Landlords, like so many small businesses, claim to be drowning in a sea of red tape. So onerous has their bureaucratic and administrative burden become that some may be forced to sell up and withdraw their cash from the buy-to-let market, the Council of Mortgage Lenders (CML) claims.
The CML was giving its response to a government consultation on a little-publicised addition to the 2004 Housing Act, which states that, from October this year, landlords will lose control of their tenants’ deposits to tenancy deposit schemes run by private, government- appointed firms. Pointing out that “the majority of lenders are small business people, the largest proportion of whom own only one property for let”, the CML states: “Combined with other regulatory measures, compulsory tenancy deposit protection could contribute to a situation where a significant minority of landlords might disinvest in the private rental sector.”
The CML’s view is echoed by buy-to-let mortgage brokers, who say that this latest scheme could be the final straw for many private landlords. “The last 12 months have seen a raft of legislation that ignores the interests of private landlords,” David Whittaker, managing director of Mortgages for Business, a specialist buy-to-let broker, says. “We have seen an increase in Housing Authority pathfinder projects — whereby the Government pays DSS tenants’ rents directly to the tenant rather than the landlords — as well as changes in law relating to houses in multiple occupation. Landlords could be forgiven for feeling an easy target by an ever more nannying state.”
The legislation will mean that after October 1 all landlords will have to join a tenancy deposit scheme to protect tenants’ deposits. Although the details have yet to be completed, it is likely that there will be at least two insured schemes and one large custodial scheme. Under an insured scheme, landlords are permitted to hold deposits unless there is a dispute between landlord and tenant. If there is a dispute, the landlord must hand over the amount under dispute to the scheme administrator. The case will then be adjudicated and cheques sent out accordingly. If the landlord joins a custodial scheme, deposits are banked by the administrator and held until the end of the tenancy. Landlords who fail to join either type of scheme may be barred from their properties or could face fines of up to three times the value of the deposit.
The Office of the Deputy Prime Minister says that a tenancy deposit scheme will remove the risk of misappropriation of tenants’ deposits by landlords and letting agents. There is no doubt that the problem is acute, particularly among students, about 35,000 of whom face a cash crisis every summer when they try to get their deposits back from landlords. It is estimated that about £5.5 million of students’ money is wrongly withheld by agents.
Malcolm Harrison, a spokesman for an existing voluntary tenancy deposit scheme for regulated agents, says that the change is unlikely to have much impact on those landlords and agents who are already doing things the right way. “It’s an age-old problem that there are rogue landlords and agents out there and that is what this scheme is designed to catch,” he says. He also says that the scheme will protect landlords as well as tenants in the case of disputes, because landlords will have access to adjudication if tenants fail to pay the final month’s rent.
However, Whittaker claims that landlords will still be left vulnerable. “The new law will not protect landlords whose tenants withhold their final month’s rent, often leaving landlords out of pocket on repairs. The company running the deposit scheme will not be allowed to hand money back to the landlord, who must instead go to the courts to recover any loss.”
Although Harrison denies that the majority of landlords will suffer under the new scheme, he does argue that there is “a big education job to do” if tenants’ deposits are to be kept safe. “For years we have been telling tenants that they should only deal with regulated agents. Nevertheless, we still see tenants walking past the regulated agent and going straight to the rogue agent next door.”
Council of Mortgage Lenders: 020-7437 0075, www.cml.org.uk
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