landlords and banning letting agents fees for tenants, to being part of the successful campaign to scrap section 21,’ he pointed out.
‘But now we need the Government to play their part by making tenancy laws fit for purpose, and by enabling us to bring in the rent control Londoners so urgently need,’ he added.
Polling carried out by City Hall and YouGov last year revealed strong support for rent controls in the capital, with over two-thirds of Londoners surveyed in favour of the Government capping the amount that landlords can charge people renting their property.
David Smith, policy director of the Residential Landlords Association (RLA), said that rent controls are meaningless if Londoners can’t find a home to live in and warned that such a move would lead to a drop in investment and increasing supply should be the Mayor’s priority.
‘Localised rent controls would also have a huge impact in the surrounding areas. With demand continuing to outstrip supply, residents would have to move out of the city and rents would be pushed up further as demand increases in the commuter belt,’ he explained.
He pointed out that research from the Centre for Cities has found that rent controls divide renters into the privileged and outsides, with those already renting when the controls are introduced doing well but those hoping to move into the city or for more space losing out, damaging social mobility.
‘London rent rises are already well below inflation increasing at just 0.9% in the year to June compared to CPI at 2%. We do welcome a number of the Mayor’s proposals for improving London’s rental sector including establishing a dedicated housing court and reforming the Section 8 process for landlords to regain possession of their property in legitimate circumstances,’ he added.
However, the plans were described as ‘laughable’ by Tom Gatzen, founder of ideal flatmate. ‘During his time in power, his severe failure to deliver on the number of new homes promised has contributed massively towards an over reliance on the London rental sector. This demand has pushed rental prices up further and the capital’s tenants are the ones that have paid the price,’ he said.
‘We’ve already seen the detrimental impact an ill thought out tenant first policy can have on the market in the wake of the tenant fee ban, with many letting agents and landlords increasing rents to recoup lost income,’ he added.
While there is a need to address the issues surrounding the London rental market, Mark von Grundherr, director of London agents Benham and Reeves, believes that an attempt to remedy problems through a freeze on rents isn’t far short of ‘idiotic’
‘It demonstrates a real lack of understanding when it comes to the rental sector and wider property market. To further deter landlords from the rental space by restricting the income available, having already hit them where it hurts via a ban on tenant fees, stamp duty hikes, and tax changes, will only see a reduction in stock and further inflame the issues that we are currently seeing,’ he pointed out.
‘Landlords are the lifeblood of the rental market, they need to be encouraged to remain in the sector, not to exit it. Had the number of homes promised actually been delivered we would have seen a natural adjustment to rental prices in the capital through a reduction in demand,’ he added.
The British Property Federation (BPF) said that it fundamentally opposes rent controls and it would make no sense to have a different tenancy models in London compared to the rest of England.
It says that rent controls will exacerbate the London housing market’s supply-demand imbalance and affordability crisis, by reducing investment into building new rental homes as a time when demand is increasing.
It points out that a recent analysis of rent controls’ impact on supply by Stanford University which looked at rent controls in San Francisco between 1995 to 2012, highlighted that it reduced rental housing supply by 15%, causing a 5.1% city wide rent increase.
The BPF believes that it will have a particularly negative impact on the growing Build to Rent sector at a time when institutions, such as pension funds, have just started to invest in the UK residential market again, previously having left the market when rent controls were in place across the UK back in the 1970s and 80s.
London has 52% of the sector’s supply with 74,580 homes, and the sector now comprises 20% of all new homes being built in the capital. The sector supports a landlord register but would rather see that introduced nationally rather than just in London, which would make it easier to enforce. The BPF, however, supports the Mayor’s good intentions in further driving up standards across the private rented sector.
‘Any proposals to introduce rent controls must consider the damaging effect these could have on investment into the Build to Rent sector. If investment into new rental housing is deterred, this would take London further away from resolving the underlying housing issue of our time which is a lack of supply,’ said Ian Fletcher, BPF director of real estate policy.
‘Build to Rent homes are new, high quality and professionally managed, driving up standards and providing consumers with more choice. When consumers have choice, they benefit with respect to cost and quality as competition intensifies. The Build to Rent sector is also committed to offering three-year tenancies, and to provide a transparent means of setting rents during that period at the start of the tenancy. Knowing how rents will be set, however, shouldn’t be confused with old style rent controls, which will damage investment in the sector,’ he added.
Developers told to plant more trees and protect wildlife
Developers have been ordered to plant more trees, do more to protect Britain’s wildlife and use innovative ways of addressing ecological issues.
Secretary of State for Housing James Brokenshire said it is the first time that the Government has set out its expectations on how developers can protect specific species, including using ‘hedgehog highways’ and hollow swift bricks which are installed into the walls of new build homes, allowing the birds to nest safely.
This follows public interest for protecting these much-loved animals, with one petition receiving support from over half a million people.
From submitting proposals to councils to then building new homes, house builders are being told that they should think about the long term impact of their developments on the local ecosystem, both during and after construction.
This includes greater emphasis on using innovative ways to allow nature to thrive such as drainage areas to create attractive wetlands for birds and amphibians to live alongside people.
‘Building the new homes this country needs must not come at the detriment of our natural heritage. It’s right that as we deliver houses for people, we must also provide homes for wildlife too, whether that’s for hedgehogs, frogs, newts or birds,’ said Brokenshire.
‘The public have told us that protecting wildlife is important to them so my message to house builders is to harness this support and get building in a way that protects the environment for the next generation,’ he added.
Brokenshire also called for developers to plant more trees and green meadows to give vital insects such as the British honey bee a safe haven to thrive.
The details are published in a new set of guidelines and build on the Government’s planning rulebook adopted last year, which set out the bold new principle of environmental net gain, where developers have to ensure space for wildlife is provided in addition to the new homes they wish to build.
It says that a ‘hedgehog highway’ can be created by making space for hedgehogs to roam through back gardens, allowing them to seek food and habitat to nest. This can range from making small holes in the base of garden fences to removing the fences entirely, creating a free-flowing green space.
Swift bricks are installed into the outer wall of a new home during the construction process, allowing the birds to nest peacefully throughout the year once the home is completed.
Average new let rent up by over 3% in year to June 2019
The average cost of a new let in Britain increased by 3.1% to £986 per calendar month in June, driven by rising rents in the South of England, according to the latest lettings index.
The figures from Hamptons International show that excluding London average rents increased by 1.7% to £787 while in Greater London they were up by 4.3% to £1,737. Overall rents are at their highest level since April 2016.
There was also strong annual growth of 4.5% in the South West to an average of £821 and in the South East, up 3.6% to £1,078, while Scotland recorded an increase of 2.6% to £655.
But elsewhere the market is slower. There was an annual rise of just 0.9% in the Midlands to £685 and 0.5% in the North of England to £631. Rents fell year on year by 0.2% in the East of England to £950 and they fell by 0.4% in Wales to £668.
The index report also looked at the proportion of homes let by company landlords and found that it has been rising steadily since 2016 when the tapering of mortgage interest tax relief for non-company landlords was announced.
In the first half of 2019 some 12% of homes were let by a company landlord, reaching the highest level since 2011 and up from 9% in 2015.
Hamptons International estimates that company landlords own 641,480 homes in Britain this year, some 42% more than in 2015 when 452,600 homes were let by company landlords. It says that the increase is partly due to the rise in the proportion of homes let by company landlords, but also due to the increase in the overall size of the rental sector.
Meanwhile landlords in Wales are least likely to own a buy to let in a company name. Scotland has seen the biggest increase in the proportion of homes let by a company landlord since 2015, up 6%, followed by the North of England up 5% and the South of England up 3%.
‘More than one in ten rental properties are now owned by private companies, an indication that the sector continues to professionalise. Increasing taxation for private landlords combined with the growth of the build to rent sector has meant that more companies are letting homes than at any time since our records began,’ said Aneisha Beveridge, head of research at Hamptons International.
‘London, where landlords tend to have higher levels of debt and often the most to gain from corporate ownership, has the largest proportion of homes let by a company. However, it’s not always more profitable to put a buy to let into a company as other associated costs come into play,’ she pointed out.
‘Strong rents in the South drove rental growth in Britain in June. Low stock levels, particularly in the South, continue to put pressure on rents. Rents rose in six out of eight regions in Great Britain, with the East and Wales recording small falls,’ she added.